[H&M Final]
[Translation]
SECURITIES REGISTRATION STATEMENT
for NAV sale
PUTNAM GLOBAL GOVERNMENTAL INCOME TRUST
SECURITIES REGISTRATION STATEMENT
To: Minister of Finance
Filing
Date: May 15, 1998
Name of the Registrant Trust: PUTNAM GLOBAL
GOVERNMENTAL INCOME TRUST
Name of Trustees: George Putnam
William
F. Pounds
Jameson
A. Baxter
Hans H.
Estin
John A.
Hill
Ronald
J. Jackson
Paul L.
Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John J.
Mullin III
Robert
E. Patterson
Donald
S. Perkins
George
Putnam, III
A.J.C.
Smith
W.
Thomas Stephens
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 Business Kasumigaseki Building,
25th Floor
2-5,
Kasumigaseki 3-chome
Chiyoda-
ku, Tokyo
Name of Liaison Contact: Harume Nakano
Ken
Miura
Kensuke
Anbe
Attorneys-at-Law
Place of Liaison Contact: Hamada & Matsumoto
Kasumigaseki Building, 25th
Floor
2-5,
Kasumigaseki 3-chome
Chiyoda-
ku, Tokyo
Phone Number: 03-3580-3377
- ii -
Public Offering or Sale for Registration
Name of the Fund Making Public PUTNAM GLOBAL
GOVERNMENTAL
Offering or Sale of Foreign INCOME TRUST
Investment Fund Securities:
Type and Aggregate Amount of Up to 71.89 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 71.89
million Class M Shares
(The
maximum amount expected to be
sold is 934 million U.S.
dollars (Yen123.4 billion)).
Note 1: U.S.$ amount is translated into Japanese Yen at the
rate of U.S.$l.00=Yen132.10 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 March 31, 1998.
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 March 31, 1998 (U.S.$12.99) by 71.89 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
85 including front and back pages.)
C O N T E N T S
Japanese This
OriginalEnglish
Translation
PART I. INFORMATION CONCERNING SECURITIES 1 1
PART II. INFORMATION CONCERNING ISSUER 4 5
I. DESCRIPTION OF THE FUND 4 5
l. GENERAL INFORMATION 4
5
2. INVESTMENT POLICY 8 10
3. MANAGEMENT STRUCTURE 17 23
4. INFORMATION CONCERNING THE EXERCISE
OF RIGHTS BY SHAREHOLDERS, ETC. 26
36
5. STATUS OF INVESTMENT FUND 30 40
II. OUTLINE OF THE TRUST 32
44
III. OUTLINE OF THE OTHER RELATED COMPANIES 66 74
IV. FINANCIAL CONDITION OF THE FUND 68
76
V. SUMMARY OF INFORMATION CONCERNING
FOREIGN INVESTMENT FUND SECURITIES 134
82
VI. MISCELLANEOUS 134 82
PART III. SPECIAL INFORMATION 136 84
I. OUTLINE OF REGULATORY SYSTEM IN UNITED STATES136 84
II. FINANCIAL CONDITIONS OF THE INVESTMENT
ADVISER AND MANAGEMENT COMPANY 142 90
III. FORM OF FOREIGN INVESTMENT
FUND SECURITIES 161
90
PART I. INFORMATION CONCERNING
SECURITIES
1. NAME OF FUND: PUTNAM
GLOBAL GOVERNMENTAL INCOME TRUST
(hereinafter referred to as the
"Fund")
2. NATURE OF FOREIGN Three
classes of shares (Class A
shares,
INVESTMENT FUND SECU- Class B
shares and Class M shares)
RITIES CERTIFICATES:
Registered shares 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 TO Up to
71.89 million Shares
BE OFFERED FOR SALE
(IN JAPAN)
4. TOTAL AMOUNT OF Up to
the total amount aggregating the
OFFERING PRICE:
amounts calculated by
multiplying the respective net
asset value per Share by the
respective number of Shares in
respect of 71.89 million Shares
(The
maximum amount expected to be
sold is 934 million U.S. dollars
(Yen123.4 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 March 31, 1998
($12.99) by the number of Shares to be offered
(71.89 million).
Note 2: Dollar amount is translated for convenience at
the rate of $1.00=Yen132.10 (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 March 31,
1998). 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:A "Fund Business Day" means a day on which the New
York Stock Exchange is open for business.
6. SALES CHARGE: The
sales charge in Japan shall be
3% of the amount obtained by
deduction of the amount
equivalent to 3% of the public
offering price from such price
(hereinafter referred to as the
"Sales Price"). Any amount,
which is over the net asset
value, of the Sales Price shall
be retained by Putnam Mutual
Funds Corp., principal
underwriter of the Fund.
The
public offering price means the
amount calculated by dividing
the net asset value by (1-
0.0325) and rounded to three
decimal places.
7. MINIMUM AMOUNT OR The
minimum amount for purchase of
NUMBER OF SHARES Shares
is 300 shares and in integral
FOR SUBSCRIPTION:
multiples of 100 shares.
8. PERIOD OF SUBSCRIPTION: From:
June 1, 1997 (Monday)
To:
November 30, 1998 (Monday)
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: Towa
Securities Co., Ltd.
(hereinafter referred to as "
Towa")
16-7,
Nihonbashi 1-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 PLACE
Investors shall pay the Issue
Price and Sales
OF PAYMENT: Charge
to Towa within 4 business days
in Japan from the day when Towa
confirms the execution of the
order (the "Trade Day") (see
page 22).
The
total issue price for each
Application Day will be
transferred by Towa to the
account of the Fund at Putnam
Fiduciary Trust Company, the
transfer agent, within 3 Fund
Business Days (hereinafter
referred to as "Payment Date")
from (and including) the
Application Day.
12. OUTLINE OF UNDERWRITING, ETC.:
(A) Towa undertakes to make a public offering of 71.89
million Shares in accordance with an agreement dated
November 21, 1997 with Putnam Mutual Funds Corp. in
connection with the sale of the Shares in Japan.
(B) During the public offering period, Towa 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 Towa 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 enter into
with a Handling Securities Company an agreement
concerning transactions of foreign securities. A
Handling Securities Company shall provide to the
investors a Contract Concerning a Foreign Securities
Transactions Account ("Contract") and the investors
submit to the Handling Securities Company an application
for requesting the opening of a transactions account
under the Contract. The subscription amount shall be
paid in yen and the yen exchange rate shall be the
exchange rate which shall be based on the foreign
exchange rate quoted in the Tokyo Foreign Exchange Market
on the Trade Day of each subscription and which shall be
determined by such Handling Securities Company.
The subscription amount shall be paid in dollars to
the account of the Fund with Putnam Fiduciary Trust
Company as custodian for the Fund by Towa on the Payment
Date.
(B) Expenses summary:
Expenses are one of several factors to consider when
investing. The following table summarizes investor's
maximum transaction costs from investing in class M
shares of the Fund and expenses incurred in respect of
class M shares in the most recent fiscal year. The
example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in class M shares over the
specified periods.
Shareholder transaction expenses
Maximum sales charge imposed on purchases
(as a percentage of public offering price) 3.25%
Deferred sales charge None
Annual Fund operating expenses
(as a percentage of average net assets)
Management fees 0.80%
12b-1 fees 0.50%
Other expenses 0.24%
Total Fund operating expenses 1.54%
The table is provided to help you understand the
expenses of investing in class M shares of the Fund and
of your share of the operating expenses. The expenses
shown in the table do not reflect the application of
credits that reduce certain Fund expenses.
Example
An investment of $1,000 would incur the following
expenses, assuming 5% annual return and redemption at the
end of each period.
One year $48
3 years $80
5 years $114
10 years $210
The example does not represent past or future
expense levels. Actual expenses may be greater or less
than those shown. Federal regulations require the
example to assume a 5% annual return, but actual annual
return varies.
(C) Offerings other than in Japan:
Shares are simultaneously offered in the United
States of America.
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 Global Governmental
Income Trust (the "Fund")
(2) Form of the Fund
Putnam Global Governmental Income Trust is a
Massachusetts business trust organized on June 30, 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.
The Fund is an open-end non-diversified management
investment company with an unlimited number of authorized
shares of beneficial interest which may be divided
without shareholder approval into two or more classes of
shares having such preferences and special or relative
rights and privileges as the Trustees determine. The
Fund's shares are not currently divided into any series.
Only the Fund's class M shares are currently offered in
Japan. The Fund also offers in the United States of
America 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 all classes will vote
together as a single class except when otherwise required
by law or as determined by the Trustees. Shares are
freely transferable, are entitled to dividends 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 a shareholder owns fewer shares than the minimum
set by the Trustees (presently 20 shares), the Fund may
choose to redeem the shareholders' shares. Shareholders
will receive at least 30 days' written notice before the
Fund redeems their 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 elects 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 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, a non-diversified mutual fund, seeks a
high level of current income by investing principally in
debt securities of non-U.S. or U.S. governmental
entities, including supranational issuers. Secondary
objectives of the Fund are preservation of capital and
long-term total return, but only to the extent consistent
with 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:
June 30, 1986:
Organization of the Fund as a
Massachusetts business trust.
Adoption of the Agreement and
Declaration of Trust.
February 24, 1987:
Adoption of the Amended and Restated
Agreement and Declaration of Trust.
December 3, 1993:
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. (the
"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. (the "Principal
Underwriter") engages in providing marketing
services to the Fund.
(4) Towa Securities Co., Ltd. (the "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.
2. INVESTMENT POLICY
(A) Basic Policy for Investment and Objects of Investment:
The Fund, a non-diversified mutual fund, seeks high
current income by investing principally in debt
securities of non-U.S. or U.S. governmental entities,
including supranational issuers. Secondary objectives of
the Fund are preservation of capital and long-term total
return, but only to the extent consistent with 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 its objectives by investing in a
global portfolio consisting principally of governmental
or supranational debt securities denominated in any
currency and, to a lesser extent, in other debt
securities and equity securities. Under normal market
conditions, the Fund will invest at least 65% of its
total net assets in debt securities issued or guaranteed
by national, provincial, state or other governments with
taxing authority or their agencies, or by supranational
entities. Supranational entities include international
organizations designated or supported by governmental
entities to promote economic reconstruction or
development and international banking institutions and
related government agencies. Examples include the
International Bank for Reconstruction and Development
(the World Bank), the European Steel and Coal Community,
the Asian Development Bank and the Inter-American
Development Bank. Under normal market conditions, the
Fund's portfolio will be invested in securities of
issuers located in at least three different countries,
one of which may be the United States.
The Fund will not invest more than 20% of its total
net assets in debt securities rated, at the time of
purchase, below BBB or Baa by a nationally recognized
securities rating agency, such as Standard & Poor's
("S&P") or Moody's Investors Service, Inc. ("Moody's"),
or in unrated securities which the Investment Management
Company determines to be of comparable quality. The Fund
will not purchase a security that is rated, by each of
the rating agencies rating the security, lower than CCC
or Caa, or, if unrated, determined by the Investment
Management Company to be of comparable quality, if, as a
result, more than 5% of the Fund's total net assets would
be of that quality. The foregoing limitations will be
measured at the time of purchase and, to the extent that
a security is assigned a different rating by one or more
of the various rating agencies, the Investment Management
Company will use the highest rating assigned by any
agency.
Securities rated below CCC or Caa by a rating agency
may be in default and are generally regarded by the
rating agencies as having extremely poor prospects of
ever attaining any real investment standing. The values
of lower-rated fixed income securities, commonly known as
"junk bonds," generally fluctuate more than those of
higher-rated fixed income securities.
The Fund will purchase equity securities only of
companies whose debt securities satisfy the Fund's
quality standards, and only when the Investment
Management Company believes such investments are
consistent with the Fund's primary objective of seeking
high current income. The Fund may also hold a portion of
its assets in cash or money market instruments.
Historically, yields available from securities of
issuers in many non-U.S. countries have often been higher
than those available from securities of U.S. issuers.
The Fund has the flexibility to invest wherever the
Investment Management Company sees potential for high
income. The Investment Management Company will consider
expected changes in currency exchange rates in
determining the anticipated returns of securities
denominated in non-U.S. currencies.
Defensive strategies
At times the 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,
the Investment Management Company may temporarily use
alternative strategies, primarily designated to reduce
fluctuations in the value of fund assets.
In implementing these defensive strategies, the Fund
may invest without limit in securities of issuers located
in the United States or in money market instruments,
including short-term bank obligations, such as
certificates of deposit, or up to 10% of the Fund's total
net assets in securities whose value is determined by the
value of gold or in any other securities the Investment
Management Company considers consistent with such
defensive strategies.
It is impossible to predict when, or for how long,
these alternative strategies would be used.
The Fund is a "non-diversified" investment company
under the Investment Company Act of 1940. This means
that it may invest its assets in a limited number of
issuers.
Under the U.S. Internal Revenue Code, the Fund
generally may not, with respect to 50% of its total
assets, invest more than 5% of its total assets in the
securities of any one issuer, other than U.S. government
securities. With respect to the remaining 50% of its
total assets, the Fund generally may not invest more than
25% of its total assets in securities of any one issuer,
other than U.S. government securities. Therefore, the
Fund may invest up to 25% of its total assets in the
securities of each of any two issuers, exclusive of any
investments in U.S. government securities, which could
adversely affect the Fund's net asset value if the value
of such securities declines.
The obligations of U.S. and non-U.S. governmental
entities, including supranational issuers, have different
kinds of government support. For instance, as used in
this Securities Registration Statement, "U.S. government
obligations" means debt securities issued or guaranteed
by the U.S. government or by various of its agencies, or
by various instrumentalities established or sponsored by
the U.S. government. Some of these obligations, such as
U.S. Treasury bonds, are supported by the full faith and
credit of the United States.
Other U.S. government obligations issued or
guaranteed by federal agencies or government-sponsored
enterprises are not supported by the full faith and
credit of the United States. These securities include
obligations supported by the right of the issuer to
borrow from the U.S. Treasury, such as obligations of
Federal Home Loan Banks, and obligations supported only
by the credit of the instrumentality, such as Federal
National Mortgage Association ("Fannie Mae") bonds.
Similarly, obligations of foreign governmental entities
include obligations issued or guaranteed by national,
provincial, state or other governments with taxing power
or by their agencies. Some of these obligations are
supported by the full faith and credit of a non-U.S.
government and some are not.
The members, or "stockholders," of a supranational
entity make initial capital contributions to the
supranational entity and in many cases are committed to
make additional capital contributions if the
supranational entity is unable to repay its borrowings.
Each supranational entity's lending activities are
limited to a percentage of its total capital (including
"callable capital" contributed by members at the entity's
call), reserves and net income. By engaging in lending
activities and other activities intended to foster
international economic growth and development,
supranational entities further the particular
governmental purposes of their members.
The market value of the Fund's investments will
change in response to changes in interest rates and other
factors. During periods of falling interest rates, the
values of long-term, fixed income securities generally
rise. Conversely, during periods of rising interest
rates, the values of such securities generally decline.
Changes in exchange rates for non-U.S. currencies may
affect the value of portfolio securities denominated in
those currencies. Changes by recognized rating services
in their ratings of securities and in the ability of an
issuer to make payments of interest and principal may
also affect the value of these investments. Changes in
the value of portfolio securities generally will not
affect interest income derived from those securities, but
will affect the Fund's net asset value. Exchange rate
fluctuations, however, may impact both the value of a
particular investment and the income derived from the
investment. The Investment Management Company may take
full advantage of the entire range of maturities offered
by fixed income securities and may adjust the average
maturity of the Fund's portfolio from time to time
depending on its assessment of the relative yields on
securities of different maturities and its expectations
of future changes in interest rates.
Risk Factors
Non-U.S. investments
Since non-U.S. securities are normally denominated
and traded in non-U.S. currencies, the value of Fund
assets and its net investment income available for
distribution may be affected favorably or unfavorably by
changes in currency exchange rates relative to the U.S.
dollar and exchange control regulations. The Fund will
not invest in securities denominated in a non-U.S.
currency that is not fully exchangeable into U.S. dollars
without legal restriction at the time of investment.
There may be less information publicly available
about a non-U.S. issue than about a U.S. issuer, and non-
U.S. issuers may not be subject to accounting standards
comparable to those in the United States. The
willingness and ability of sovereign issuers to pay
principal and interest on government securities depends
on various economic factors, including without limitation
the issuer's balance of payments, overall debt level, and
cash flow considerations related to the availability of
tax or other revenues to satisfy the issuer's
obligations.
The securities of some non-U.S. issuers 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
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 domestic investments.
In addition, there may be a possibility of
nationalization or expropriation of assets, imposition of
currency exchange controls, confiscatory taxation,
political or financial instability and diplomatic
developments which could affect the value of investments
in certain non-U.S. countries.
Legal remedies available to investors in certain non-
U.S. countries may be limited. 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.
In determining whether to invest in securities of
non-U.S. issuers, the Investment Management Company will
consider the likely impact of non-U.S. taxes on the net
yield available to the Fund and its shareholders. Income
received by the Fund from sources within non-U.S.
countries may be reduced by withholding and other taxes
imposed by such countries. Tax conventions between
certain countries and the United States may reduce or
eliminate such taxes. Any such taxes paid by the Fund
will reduce its net income available for distribution to
shareholders.
Because the Fund intends to purchase securities
denominated in non-U.S. currencies, a change in the value
of any such currency against the U.S. dollar will result
in a change in the U.S. dollar value of the Fund's assets
and the Fund's income available for distribution. In
addition, although at times most of the Fund's income may
be received or realized in these currencies, the Fund
will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any
such currency declines after the Fund's income has been
earned and translated into U.S. dollars but before
payment, the Fund could be required to liquidate
portfolio securities to make such distributions.
Similarly, if an exchange rate declines between the time
the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the amount of such currency
required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater than
the equivalent amount in any such currency of such
expenses at the time they were incurred.
The risks described above are typically greater in
less developed nations, sometimes referred to as
"emerging markets." For instance, political and economic
structures in these countries may be in their infancy and
developing rapidly, causing instability. High rates of
inflation may adversely affect the economies and
securities markets of such countries. In addition, the
small size, limited trading volume and relative
inexperience of the securities markets in these countries
may make investments in such countries less liquid and
more volatile than investments in more developed
countries. Investments in emerging markets may be
considered as speculative.
Non-U.S. currency exchange transactions
The Fund may engage in non-U.S. currency exchange
transactions to protect against uncertainty in the level
of future exchange rates. The Investment Management
Company may engage in non-U.S. currency exchange
transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to
protect against changes in the value of specific
portfolio positions ("position hedging").
The Fund may engage in transaction hedging to
protect against a change in non-U.S. currency exchange
rates between the date on which the Fund contracts to
purchase or sell a security and the settlement date, or
to "lock in" the U.S. dollar equivalent of a dividend or
interest payment in a non-U.S. currency.
The Fund may purchase or sell a non-U.S. currency on
a spot (or cash) basis at the prevailing spot rate in
connection with the settlement of transactions in
portfolio securities denominated in that non-U.S.
currency.
If conditions warrant, for transaction hedging
purposes the Fund may also enter into contracts to
purchase or sell non-U.S. currencies at a future date
("forward contracts") and purchase and sell non-U.S.
currency futures contracts. A non-U.S. currency forward
contract is a negotiated agreement to exchange currency
at a future time at a rate or rates that may be higher or
lower than the spot rate. Non-U.S. currency futures
contracts are standardized exchange-traded contracts and
have margin requirements. In addition, for transaction
hedging purposes the Fund may also purchase or sell
exchange-listed and over-the-counter call and put options
on non-U.S. currency futures contracts and on non-U.S.
currencies.
The Fund may engage position hedging to protect
against a decline in the value relative to the U.S.
dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in
the value of the currency in which the securities the
Fund intends to buy are denominated, when the Fund holds
cash or short-term investments.) For position hedging
purposes, the Fund may purchase or sell non-U.S. currency
futures contracts, non-U.S. currency forward contracts
and options on non-U.S. currency futures contracts and on
non-U.S. currencies on exchanges or in over-the-counter
markets. In connection with position hedging, the Fund
may also purchase or sell non-U.S. currency on a spot
basis.
The Fund's currency hedging transactions may call
for the delivery of one non-U.S. currency in exchange for
another non-U.S. currency and may at times not involve
currencies in which its portfolio securities are then
denominated. The Investment Management Company will
engage in such "cross hedging" activities when it
believes that such transactions provide significant
hedging opportunities for the Fund. Cross hedging
transactions by the Fund involve the risk of imperfect
correlation between changes in the values of the
currencies to which such transactions relate and changes
in the value of the currency or other asset or liability
which is the subject of the hedge.
The decision as to whether and to what extent the
Fund will engage in non-U.S. currency exchange
transactions will depend on a number of factors,
including prevailing market conditions, the composition
of the Fund's portfolio and the availability of suitable
transactions. Accordingly, there can be no assurance
that the Fund will engage in non-U.S. currency exchange
transactions at any given time or from time to time.
For a further discussion of the risks associated
with purchasing and selling futures contracts and options
refer to "Risk Factors".
Investors should carefully consider their ability to
assume the risks of owning shares of a mutual fund that
invests in lower-rated securities before making an
investment.
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 placed
on such securities. In the absence of a liquid trading
market for its portfolio securities the Fund at times may
be unable to establish the fair value of such securities.
The rating assigned to a security by a rating agency
does not reflect an assessment of the volatility of the
security's market value or of the liquidity of an
investment in the security.
The table below shows the percentages of Fund assets
invested during fiscal 1997 in securities assigned to the
various rating categories by S&P, or, if unrated by S&P,
assigned to comparable rating categories by other rating
agencies, and in unrated securities determined by the
Investment Management Company to be of comparable
quality.
Unrated securities
Rated securities of comparable
Ratings as percentage of quality, as
net assets percentage of net
assets
"AAA" 72.39% -
"AA" 6.95% -
"A" - -
"BBB" 0.38% -
"BB" 11.34% -
"B" 1.93% -
"CCC" - -
"CC" - -
"C" - -
"D" - -
Total: 92.99% -
The Investment Management Company seeks to minimize
the risks of investing in lower-rated securities through
careful investment analysis. When the Fund invests in
securities in the lower rating categories, the
achievement of the Fund's goals is more dependent on the
Investment Management Company's ability than would be the
case if the Fund were investing in securities in the
higher rating categories.
The Fund will not necessarily dispose of a security
when its rating is reduced below its rating at the time
of purchase. However, the Investment Management Company
will monitor the investment to determine whether
continued investment in the security will assist in
meeting the Fund's investment objectives.
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 the
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, it may be more
difficult to sell these securities when the Investment
Management Company believes it advisable to do so or the
Fund may be able to sell the securities only at prices
lower than if they were more widely held. Under these
circumstances, it may also be more difficult to determine
the fair value of such securities for purposes of
computing the Fund's net asset value.
In order to enforce its rights in the event of a
default of these securities, the Fund may be required to
participate in various legal proceedings or take
possession of and manage assets securing the issuer's
obligations on the securities. This could increase fund
operating expenses and adversely affect the Fund's net
asset value.
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. 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 in cash currently. The values
of zero-coupon bonds and payment-in-kind bonds are also
subject to greater fluctuation in response to changes in
market interest rates than bonds that pay interest in
cash 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 on a current basis. Thus, the Fund
could be required at times to liquidate other investments
in order to satisfy its distribution requirements.
The Fund may invest in participations and
assignments of fixed and floating rate loans made by
financial institutions to governmental or corporate
borrowers. 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.
Certain investment grade securities in which the
Fund may invest share some of the risk factors discussed
above with respect lower-rated securities.
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 than 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 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 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 Fund shares. As a result, an
investor who purchases Fund shares 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 its "yield," which is
computed on a yield-to-maturity basis in accordance with
SEC regulations and which reflects amortization of market
premiums.
Portfolio turnover
The length of time the Fund has held a particular
security is not generally a consideration in investment
decisions. A change in the securities held by the Fund
is known as "portfolio turnover." As a result of the
Fund's investment policies, under certain market
conditions its portfolio turnover rate may be higher than
that of other mutual funds.
Portfolio turnover generally involves some expense,
including brokerage commissions or dealer markups and
other transaction costs on the sale of securities and
reinvestment in other securities. These transactions may
result in the realization of taxable capital gains.
Portfolio turnover rates are shown in the section
"Financial highlights."
Options and futures portfolio strategies
The Fund may seek to increase its current return by
writing covered call or put options with respect to some
or all of the securities and currencies held in its
portfolio and by buying and selling combinations of put
and call options on the same underlying security or
currency. The Fund receives a premium from writing a
call or put option, which increases the Fund's return if
the option expires unexercised or is closed out at a net
profit. When the Fund writes a call option, it gives up
the opportunity to profit from any increase in the price
of a security or currency above the exercise price of the
option; when it writes a put option, the Fund takes the
risk that it will be required to purchase a security or
currency from the option holder at a price above the
current market price of the security or currency. The
Fund may terminate an option that it has written prior to
its expiration by entering into a closing purchase
transaction in which it purchases an option having the
same terms as the option written. The Fund will not
purchase put and call options if as a result more than 5%
of its total net assets will be invested in such options.
In addition, through the writing and purchase of
options on securities and currencies and the purchase and
sale of futures contracts and related options on
securities and currencies, the Fund may at times seek to
reduce fluctuations in net asset value by hedging against
a decline in the value of securities or currencies owned
by the Fund or an increase in the value of securities or
currencies which the Fund expects to purchase. A
financial futures contract sale creates an obligation by
the seller to deliver, and by the purchaser to take
delivery of, the type of financial instrument called for
in the contract at a specified future date at an agreed
price. The Fund may also use such techniques, to the
extent permitted by applicable law, as a substitute for
direct investment in foreign securities.
The use of futures and options involves certain
special risks and may result in realization of taxable
income or capital gains. Futures and options
transactions involve costs and may result in losses.
Certain risks arise from the possibility of
imperfect correlations among movements in the prices of
financial futures and options and movements in the prices
of the underlying securities or currencies that are the
subject of the hedge. The successful use of futures and
options further depends on the Investment Management
Company's ability to forecast market movement correctly.
Other risks arise from the Fund's potential
inability to close out its futures or options positions,
and there can be no assurance that a liquid secondary
market will exist for any futures contract or option at a
particular time. If the Fund purchases or sells
positions in the over-the-counter market, the Fund's
ability to terminate those options may be more limited
than for exchange-traded options and may also involve the
risk that securities dealers participating in such
transactions would fail to meet their obligations to the
Fund. Certain provisions of the Internal Revenue Code
and certain regulatory requirements may limit the Fund's
ability to engage in futures and options transactions.
Position limits and other rules of foreign exchanges may
differ from those in the United States. Also, options
and futures markets in some countries, many of which are
relatively new, may be less liquid than comparable
markets in the United States.
Other investment practices
The Fund may also engage 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 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 may
invest, such as futures contracts, options, 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 an index.
(B) Restrictions of Investment:
Except for the investment restrictions designated as
fundamental below, the investment restrictions described
in this Securities Registration Statement and the
Japanese prospectus are not fundamental investment
restrictions. The Trustees may change any non-
fundamental investment restrictions without shareholder
approval. 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 the Fund's total
assets (not including the amount borrowed) at the time
the borrowing is made, and then only from banks as a
temporary measure to facilitate the meeting of redemption
requests (not for leverage) which might otherwise require
the untimely disposition of portfolio investments or for
extraordinary or emergency purposes. Such borrowings
will be repaid before any additional investments are
purchased.
(2) Underwrite securities issued by other persons except
to the extent that, in connection with the disposition of
its portfolio investments, it may be deemed to be an
underwriter under certain federal securities laws.
(3) With respect to 50% of its total assets, invest in
the securities of any issuer if, immediately after such
investment, more than 5% of the total assets of the Fund
(taken at current value) would be invested in the
securities of such issuer; provided that this limitation
does not apply to obligations issued or guaranteed as to
interest or principal by the U.S. government or its
agencies or instrumentalities.
(4) With respect to 50% of its total assets, acquire
more than 10% of the outstanding voting securities of any
issuer.
(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) 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.
(7) Issue any class of securities which is senior to the
Fund's shares of beneficial interest, except for
permitted borrowings.
(8) Purchase or sell commodities or commodity contracts,
except that the Fund may purchase and sell financial
futures contracts and options and may enter into non-U.
S. exchange contracts and other financial transactions
not involving physical commodities. (Securities
denominated in gold whose value is determined by the
value of gold are not considered to be commodity
contacts.)
(9) 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.
Although certain of the Fund's fundamental
investment restrictions permit it to borrow money to a
limited extent, it does not currently intend to do so and
did not do so last year.
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 of the Fund are
represented at the meeting in person or by proxy.
It is contrary to the Fund's present policy, which may be
changed without shareholder approval, to:
Invest in (a) securities which are not readily
marketable, (b) securities restricted as to resale
(excluding securities determined by the Trustees (or the
person designated by the Trustees to make such
determinations) to be readily marketable) and (c)
repurchase agreements maturing in more than seven days,
if, as a result, more than 15% of the Fund's net assets
(taken at current value) would then be invested in
securities described in (a), (b) and (c) above.
In addition, the Fund will, so long as shares of the
Fund are being offered for sale by the Fund in Japan,
comply with the following standards of selection of the
Japan Securities Dealers Association.
1. The Fund may not make short sales of securities or
maintain a short position for the account of the Fund
unless at all times when a short position is open it owns
an equal amount of such securities or owns securities
which, without payment of any further consideration, are
convertible into or exchangeable for securities of the
same issue as, and equal in amount to, the securities
sold short;
2. 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 or
principal by the U.S. or other sovereign governments or
their agencies or instrumentalities;
3. The Fund may not acquire more than 10% of the
outstanding voting securities of any issuer and may not
acquire more than 15% of the outstanding voting
securities of any issuer together with other mutual funds
managed by the Investment Management Company;
4. 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;
5. 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 Automated
Quotation System). This restriction shall not be
applicable to bonds determined by the Investment
Management Company to be liquid and for which a market
price (including a dealer quotation) is generally
obtainable or determinable.
If any violation of the foregoing 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.
All percentage limitations on investments (other
than pursuant to non-fundamental restriction (1)) 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.
(C) Distribution Policy:
The Fund distributes any net investment income and
any net short-term capital gains (including gains from
options and futures transactions) at least monthly and
any net realized long-term capital gains at least
annually. Net investment income consists of interest
accrued on portfolio investments of the Fund, less
accrued expenses. Distributions from capital gains are
made after applying any available capital loss
carryovers. A capital loss carryover is currently
available.
3. MANAGEMENT STRUCTURE
(A) Outline of Management of Assets, etc.:
A. Valuation of assets:
The Fund calculates the net asset value of a share
of each class by dividing the total value of its assets,
less liabilities, by the number of its shares
outstanding. 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, Dr. Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, the
Fourth of July, Labor Day, Thanksgiving and Christmas.
The Fund determines net asset value as of the close of
regular trading on the Exchange, currently 4:00 p.m.
However, equity options held by the Fund are priced as of
the close of trading at 4:10 p.m., New York time, 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. New York
time.
Securities for which market quotations are readily
available are valued at prices which, in the opinion of
the 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 following
procedures approved by the Trustees. Liabilities are
deducted from the total, and the resulting amount is
divided by the number of shares 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 non-U.S. 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, the Investment Management Company determines
their fair value using 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
non-U.S. 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 may be valued
at their fair value using procedures approved by the
Trustees.
B. Management Fee, etc.:
(1) Management Fee:
(a) Management and Agent Securities Company Fees
Under a Management Contract dated February 20,
1997, the Fund pays a quarterly fee to the
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 the
annual rate of 0.80% of the first $500 million of
average net assets, 0.70% of the next $500 million,
0.65% of the next $500 million, 0.60% of the next $5
billion, 0.575% of the next $5 billion, 0.555% of
the next $5 billion, 0.54% of the next $5 billion
and 0.53% of any excess thereafter. Pursuant to the
Management Contract and a management contract in
effect prior to February 20, 1997, under which the
management fee payable to the Investment Management
Company was paid at the annual rate of 0.80% of the
first $500 million of average net asset, 0.70% of
the next $500 million, 0.65% of the next $500
million and 0.60% of any amount over $1.5 billlion,
the Fund incurred $3,349,137, $3,116,163 and
$3,005,982 as management and agent securities
company fees for the fiscal years 1995, 1996 and
1997, respectively.
(b) Custodian Fee and Charges of the Investor
Servicing Agent
Putnam Fiduciary Trust Company, the Fund's
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, not
including fees paid by the Custodian to any sub-
custodian, payable monthly based on the average
daily total net assets of the Fund during the
relevant month. Any reasonable disbursements and
out-of-pocket expenses (including without limitation
telephone, telex, cable and postage expenses)
incurred by the Custodian, and any custody charges
of banks and financial institutions to whom the
custody of assets of the Fund is entrusted, will be
borne by the Fund.
The Fund will pay to Putnam Investor Services, a
division of Putnam Fiduciary Trust Company, the
Fund's Investor Servicing Agent, such fee, out of
the assets of the Fund, as is mutually agreed upon
in writing from time to time, in the amount, at the
time and in the manner of payment mutually agreed.
For the fiscal year ended October 31, 1997, the
Fund paid $760,362 as a custodian fee and investor
servicing agent fee.
(c) Fee under Class M Distribution Plan
The Class M distribution plan provides for
payments by the Fund to Putnam Mutual Funds Corp. 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.
Putnam Mutual Funds Corp. makes quarterly
payments to Towa and other dealers at an annual rate
of 0.40% of the average net asset value of Class M
shares attributable to shareholders for whom Towa
and other dealers are designated as the dealer of
record.
Payments under the plan are intended to
compensate Putnam Mutual Funds Corp. for services
provided and expenses incurred by it as principal
underwriter of the Fund's shares, including the
payments to dealers mentioned above. Putnam Mutual
Funds Corp. may suspend or modify such payments to
dealers.
For the fiscal year ended October 31, 1997, the
Fund paid fees under the distribution plan of
$11,439 for Class M shares.
(d) Other Expenses:
The Fund pays all expenses not assumed by
Investment Management Company, including Trustees'
fees, auditing, legal, custodial, investor servicing
and shareholder reporting expenses, and payments
under its distribution plans (which are in turn
allocated to the relevant class of shares). The
Fund also reimburses Investment Management Company
for the compensation and related expenses of certain
Fund officers and their staff who provide
administrative services. The total reimbursement is
determined annually by the Trustees and was $7,888
for Fiscal 1997.
Each Trustee receives a fee for his or her
services. Each Trustee also receives fees for
serving as Trustee of other Putnam funds. The
Trustees periodically review their fees to assure
that such fees continue to be appropriate in light
of their responsibilities as well as in relation to
fees paid to trustees of other mutual fund
complexes. The Trustees meet monthly over a two-day
period, except in August. The Compensation
Committee, which consists solely of Trustees not
affiliated with the Investment Management Company
and is responsible for recommending Trustee
compensation, estimates that Committee and Trustee
meeting time together with the appropriate
preparation requires the equivalent of at least
three business days per Trustee meeting. The
following table shows the year each Trustee was
first elected a Trustee of the Putnam funds, the
fees paid to each Trustee by the Fund for fiscal
1997 and the fees paid to each Trustee by all of the
Putnam funds during calendar 1997:
COMPENSATION TABLE
Pension on Estimated Total
Aggregate retirement annual benefits
compensation
compensation benefits accruedfrom
all from all
from the as part of Putnam funds Putnam
Trustees/Year fund (1) fund expenses upon
retirement (2) funds (3)
Jameson A. Baxter/1994$1,128 $351 $87,500 $176,000(4)
Hans H. Estin/1972 1,117 1,080 87,500 175,000
John A. Hill/1985 (4) 1,121 404 87,500 175,000
Ronald J. Jackson/1996 (4)1,128 80 87,500 176,000
Paul L. Joskow/1997 (5) N/A N/A 87,500 25,500
Elizabeth T. Kennan/19921,115 673 87,500 174,000
Lawrence J. Lasser/1992 1,104 505 87,500 172,000
John H. Mullin, III/1997 (5) N/A N/A 87,500
25,500
Robert E. Patterson/19841,128 324 87,500 176,000
Donald S. Perkins/19821,128 1,174 87,500 176,000
William F. Pounds/1971 (6)1,1991,128 87,500 201,000
George Putnam/1957 1,122 1,238 87,500 175,000
George Putnam, III/1984 1,116 213 87,500 174,000
A.J.C. Smith/1986 1,093 724 87,500 170,000
W. Thomas Stephens/1997 (4)(7) 188 N/A 87,500
53,000
W. Nicholas Thorndike/19921,128 967 87,500 176,000
(1) Includes an annual retainer and an attendance fee
for each meeting attended.
(2) Assumes that each Trustee retires at the normal
retirement date. Estimated benefits for each
Trustee are based on Trustee fee rates in effect
during calendar 1997.
(3) As of December 31, 1997, there were 101 funds in the
Putnam family.
(4) Includes compensation deferred pursuant to a Trustee
Compensation Deferral Plan. The total amounts of
deferred compensation payable by the fund to Mr.
Hill, Mr. Jackson and Mr. Stephens as of October 31,
1997 were $3,466, $1,821 and $171, respectively,
including income earned on such amounts.
(5) Elected as a Trustee in November 1997.
(6) Includes additional compensation for service as Vice
Chairman of the Putnam funds.
(7) Elected as a Trustee in September 1997
Under a Retirement Plan for Trustees of the
Putnam funds (the "Plan") each Trustee who retires
with at least five years of service as a Trustee of
the funds is entitled to receive an annual
retirement benefit equal to one-half of the average
annual compensation paid to such Trustee for the
last three years of service prior to retirement.
This retirement benefit is payable during a
Trustee's lifetime, beginning the year following
retirement, for a number of years equal to such
Trustee's years of service. A death benefit is also
available under the Plan which assures that the
Trustee and his or her beneficiaries will receive
benefit payments for the lesser of an aggregate
period of (i) ten years or (ii) such Trustee's total
years of service.
The Plan Administrator (a committee comprised of
Trustees who are not "interested persons" of the
Fund, as defined in the Investment Company Act of
1940) may terminate or amend the Plan at any time,
but no termination or amendment will result in a
reduction in the amount of benefits (i) currently
being paid to a Trustee at the time of such
termination or amendment, or (ii) to which a current
Trustee would have been entitled had he or she
retired immediately prior to such termination or
amendment.
The Investment Management Company places all
orders for purchases and sales of Fund securities.
In selecting broker-dealers, the Investment
Management Company may consider research and
brokerage services furnished to it and its
affiliates. Subject to seeking the most favorable
price and execution available, the Investment
Management Company may consider sales of Fund shares
(and, if permitted by law, shares of the other
Putnam Funds) as a factor in the selection of broker-
dealers. During fiscal 1995, 1996 and 1997, the
Fund paid $82,679, $54,032 and $21,663 in brokerage
commissions, respectively. During fiscal 1997 the
Fund paid $12,023 on transactions with an aggregate
principal value of $49,796,079 (71.75% of
transactions) to brokers and dealers to recognize
research, statistical and quotation services
provided to the Investment Management Company and
its affiliates.
For the fiscal year ended October 31, 1997, the
Fund paid $1,380,927 in total other expenses,
including payments under its distribution plans, but
excluding management fees, investor servicing agent
expenses and custodian expenses.
C. Sales, Repurchases and Custody:
(1) Sales of Shares:
a. Sales in the United States
Investors residing in the United States 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 the shareholders wish to invest, payable to
the Fund. Return the completed form and check to
Putnam Mutual Funds Corp., which will act as the
investor's agent in purchasing shares through the
investor's designated investment dealer.
Buying shares through systematic investing.
Investors can make regular investments of $25 or
more per month through automatic deductions from the
investor's bank checking or savings account.
Application forms are available from investor's
investment dealer or through the Investor Servicing
Agent.
Shares are sold at the public offering price
based on the net asset value next determined after
the Investor Servicing Agent receives a
shareholder's order. In most cases, in order to
receive that day's public offering price, the
Investor Servicing Agent must receive a
shareholder's order before the close of regular
trading on the New York Stock Exchange. If
shareholders buy shares through their investment
dealer, the dealer must receive the shareholders'
orders before the close of regular trading on the
New York Stock Exchange to receive that day's public
offering price.
U.S. Offering Price and Sales Charges
The public offering price of class M shares is
the net asset value plus a sales charge that varies
depending on the size of the investor's purchase.
The Fund receives the net asset value. The sales
charge is allocated between an investor's investment
dealer and Putnam Mutual Funds Corp. as shown in the
following table, except when Putnam Mutual Funds
Corp., at its discretion, allocates the entire
amount to the investor's investment dealer.
Sales charge as
Amount of sales
a percentage of:
charge reallowed
Net to dealers as
a
Amount of transactionamount Offering percentage
of
at offering price ($) 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
Class M qualified benefit plans (retirement
plans for which Putnam Fiduciary Trust Company or
its affiliates provide recordkeeping or other
services in connection with the purchase of class M
shares) and members of qualified groups may purchase
Class M shares without a sales charge.
An investor may be eligible to buy class M
shares at reduced sales charges. Putnam Mutual
Funds Corp. received $8,507, $19,651 and $10,412 in
sales charges for Class M shares for fiscal years
1995, 1996 and 1997, respectively, of which it
retained $683, $1,663 and 1,093, respectively.
b. Sales in Japan
In Japan, shares of the Fund are offered on any
business day and on any business day of the the
securities company in Japan 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.
A Handling Securities Company shall provide to the
investors a Contract Concerning a Foreign Securities
Transactions Account (the "Contract") and receive
from such investors an application for requesting
the opening of a transactions account under the
Contract. The purchase shall be made in the minimum
investment of 300 Shares and in integral multiples
of 100 Shares for the initial subscription and of
100 Shares and integral multiples of 100 Shares for
any subsequent subscription. Provided, however,
even in the case of the subsequent subscription, a
Shareholder shall hold 300 Shares or more after the
subscription.
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. The sales
charge in Japan shall be 3% of the amount obtained
by deduction of the amount equivalent to 3% of the
public offering price from such price (hereinafter
referred to as the "Sales Price"). Any amount,
which is over the net asset value, of the Sales
Price shall be retained by Putnam Mutual Fund Corp.,
principal underwriter of the Fund. The public
offering price means the amount calculated by
dividing the net asset value by (1- 0.0325) and
rounded to three decimal places.
The investors having entrusted a Handling
Securities Company with safekeeping of the
certificates for Fund shares will receive a
certificate of safekeeping in exchange for the
purchase price. In such case payment shall be made
in yen in principle and the applicable exchange rate
shall be the exchange rate which shall be based on
the foreign exchange rate quoted in the Tokyo
Foreign Exchange Market on the Trade Day and which
shall be determined by the Handling Securities
Company. The payment may be made in dollars to the
extent that the Handling Securities Companies can
agree.
In addition, the 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 Yen500,000,000 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 the United States
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 the 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, the 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. The 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 U.S. securities law.
A shareholder may use the Investor Servicing
Agent's Telephone Redemption Privilege to redeem
shares valued up to $100,000 unless he has notified
the Investor Servicing Agent of an address change
within the preceding 15 days. Unless an investor
indicates otherwise on the account application, the
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 the Investor Servicing Agent with his
account registration and address as it appears on
the Investor Servicing Agent's records.
The 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, the
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 the 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.
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 the shareholder's
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 that is business day of the securities
companies in Japan without a contingent deferred
sales charge. The repurchase shall be made in
integral multiples of 1 share.
The price a shareholder in Japan will receive is
the next net asset value calculated after the Fund
receives the repurchase request from Towa, provided
the request is received before the close of regular
trading on the New York Stock Exchange. The payment
of the price shall be made in yen through the
Handling Securities Companies pursuant to the
Contracts or, if the Handling Securities Companies
agree, in dollars. The payment for repurchase
proceeds shall be made on the fourth business day of
securities companies in Japan after and including
the Trade Day.
(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 U.S. 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 U.S. Securities and
Exchange Commission for protection of investors.
(4) Custody of Shares:
Share certificates shall be held by shareholders
at their own risk.
The custody of the share certificates (if
issued) representing shares sold to Japanese
Shareholders shall, unless otherwise instructed by
the Shareholder, be held, in the name of the
custodian, by the custodian of Towa. Certificates
of custody for the Shares shall be delivered by the
Handling Securities Companies to the Japanese
Shareholders.
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 a vote of the Shareholders
holding at least 66 2/3% of the shares entitled to a
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 31st October.
(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 maintained in
the office of the Trust and are made available for
public inspection for the shareholders. Originals
or copies of the Agreement and Declaration of Trust,
as amended, are on file in the United States 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 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, or
other similar rights.
(6) How Performance Is Shown:
Fund advertisements may, from time to time,
include performance information. "Yield" is
calculated by dividing the annualized net investment
income per share during a recent 30-day period by
the maximum public offering price per share on the
last day of that period.
For purposes of calculating yield, net
investment income is calculated in accordance with
U.S. Securities and Exchange Commission regulations
and may differ from net investment income as
determined for financial reporting purposes. U.S.
Securities and Exchange Commission regulations
require that net investment income be calculated on
a "yield-to-maturity" basis, which has the effect of
amortizing any premiums or discounts in the current
market value of fixed-income securities. The
current dividend rate is based on net investment
income as determined for tax purposes, which may not
reflect amortization in the same manner.
Yield is based on the price of the shares,
including the maximum initial sales charge.
"Total return" for the one-, five- and ten-year
periods (or for the life of the Fund, if shorter)
through the most recent calendar quarter represents
the average annual compounded rate of return on an
investment of $1,000 in the Fund invested at the
maximum public offering price. Total return may
also be presented for other periods or based on
investment at reduced sales charge levels. Any
quotation of investment performance not reflecting
the maximum initial sales charge or contingent
deferred sales charge would be reduced if the sales
charge were used. For the one-year, five-year and
ten-year periods ended November 30, 1997, the
average annual total return for Class M shares of
the Fund was -0.23%, 4.74% and 9.02%, respectively.
Returns for Class M shares reflect the deduction of
the current maximum initial sales charge of 3.25%
for Class M shares. Returns shown for Class M
shares for periods prior to March 17, 1995 are
derived from the historical performance of Class A
shares, adjusted to reflect both the deduction of
the initial sales charge and the higher operating
expenses applicable to Class M shares. The 30-day
yield for the Class M shares of the Fund for the
period ended October 31, 1997 was 5.85%.
All data are based on past investment results
and do not predict future performance. Investment
performance, which will vary, is based on many
factors, including market conditions, portfolio
composition, Fund operating expenses and which class
of shares the investor purchases. Investment
performance also often reflects the risks associated
with the Fund's investment objectives and policies.
These factors should be considered when comparing
the Fund's investment results with those of other
mutual funds and other investment vehicles.
Quotations of investment performance for any
period when an expense limitation was in effect will
be greater than if the limitation had not been in
effect. Fund performance may be compared to that of
various indexes.
(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 investment fund is required to send to its
shareholders annual and semi-annual reports
containing financial information.
(ii)Disclosure to the SEC
The investment fund has filed a registration
statement with the SEC on Form N-1A; the Fund
updates that registration statement periodically in
accordance with the Investment Company Act of 1940.
(2) Disclosure in Japan:
a. Disclosure to the Supervisory Authority:
When the Fund intends to offer the 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 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 the
contents of which are substantially identical to
Part I and Part II of the securities registration
statements. For the purpose of disclosure of the
financial conditions, etc., the Trustees 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 period 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, the Investment Management Company, acting as
investment adviser of the Fund, or any affiliate thereof
or any of their directors, officers, or employees, or any
major shareholder thereof (meaning a shareholder who
holds to the actual knowledge of Investment Management
Company, on his own account whether in his own or other
name (as well as a nominee's name), 10% or more of the
total issued outstanding shares of such a company) acting
as principal or for their own account 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:
Shareholders must register their shares in their own
name in order to exercise directly their rights as
shareholders. Therefore, the shareholders in Japan who
entrust the custody of their shares to the Handling
Securities Company cannot exercise directly their
shareholder rights, because their shares are registered
in the name of the custodian. 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.
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 Shareholders 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
Shareholders are entitled to receive any
distribution declared by the Trustees.
Distributions are generally made from net investment
income monthly and from any net short-term capital
gains at least annually. Distributions from net
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 are entitled to inspect the
Agreement and Declaration of Trust, the accounting
books at the discretion of the Court and the minutes
of any shareholders' meetings.
(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
If, under the 1933 Act, there is any false
statement concerning any important matter in the
U.S. Registration Statement, or any omission of any
statement of important matters to be stated therein
or not to cause any misunderstanding, shareholders
are generally entitled to institute a lawsuit,
against the person who had signed the relevant
Registration Statement, the trustee of the issuer
(or any person placed in the same position) at the
time of filing such Statement, any person involved
in preparing such Statement or any subscriber of the
relevant shares.
(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.
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 the United States, 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
Kasumigaseki Building, 25th Floor
2-5, 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 continuous disclosure is each
of the following persons:
Harume Nakano
Ken Miura
Attorneys-at-law
Hamada & Matsumoto
Kasumigaseki Building, 25th Floor
2-5, 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 and the Japanese law is
applicable thereto:
Tokyo District Court
1-4, Kasumigaseki 1-chome
Chiyoda-ku, Tokyo
5. STATUS OF INVESTMENT FUND
(A) Diversification of Investment Portfolio
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.
As of the end of March 1998, 75.17%, 0.00% and 13.91% of
the total Net Assets of the Fund was invested in
securities rated AAA (or its equivalent), AA (or its
equivalent) and other securities, respectively. The
other 10.41% is invested in derivatives and other
receivables.
(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
following fiscal years and at the end of each month
within one year prior to the end of March 1998 is as
follows:
(Note) Operations of Class M Shares were commenced on March
17, 1995.
(2) Record of Distributions Paid
(Note) Record of distribution paid and Net Asset Value per
share from April 1995 to March 1998 are as follows:
(C) Record of Sales and Repurchases
Record of sales and repurchases during the following
fiscal years and number of outstanding Shares of the Fund as
of the end of such Fiscal Years are as follows:
Number of Number of Net Number of
Shares Sold Shares Increase Outstanding
Repurchased (Decrease) Shares
in Shares
Outstanding
1st Fiscal 42,244 4,802 37,442 37,442
Year (0) (0) (0) (0)
2nd Fiscal 138,180 44,620 93,560 131,000
Year (0) (0) (0) (0)
3rd Fiscal 121,290 71,842 49,448 180,450
Year (0 ) (0) (0) (0 )
Note: The number of Shares sold, repurchased and
outstanding in the parentheses represents those sold,
repurchased and outstanding in Japan. The Share has been
sold in Japan starting December, 1997.
II. OUTLINE OF THE TRUST
1. Trust
(A) Law of Place of Incorporation
The Trust is a Massachusetts business trust
organized in Massachusetts, U.S.A. on June 30, 1986.
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, non-diversified 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
June 30, 1986:
Organization of the Fund as a
Massachusetts business trust.
Adoption of the Agreement and
Declaration of Trust.
February 24, 1987:
Adoption of the Amended and Restated
Agreement and Declaration of Trust.
December 3, 1993:
Adoption of the 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 Trustees 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 U.S. 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 Trustee shall 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 vote 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) Trustees and Officers of the Trust
(as of March 31, 1998)
Shares
Name Office and Resume Owned
Title
George Putnam Chairman and present: Chairman and 85,014
President Director of the
Investment
Management
Company and
Putnam Mutual
Funds Corp.
Director, Marsh &
McLennan
Companies, Inc.
William F. Vice present: Professor of 8,288
Pounds Chairman Management,
Alfred P. Sloan
School of
Management,
Massachusetts
Institute of
Technology
Jameson Adkins Trustee present: President, 250
Baxter Baxter
Associates, Inc.
Hans H. Estin Trustee present: Vice Chairman, 178
North American
Management Corp.
John A. Hill Trustee present: Chairman and 171
Managing
Director, First
Reserve
Corporation
Ronald J. Trustee present: Former 124
Jackson Chairman,
President and
Chief Executive
Officer of Fisher-
Price, Inc.,
Trustee of Salem
Hospital and the
Peabody Essex
Museum
Paul. L. Trustee present: Professor of 113
Joskow Economics and
Management and
Head of the
Department of
Economics at the
Massachusetts
Institute of
Technology,
Director, New
England Electric
System, State
Farm Indemnity
Company and
Whitehead
Institute for
Biomedical
Research
Elizabeth T. Trustee present: President 443
Kennan Emeritus and
Professor, Mount
Holyoke College
Lawrence J. Trustee and present: President, 133
Lasser Vice Chief Executive
President Officer and
Director of
Putnam
Investments, Inc.
and the
Investment
Management
Company
Director, Marsh &
McLennan
Companies, Inc.
John H. Trustee present: Chairman and 224
Mullin, III Chief Executive
Officer of
Ridgeway Farm,
Director of ACX
Technologies,
Inc., Alex. Brown
Realty, Inc., and
The Liberty
Corporation
Robert E. Trustee present: President and 3,011
Patterson Trustee of Cabot
Industrial Trust
and Trustee of
Sea Education
Association
Donald S. Trustee present: Director of 1,593
Perkins various
corporations,
including Cummins
Engine Company,
Lucent
Technologies,
Inc., Nanophase
Technologies,
Inc., Springs
Industries, Inc.
and Time Warner
Inc.
George Putnam, Trustee present: President, New 2,376
III Generation
Research, Inc.
A.J.C. Smith Trustee present: Chairman and 222
Chief Executive
Officer, Marsh &
McLennan
Companies, Inc.
W. Thomas Trustee present: President and 103
Stephens Chief Executive
Officer of
MacMillan Bloedel
Ltd., Director of
Qwest
Communications
and New Century
Energies
W. Nicholas Trustee present: Director of 143
Thorndike various
corporations and
charitable
organizations,
including Data
General
Corporation,
Bradley Real
Estate, Inc. and
Providence
Journal Co.
Trustee of Cabot
Industrial Trust,
Massachusetts
General Hospital
and Eastern
Utilities
Associations
Charles E. Executive present: Managing 0
Porter Vice Director of
President Putnam
Investments, Inc.
and the
Investment
Management
Company
Patricia C. Senior Vice present: Senior Vice 0
Flaherty President President of
Putnam
Investments, Inc.
and the
Investment
Management
Company
Gail S. Senior Vice present: Senior Vice 0
Attridge President President of the
Investment
Management
Company
William N. Vice present: Director and 0
Shiebler President Senior Managing
Director of
Putnam
Investments, Inc.
President and
Director of
Putnam Mutual
Funds
Ian C. Visce present: Senior 0
Ferguson President Managing Director
of Investment
Management
Company
Gordon H. Vice present: Director and 0
Silver President Senior Managing
Director of
Putnam
Investments, Inc.
and the
Investment
Management
Company
John D. Hughes Vice present Senior Vice 0
President President of the
and Investment
Treasurer Management
Company
Beverly Marcus Clerk and N/A 0
Assistant
Treasurer
John R. Verani Vice present Senior Vice 0
President President of
Putnam
Investment, Inc.
and the
Investment
Management
Company
William J. Vice present Managing 1,999
Curtin President Director of
Putnam
Investments, Inc.
and the
Investment
Management
Company
D. William Managing present Managing 0
Kohli Director Director of
Putnam
Investment, Inc.
and the
Investment
Management
Company
(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 retained Putnam
Investment Management, Inc., the investment adviser, to
render investment advisory services and Putnam Fiduciary
Trust Company, to hold the assets of the Fund in custody
and act as the 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 October 31. 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
The Investment Management Company is registered as an
investment adviser under the Investment Advisers Act of
1940.
(C) Purpose of the Company
The 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
The Investment Management Company is one of America's
oldest and largest money management firms. The
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.
The 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 $205 billion in assets with over 9
million shareholder accounts at the end of March 1998.
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., which is a subsidiary of Marsh
& McLennan Companies, Inc., a publicly-owned holding
company whose principal businesses are international
insurance and reinsurance brokerage, employee benefit
consulting and investment management.
(E) Amount of Capital Stock (as of the end of March 1998)
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 Stockholder's Equity)
End of 1993 $49,847,760
End of 1994 $48,149,491
End of 1995 $45,521,351
End of 1996 $45,817,658
End of 1997 $48,617,160
(F) Structure of the Management of the Company
The Investment Management Company is ultimately managed
by its Board of Directors, which is elected by its
shareholders.
Each fund managed by the Investment Management Company is
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, the Investment
Management Company's Fixed Income Investments 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 the 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, the
Investment Management Company looks for securities that
represent attractive values based on careful issue-by-
issue credit analysis and hundreds of on-site visits and
other contacts with issuers every year. the Investment
Management Company is one of the largest managers of high
yield and other debt securities in the United States.
The following officers of the Investment Management
Company have had primary responsibility for the day-to-
day management of the Fund's portfolio since the years
stated below:
Names Yea Business Experience
r (at least 5 years)
D. William 199 Employed as an investment professional by
Kohli 4 the Investment Management Company since
Managing 1994.
Director Prior to September, 1994, Mr. Kohli was
Executive Vice President and Co-Director of
Global Bond Management and, prior to
October, 1993, Senior Portfolio Manager at
Franklin Advisors/Templeton Investment
Counsel.
Gail S. 199 Employed as an investment professional by
Attridge 7 the Investment Management Company since
Senior Vice 1993.
President Prior to November 1993, she was an Analyst
at Keystone Custody International.
(G) Information Concerning Major Stockholders
As of the end of March 1998, all the outstanding shares
of capital stock of the 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 the Investment Management Company and
their respective positions with the 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.
(as of the end of
February 1998)
Position
with Putnam
Name Investment Other Business Affiliation
Management,
Inc.
Putnam, Chairman Chairman of Putnam Mutual
George Funds Corp.
Lasser, President
Lawrence J. and Director
Silver, Director and Putnam Fiduciary Trust
Gordon H. Senior Company
Managing Senior Administrative
Director Officer and Director of
Putnam Mutual Funds Corp.
Burke, Director and Senior Managing Director of
Robert W. Senior Putnam Mutual Funds Corp.
Managing
Director
Coburn, Senior
Gary N. Managing
Director
Ferguson, Senior
Ian C. Managing
Director
Spiegel, Director and Senior Managing Director of
Steven Senior Putnam Mutual Funds Corp.
Managing
Director
Anderson, Managing
Blake E. Director
Bankart, Managing
Alan J. Director
Bogan, Managing
Thomas Director
Browchuk, Managing
Brett Director
Collman, Managing Managing Director of Putnam
Kathleen M. Director Mutual Funds Corp.
Curtin, Managing
William J. Director
D'Alelio, Managing
Edward H. Director
DeTore, Managing Managing Director of Putnam
John A. Director Fiduciary Trust Company
Durgarian, Managing Director and Managing
Karnig H. Director Director of Putnam Fiduciary
Trust Company
Esteves, Senior
Irene M. Managing
Director
Hurley, Managing Managing Director of Putnam
William J. Director Mutual Funds Corp.
Jacobs, Managing
Jerome J. Director
Kohli, D. Managing
William Director
Kreisel, Managing
Anthony I. Director
Landes, Managing
William J. Director
Maloney, Managing
Kevin J. Director
Martino, Managing
Michael Director
Starr, Managing Managing Director of Putnam
Loren Director Mutual Funds Corp.
Maxwell, Managing
Scott M. Director
McGue, Managing
William F. Director
McMullen, Managing
Carol C. Director
Miller, Managing
Daniel L. Director
Morgan Jr., Managing Managing Director of Putnam
John J. Director Fiduciary Trust Company
O'Donnell Managing
Jr., C. Director
Patrick
Peacher, Managing
Stephen C. Director
Porter, Managing
Charles E. Director
Reilly, Managing
Thomas V. Director
Scott, Managing Managing Director of Putnam
Justin M. Director Fiduciary Trust Company
Schultz, Managing
Mitchell D. Director
Talanian, Managing Managing Director of Putnam
John C. Director Mutual Funds Corp.
Woolverton, Managing Managing Director of Putnam
William H. Director Mutual Funds Corp.
Asher, Senior Vice Senior Vice President of
Steven E. President Putnam Mutual Funds Corp.
Baumback, Senior Vice
Robert K. President
Beck, Managing
Robert R. Director
Bousa, Senior Vice
Edward P. President
Bresnahan, Senior Vice Senior Vice President of
Leslee R. President Putnam Mutual Funds Corp.
Burns, Senior Vice
Cheryl A. President
Cassaro, Managing
Joseph A. Director
Chapman, Senior Vice
Susan President
Cotner, Senior Vice
Beth C. President
Curran, J. Senior Vice Senior Vice President of
Peter President Putnam Mutual Funds Corp.
Dalferro, Senior Vice
John R. President
Daly, Managing Managing Director of Putnam
Kenneth L. Director Mutual Funds Corp.
Derbyshire, Senior Vice Senior Vice President of
Ralph C. President Putnam Mutual Funds Corp.
England, Senior Vice
Richard B. President
Fitzgerald, Senior Vice
Michael T. President
Flaherty, Senior Vice Senior Vice President of
Patricia C. President Putnam Mutual Funds Corp.
Francis, Senior Vice
Jonathan H. President
Frucci, Senior Vice Senior Vice President of
Richard M. President Putnam Fiduciary Trust
Company
Fullerton, Senior Vice Senior Vice President of
Brian J. President Putnam Mutual Funds Corp.
Gillis, Managing
Roland Director
Grant, J. Senior Vice Senior Vice President of
Peter President Putnam Fiduciary Trust
Company
Grim, Senior Vice
Daniel J. President
Haagensen, Senior Vice
Paul E. President
Halperin, Senior Vice
Matthew C. President
Healey, Senior Vice
Deborah R. President
Joseph, Senior Vice
Joseph P. President
Kamshad, Managing
Omid Director
Kay, Karen Senior Vice Clerk, Director and Senior
R. President Vice President of Putnam
Fiduciary Trust Company
King, David Managing
L. Director
Kirson, Managing
Steven L. Director
Leichter, Managing
Jennifer E. Director
Lindsey, Senior Vice
Jeffrey R. President
Lukens, Senior Vice
James W. President
Matteis, Senior Vice
Andrew S. President
McAuley, Senior Vice
Alexander President
J.
McDonald, Senior Vice
Richard E. President
Meehan, Senior Vice
Thalia President
Mikami, Senior Vice
Darryl President
Mockard, Senior Vice
Jeanne L. President
Morgan, Senior Vice
Kelly A. President
Mufson, Senior Vice
Michael J. President
Mullin, Senior Vice
Hugh H. President
Netols, Senior Vice Senior Vice President of
Jeffrey W. President Putnam Fiduciary Trust
Company
Paine, Senior Vice
Robert M. President
Pohl, Senior Vice
Charles G. President
Pollard, Senior Vice
Mark D. President
Quinton, Senior Vice
Keith P. President
Ray, Senior Vice
Christopher President
A.
Reeves, Senior Vice
William H. President
Regan, Senior
Anthony W. Managing
Director
Rosalanko, Senior Vice
Thomas J. President
Ruys de Senior Vice Senior Vice President of
Perez, President Putnam Fiduciary Trust
Charles A. Company
Schwister, Senior Vice Senior Vice President of
Jay E. President Putnam Fiduciary Trust
Company
Simon, Senior Vice
Sheldon N. President
Smith Jr., Senior Vice
Leo J. President
Smith, Senior Vice
Margaret D. President
Storkerson, Senior Vice Senior Vice President of
John K. President Putnam Fiduciary Trust
Company
Strumpf, Senior Vice
Casey President
Sullivan, Senior Vice
Roger R. President
Swanberg, Senior Vice
Charles H. President
Swift, Senior Vice
Robert President
Thomas, Senior Vice
David K. President
Thomsen, Managing Managing Director of Putnam
Rosemary H. Director Fiduciary Trust Company
Tibbetts, Managing Managing Director of Putnam
Richard B. Director Mutual Funds Corp.
Till, Senior Vice
Hilary F. President
Verani, Senior Vice Senior Vice President of
John R. President Putnam Fiduciary Trust
Company
Weinstein, Senior Vice
Michael R. President
Weiss, Senior Vice
Manuel President
Schultz, Senior Vice
Mitchell D. President
Wheeler, Senior Vice
Diane D.F. President
Wyke, Senior Vice
Richard P. President
Zukowski, Senior Vice
Gerald S. President
Haslett, Managing
Thomas R. Director
Zieff, Managing
William Director
Svensson, Senior Vice
Lisa A. President
Waldman, Managing
David L. Director
Atkin, Senior Vice
Michael J. President
Bakshi, Senior Vice
Manjit S. President
Bamford, Senior Vice
Dolores President
Snyder
Cronin, Managing Managing Director of Putnam
Kevin M. Director Fiduciary Trust Company
Holding, Senior Vice
Pamela President
Kobylarz, Senior Vice
Jeffrey, J. President
Koontz, Senior Vice Senior Vice President of
Jill A. President Putnam Mutual Funds Corp.
Korn, Karen Senior Vice
A. President
Kuenstner, Senior Vice
Deborah F. President
Madore, Senior Vice Senior Vice President of
Robert A. President Putnam Fiduciary Trust
Company
Malloy, Senior Vice
Julie M. President
Minn, Senior Vice
Seung, H. President
Oler, Senior Vice
Stephen S. President
Perry, Senior Vice
William President
Peters, Senior Vice
Carmel President
Santos, Senior Vice Senior Vice President of
David J. President Putnam Fiduciary Trust
Company
Scordato, Senior Vice Senior Vice President of
Christine President Putnam Mutual Funds Corp.
A.
Silk, David Senior Vice
M. President
Stairs, Senior Vice
George W. President
Troped, Senior Vice Senior Vice President of
Bonnie L. President Putnam Mutual Funds Corp.
Whalen, Senior Vice Senior Vice President of
Edward F. President Putnam Mutual Funds Corp.
Yogg, Senior Vice
Michael R. President
(I) Summary of Business Lines and Business Operation
The Investment Management Company is engaged in the
business of providing investment management and
investment advisory services to mutual funds. As of the
end of February 1998, the Investment Management Company
managed, advised, and/or administered the following 101
mutual funds and fund portfolios (having an aggregate net
asset value of approximately $195.43 billion):
(As of
the
end of
Februa
ry,
1998)
Name Month/Date Principal Total Net
/Year Character Net Asset
Establishe istics Asset Value
d Value per
($ share
million ($)
)
The George Putnam Fund of 11/5/37 Open/Equi 3,194.3 18.58
Boston; A ty
The George Putnam Fund of 4/24/92 Open/Equi 1,131.4 18.46
Boston; B ty
The George Putnam Fund of 12/1/94 Open/Equi 255.1 18.45
Boston; M ty
The George Putnam Fund of 1/1/94 Open/Equi 450.0 18.60
Boston; Y ty
Putnam Arizona Tax Exempt 1/30/91 Open/Bond 123.7 9.34
Income Fund; A
Putnam Arizona Tax Exempt 7/15/93 Open/Bond 30.8 9.33
Income Fund; B
Putnam Arizona Tax Exempt 7/3/95 Open/Bond 0.6 9.36
Income Fund; M
Putnam American Government 3/1/85 Open/Bond 1,506.8 8.81
Income Fund; A
Putnam American Government 5/20/94 Open/Bond 35.4 8.77
Income Fund; B
Putnam American Government 2/14/95 Open/Bond 1.7 8.82
Income Fund; M
Putnam Asia Pacific Growth 2/20/91 Open/Equi 417.6 11.50
Fund; A ty
Putnam Asia Pacific Growth 6/1/93 Open/Equi 153.3 11.35
Fund; B ty
Putnam Asia Pacific Growth 2/1/95 Open/Equi 8.1 11.46
Fund; M ty
Putnam Asset Allocation: 2/7/94 Open/Bala 856.8 11.73
Balanced Portfolio; A nced
Putnam Asset Allocation: 2/11/94 Open/Bala 486.7 11.66
Balanced Portfolio; B nced
Putnam Asset Allocation: 9/1/94 Open/Bala 84.5 11.61
Balanced Portfolio; C nced
Putnam Asset Allocation: 2/6/95 Open/Bala 53.0 11.71
Balanced Portfolio; M nced
Putnam Asset Allocation: 7/14/94 Open/Bala 237.8 11.74
Balanced Portfolio; Y nced
Putnam Asset Allocation: 2/7/94 Open/Bala 362.9 10.34
Conservative Portfolio; A nced
Putnam Asset Allocation: 2/18/94 Open/Bala 152.1 10.29
Conservative Portfolio; B nced
Putnam Asset Allocation: 9/1/94 Open/Bala 34.3 10.27
Conservative Portfolio; C nced
Putnam Asset Allocation: 2/7/95 Open/Bala 15.0 10.31
Conservative Portfolio; M nced
Putnam Asset Allocation: 7/14/94 Open/Bala 20.4 10.35
Conservative Portfolio; Y nced
Putnam Asset Allocation: 2/8/94 Open/Bala 596.9 13.10
Growth Portfolio; A nced
Putnam Asset Allocation: 2/16/94 Open/Bala 400.1 12.97
Growth Portfolio; B nced
Putnam Asset Allocation: 9/1/94 Open/Bala 84.8 12.87
Growth Portfolio; C nced
Putnam Asset Allocation: 2/1/95 Open/Bala 45.9 12.97
Growth Portfolio; M nced
Putnam Asset Allocation: 7/14/94 Open/Bala 234.1 13.18
Growth Portfolio; Y nced
Putnam Balanced Retirement 4/19/85 Open/Bala 632.6 11.17
Fund; A nced
Putnam Balanced Retirement 2/1/94 Open/Bala 107.0 11.09
Fund; B nced
Putnam Balanced Retirement 3/17/95 Open/Bala 9.7 11.13
Fund; M nced
Putnam California Tax 4/29/83 Open/Bond 3,075.4 8.79
Exempt Income Fund; A
Putnam California Tax 1/4/93 Open/Bond 603.0 8.78
Exempt Income Fund; B
Putnam California Tax 2/14/95 Open/Bond 13.3 8.78
Exempt Income Fund; M
Putnam VT Asia Pacific 5/1/95 Open/Equi 108.5 9.51
Growth Fund ty
Putnam VT Diversified 9/15/93 Open/Bond 602.7 11.50
Income Fund
Putnam VT Global Growth 5/1/90 Open/Equi 1,688.9 20.04
Fund ty
Putnam VT Global Asset 2/1/88 Open/Bala 987.7 19.90
Allocation Fund nced
Putnam VT Growth and Income 2/1/88 Open/Bala 8,684.1 29.99
Fund nced
Putnam VT High Yield Fund 2/1/88 Open/Bond 1,072.5 13.98
Putnam VT Money Market Fund 2/1/88 Open/Bond 356.9 1.00
Putnam VT New Opportunities 5/2/94 Open/Equi 2,273.5 23.07
Fund ty
Putnam VT U.S. Government 2/1/88 Open/Bond 775.3 13.58
and High Quality Bond Fund
Putnam VT Utilities Growth 5/1/92 Open/Bala 814.3 17.16
and Income Fund nced
Putnam VT Voyager Fund 2/1/88 Open/Equi 4,718.4 42.37
ty
Putnam Capital Appreciation 8/5/93 Open/Equi 1,272.1 22.67
Fund; A ty
Putnam Capital Appreciation 11/2/94 Open/Equi 1,374.7 22.43
Fund; B ty
Putnam Capital Appreciation 1/22/96 Open/Equi 103.8 22.46
Fund; M ty
Putnam Convertible Income- 6/29/72 Open/Bala 1,165.7 22.23
Growth Trust; A nced
Putnam Convertible Income- 7/15/93 Open/Bala 290.6 22.00
Growth Trust; B nced
Putnam Convertible Income- 3/13/95 Open/Bala 18.8 22.08
Growth Trust; M nced
Putnam Diversified Equity 7/1/94 Open/Equi 270.6 13.18
Trust; A ty
Putnam Diversified Equity 7/2/94 Open/Equi 333.6 13.07
Trust; B ty
Putnam Diversified Equity 7/3/95 Open/Equi 25.2 13.11
Trust; M ty
Putnam Diversified Income 10/3/88 Open/Bond 2,096.5 12.65
Trust; A
Putnam Diversified Income 3/1/93 Open/Bond 2,364.6 12.60
Trust; B
Putnam Diversified Income 12/1/94 Open/Bond 929.8 12.61
Trust; M
Putnam Diversified Income 7/11/96 Open/Bond 20.9 12.65
Trust ; Y
Putnam Equity Income Fund; 6/15/77 Open/Bala 970.9 16.30
A nced
Putnam Equity Income Fund; 9/13/93 Open/Bala 541.0 16.20
B nced
Putnam Equity Income Fund; 12/2/94 Open/Bala 56.8 16.21
M nced
Putnam Europe Growth Fund; 9/7/90 Open/Equi 496.5 20.64
A ty
Putnam Europe Growth Fund; 2/1/94 Open/Equi 394.7 20.19
B ty
Putnam Europe Growth Fund; 12/1/94 Open/Equi 23.4 20.52
M ty
Putnam Florida Tax Exempt 8/24/90 Open/Bond 241.0 9.47
Income Fund; A
Putnam Florida Tax Exempt 1/4/93 Open/Bond 70.1 9.47
Income Fund; B
Putnam Florida Tax Exempt 5/1/95 Open/Bond 1.6 9.46
Income Fund; M
Putnam High Quality Bond 6/2/86 Open/Bond 336.8 10.14
Fund; A
Putnam High Quality Bond 6/6/94 Open/Bond 14.0 10.11
Fund; B
Putnam High Quality Bond 4/12/95 Open/Bond 1.1 10.15
Fund; M
Putnam Global Governmental 6/1/87 Open/Bond 285.1 13.32
Income Trust; A
Putnam Global Governmental 2/1/94 Open/Bond 39.5 13.29
Income Trust; B
Putnam Global Governmental 3/17/95 Open/Bond 263.6 13.26
Income Trust; M
Putnam Global Growth Fund; 9/1/67 Open/Equi 2,839.7 10.87
A ty
Putnam Global Growth Fund; 4/27/92 Open/Equi 1,810.6 10.51
B ty
Putnam Global Growth Fund; 3/1/95 Open/Equi 49.1 10.80
M ty
Putnam Global Growth Fund; 6/15/94 Open/Equi 54.0 11.03
Y ty
Putnam Growth and Income 1/5/95 Open/Bala 1,164.9 14.53
Fund II; A nced
Putnam Growth and Income 1/5/95 Open/Bala 1,390.0 14.42
Fund II; B nced
Putnam Growth and Income 1/5/95 Open/Bala 164.9 14.46
Fund II; M nced
The Putnam Fund for Growth 11/6/57 Open/Bala 18,631. 20.69
and Income; A nced 5
The Putnam Fund for Growth 4/27/92 Open/Bala 15,531. 20.43
and Income; B nced 8
The Putnam Fund for Growth 5/1/95 Open/Bala 406.0 20.57
and Income; M nced
The Putnam Fund for Growth 6/15/94 Open/Bala 790.3 20.73
and Income; Y nced
Putnam High Yield Advantage 3/25/86 Open/Bond 1,602.8 10.08
Fund; A
Putnam High Yield Advantage 5/16/94 Open/Bond 1,355.3 10.03
Fund; B
Putnam High Yield Advantage 12/1/94 Open/Bond 2,205.0 10.07
Fund; M
Putnam High Yield Trust; A 2/14/78 Open/Bond 3,328.9 13.15
Putnam High Yield Trust; B 3/1/93 Open/Bond 1,240.2 13.09
Putnam High Yield Trust; M 7/3/95 Open/Bond 23.7 13.14
Putnam Health Sciences 5/28/82 Open/Equi 2,168.6 60.07
Trust; A ty
Putnam Health Sciences 3/1/93 Open/Equi 932.6 58.32
Trust; B ty
Putnam Health Sciences 7/3/95 Open/Equi 42.5 59.52
Trust; M ty
Putnam Income Fund; A 11/1/54 Open/Bond 1,388.4 7.11
Putnam Income Fund; B 3/1/93 Open/Bond 430.7 7.07
Putnam Income Fund; M 12/14/94 Open/Bond 1,249.0 7.07
Putnam Income Fund; Y 2/12/94 Open/Bond 215.0 7.12
Putnam Intermediate U.S. 2/16/93 Open/Bond 140.0 4.93
Government Income Fund; A
Putnam Intermediate U.S. 2/16/93 Open/Bond 70.5 4.93
Government Income Fund; B
Putnam Intermediate U.S. 4/3/95 Open/Bond 7.2 4.94
Government Income Fund; M
Putnam International New 1/3/95 Open/Equi 762.2 12.00
Opportunities Fund; A ty
Putnam International New 7/21/95 Open/Equi 966.3 11.82
Opportunities Fund; B ty
Putnam International New 7/21/95 Open/Equi 79.3 11.90
Opportunities Fund; M ty
Putnam Investors Fund; A 12/1/25 Open/Equi 2,356.8 12.29
ty
Putnam Investors Fund; B 3/1/93 Open/Equi 500.5 11.87
ty
Putnam Investors Fund; M 12/2/94 Open/Equi 53.2 12.13
ty
Putnam Investors Fund; Y 11/30/96 Open/Equi 121.1 12.29
ty
Putnam Massachusetts Tax 10/23/89 Open/Bond 293.1 9.64
Exempt Income Fund; A
Putnam Massachusetts Tax 7/15/93 Open/Bond 101.5 9.64
Exempt Income Fund; B
Putnam Massachusetts Tax 5/12/95 Open/Bond 2.5 9.64
Exempt Income Fund; M
Putnam Michigan Tax Exempt 10/23/89 Open/Bond 145.4 9.39
Income Fund; A
Putnam Michigan Tax Exempt 7/15/93 Open/Bond 39.9 9.38
Income Fund; B
Putnam Michigan Tax Exempt 4/17/95 Open/Bond 1.5 9.39
Income Fund; M
Putnam Minnesota Tax Exempt 10/23/89 Open/Bond 104.6 9.21
Income Fund; A
Putnam Minnesota Tax Exempt 7/15/93 Open/Bond 41.4 9.18
Income Fund; B
Putnam Minnesota Tax Exempt 4/3/95 Open/Bond 1.7 9.20
Income Fund; M
Putnam Money Market Fund; A 10/1/76 Open/Bond 2,052.4 1.00
Putnam Money Market Fund; B 4/27/92 Open/Bond 383.3 1.00
Putnam Money Market Fund; M 12/8/94 Open/Bond 56.7 1.00
Putnam Municipal Income 5/22/89 Open/Bond 824.3 9.33
Fund; A
Putnam Municipal Income 1/4/93 Open/Bond 502.1 9.32
Fund; B
Putnam Municipal Income 12/1/94 Open/Bond 15.2 9.32
Fund; M
Putnam New Jersey Tax 2/20/90 Open/Bond 225.1 9.36
Exempt Income Fund; A
Putnam New Jersey Tax 1/4/93 Open/Bond 93.9 9.35
Exempt Income Fund; B
Putnam New Jersey Tax 5/1/95 Open/Bond 0.6 9.36
Exempt Income Fund; M
Putnam New York Tax Exempt 9/2/83 Open/Bond 1,716.6 9.03
Income Fund; A
Putnam New York Tax Exempt 1/4/93 Open/Bond 230.0 9.01
Income Fund; B
Putnam New York Tax Exempt 4/10/95 Open/Bond 2.2 9.02
Income Fund; M
Putnam New York Tax Exempt 11/7/90 Open/Bond 167.0 9.18
Opportunities Fund; A
Putnam New York Tax Exempt 2/1/94 Open/Bond 61.9 9.17
Opportunities Fund; B
Putnam New York Tax Exempt 2/10/95 Open/Bond 2.4 9.16
Opportunities Fund; M
Putnam Global Natural 7/24/80 Open/Equi 221.6 20.35
Resources Fund; A ty
Putnam Global Natural 2/1/94 Open/Equi 140.1 20.06
Resources Fund; B ty
Putnam Global Natural 7/3/95 Open/Equi 8.1 20.24
Resources Fund; M ty
Putnam New Opportunities 8/31/90 Open/Equi 9,210.3 52.92
Fund; A ty
Putnam New Opportunities 3/1/93 Open/Equi 7,432.1 50.97
Fund; B ty
Putnam New Opportunities 12/1/94 Open/Equi 412.0 52.07
Fund; M ty
Putnam New Opportunities 7/19/94 Open/Equi 364.6 53.43
Fund; Y ty
Putnam Ohio Tax Exempt 10/23/89 Open/Bond 185.0 9.29
Income Fund; A
Putnam Ohio Tax Exempt 7/15/93 Open/Bond 52.5 9.28
Income Fund; B
Putnam Ohio Tax Exempt 4/3/95 Open/Bond 2.0 9.29
Income Fund; M
Putnam OTC & Emerging 11/1/82 Open/Equi 2,483.9 17.62
Growth Fund; A ty
Putnam OTC & Emerging 7/15/93 Open/Equi 1,260.4 16.92
Growth Fund; B ty
Putnam OTC & Emerging 12/2/94 Open/Equi 218.8 17.30
Growth Fund; M ty
Putnam OTC & Emerging 7/12/96 Open/Equi 106.1 17.71
Growth Fund; Y ty
Putnam International Growth 2/28/91 Open/Equi 1,358.7 18.25
Fund; A ty
Putnam International Growth 6/1/94 Open/Equi 911.5 17.96
Fund; B ty
Putnam International Growth 12/1/94 Open/Equi 107.7 18.14
Fund; M ty
Putnam International Growth 7/12/96 Open/Equi 114.2 18.28
Fund; Y ty
Putnam Pennsylvania Tax 7/21/89 Open/Bond 188.5 9.51
Exempt Income Fund; A
Putnam Pennsylvania Tax 7/15/93 Open/Bond 87.4 9.50
Exempt Income Fund; B
Putnam Pennsylvania Tax 7/3/95 Open/Bond 1.4 9.52
Exempt Income Fund; M
Putnam Preferred Income 1/4/84 Open/Bond 120.1 9.12
Fund; A
Putnam Preferred Income 4/20/95 Open/Bond 9.3 9.09
Fund; M
Putnam Tax - Free Income 9/20/93 Open/Bond 643.3 14.70
Trust
Tax - Free High Yield Fund;
A
Putnam Tax - Free Income 9/9/85 Open/Bond 1,382.4 14.72
Trust
Tax - Free High Yield Fund
B
Putnam Tax - Free Income 12/29/94 Open/Bond 18.4 14.70
Trust
Tax - Free High Yield Fund
M
Putnam Tax - Free Income 9/30/93 Open/Bond 228.7 15.51
Trust
Tax - Free Insured Fund; A
Putnam Tax - Free Income 9/9/85 Open/Bond 336.5 15.52
Trust
Tax - Free Insured Fund; B
Putnam Tax - Free Income 6/1/95 Open/Bond 1.7 15.50
Trust
Tax - Free Insured Fund; M
Putnam Tax Exempt Income 12/31/76 Open/Bond 2,034.9 9.24
Fund; A
Putnam Tax Exempt Income 1/4/93 Open/Bond 253.1 9.24
Fund; B
Putnam Tax Exempt Income 2/16/95 Open/Bond 10.0 9.26
Fund; M
Putnam Tax Exempt Money 10/26/87 Open/Bond 83.9 1.00
Market Fund
Putnam U.S. Government 2/8/84 Open/Bond 2,149.0 13.08
Income Trust; A
Putnam U.S. Government 4/27/92 Open/Bond 1,266.4 13.03
Income Trust; B
Putnam U.S. Government 2/6/95 Open/Bond 178.5 13.05
Income Trust; M
Putnam U.S. Government 4/11/94 Open/Bond 5.0 13.08
Income Trust; Y
Putnam Utilities Growth and 11/19/90 Open/Bala 703.2 12.96
Income Fund; A nced
Putnam Utilities Growth and 4/27/92 Open/Bala 736.2 12.88
Income Fund; B nced
Putnam Utilities Growth and 3/1/95 Open/Bala 10.3 12.94
Income Fund; M nced
Putnam Vista Fund; A 6/3/68 Open/Equi 3,031.8 12.79
ty
Putnam Vista Fund; B 3/1/93 Open/Equi 1,459.5 12.26
ty
Putnam Vista Fund; M 12/1/94 Open/Equi 117.5 12.56
ty
Putnam Vista Fund; Y 3/28/95 Open/Equi 270.0 12.91
ty
Putnam Voyager Fund II; A 4/14/93 Open/Equi 585.3 20.58
ty
Putnam Voyager Fund II; B 10/2/95 Open/Equi 547.3 20.21
ty
Putnam Voyager Fund II; M 10/2/95 Open/Equi 65.7 20.35
ty
Putnam Voyager Fund; A 4/1/96 Open/Equi 12,880. 20.62
ty 3
Putnam Voyager Fund; B 4/27/92 Open/Equi 6,790.2 19.50
ty
Putnam Voyager Fund; M 12/1/94 Open/Equi 297,537 20.25
ty .8
Putnam Voyager Fund; Y 4/1/94 Open/Equi 1,364.2 20.89
ty
Putnam California 11/27/92 Closed/Bo 88.2 15.66
Investment Grade Municipal nd
Trust
Putnam Convertible 6/29/95 Closed/Bo 102.1 27.57
Opportunities and Income nd
Trust
Putnam Dividend Income Fund 9/28/89 Closed/Bo 127.7 11.80
nd
Putnam High Income 7/9/87 Closed/Bo 134.7 10.00
Convertible and Bond Fund nd
Putnam Investment Grade 10/26/89 Closed/Bo 391.0 12.13
Municipal Trust nd
Putnam Investment Grade 11/27/92 Closed/Bo 255.5 14.41
Municipal Trust II nd
Putnam Investment Grade 11/29/93 Closed/Bo 64.1 13.49
Municipal Trust III nd
Putnam Managed High Yield 6/25/93 Closed/Bo 112.1 14.94
Trust nd
Putnam Managed Municipal 2/24/89 Closed/Bo 633.8 9.97
Income Trust nd
Putnam Master Income Trust 12/28/87 Closed/Bo 492.5 9.28
nd
Putnam Master Intermediate 4/29/88 Closed/Bo 864.0 8.64
Income Trust nd
Putnam Municipal 5/28/93 Closed/Bo 351.1 14.24
Opportunities Trust nd
Putnam New York Investment 11/27/92 Closed/Bo 50.3 14.15
Grade Municipal Trust nd
Putnam Premier Income Trust 2/29/88 Closed/Bo 1,244.3 8.87
nd
Putnam Tax - Free Heath 6/29/92 Closed/Bo 207.5 15.03
Care Fund nd
Putnam Growth Opportunities 10/2/95 Open/Equi 278.7 14.55
Fund; A ty
Putnam Growth Opportunities 8/1/97 Open/Equi 135.9 14.49
Fund; B ty
Putnam Growth Opportunities 8/1/97 Open/Equi 12.20 14.51
Fund; M ty
Putnam Strategic Income 2/19/95 Open/Bond 54.8 8.66
Fund; A
Putnam Strategic Income 2/19/96 Open/Bond 81.7 8.66
Fund; B
Putnam Strategic Income 2/19/96 Open/Bond 8.9 8.66
Fund; M
Putnam High Yield Total 1/1/97 Open/Bond 19.6 8.95
Return Fund; A
Putnam High Yield Total 1/1/97 Open/Bond 24.2 8.85
Return Fund; B
Putnam High Yield Total 1/1/97 Open/Bond 2.2 8.86
Return Fund; M
Putnam VT International 1/1/97 Open/Bala 231.8 12.47
Growth and Income nced
Putnam VT International New 1/1/97 Open/Equi 115.7 10.68
Opportunities Fund ty
Putnam VT International 1/1/97 Open/Equi 157.2 12.53
Growth Fund ty
Putnam Balanced Fund 10/2/95 Open/Bala 3.1 11.50
nced
Putnam Emerging Markets 10/2/95 Open/Equi 46.9 9.64
Fund; A ty
Putnam Emerging Markets 10/2/95 Open/Equi 36.7 9.55
Fund; B ty
Putnam Emerging Markets 10/2/95 Open/Equi 3.8 9.58
Fund; M ty
Putnam California Tax 10/26/87 Open/Bond 43.3 1.00
Exempt Money Market Fund
Putnam High Yield Municipal 5/25/89 Closed/Bo 248.2 9.29
Trust nd
Putnam New York Tax Exempt 10/26/87 Open/Bond 38.6 1.00
Money Market Fund
Putnam International Growth 8/1/96 Open/Equi 326.2 11.48
and Income Fund; A ty
Putnam International Growth 8/1/96 Open/Equi 333.5 11.41
and Income Fund; B ty
Putnam International Growth 8/1/96 Open/Equi 33.1 11.44
and Income Fund; M ty
Putnam Research Fund 10/2/95 Open/Equi 11.8 12.68
ty
Putnam New Value Fund; A 1/3/95 Open/Equi 489.4 14.45
ty
Putnam New Value Fund; B 2/26/96 Open/Equi 470.1 14.34
ty
Putnam New Value Fund; M 2/26/96 Open/Equi 51.6 14.38
ty
Putnam Global Growth and 1/3/95 Open/Equi 15.4 12.72
Income Fund; A ty
Putnam Global Growth and 10/31/97 Open/Equi 9.8 12.69
Income Fund; B ty
Putnam Global Growth and 10/31/97 Open/Equi 0.9 12.70
Income Fund; M ty
Putnam Equity '98 12/30/97 Open/Equi 2.8 9.72
ty
Putnam High Yield II Fund; 12/31/97 Open/Bond 42.4 8.96
A
Putnam High Yield II Fund; 12/31/97 Open/Bond 56.9 8.95
B
Putnam High Yield II Fund; 12/31/97 Open/Bond 2.7 8.95
M
Putnam International Fund 12/28/95 Open/Equi 4.0 10.42
ty
Putnam Japan Fund 12/28/95 Open/Equi 2.3 5.38
ty
Putnam International 12/28/95 Open/Equi 63.0 12.34
Voyager Fund; A ty
Putnam International 10/30/96 Open/Equi 52.1 12.27
Voyager Fund; B ty
Putnam International 10/30/96 Open/Equi 5.7 12.30
Voyager Fund; M ty
Putnam VT New Value Fund 1/2/97 Open/Equi 216.6 11.99
ty
Putnam VT Vista Fund 1/2/97 Open/Equi 193.6 13.27
ty
(J) Miscellaneous
1. Election and Removal of Directors
Directors of the 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, lists and provides
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 the 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. The 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
the Investment Management Company within the 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.$34,197,915 as of the end of March 1998
(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) Putnam Mutual Funds Corp. (the Principal Underwriter)
(1) Amount of Capital
U.S.$145,171,321 as of the end of March 1998
(2) Description of Business
Putnam Mutual Funds Corp. is the Principal
Underwriter of the shares of Putnam Funds including
the Fund.
(3) Outline of Business Relationship with the Fund
Putnam Mutual Funds Corp. engages in providing
marketing services to the Fund.
(C) Towa Securities Co., Ltd. (Distributor in Japan and Agent
Securities Company)
(1) Amount of Capital
Yen7.94 billion as of the end of March 1998
(2) Description of Business
Towa Securities Co., Ltd. is a diversified
securities company in Japan. Also, it engages in
the Agent Securities Company for US Money Income
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.
(D) Capital Relationships
100% of the shares of Putnam Investment Management,
Inc. are held by Putnam Investments, Inc.
(E) Interlocking Directors
Names and functions of officers of the Fund who also
are officers of the related companies are as follows:
(as of the filing
date)
Name of Investment Transfer Agent
Officer Management and
or Fund Company Shareholder
Trustee Service Agent
George Chairman and Chairman and None
Putnam Trustee Director
Charles Executive Vice Managing None
E. Porter President Director
Patricia Senior Vice Senior Vice None
C. President President
Flaherty
Lawrence Trustee and President and None
J. Lasser Vice President CEO
Gordon H. Vice President Senior Director
Silver Managing
Director
John R. Vice President Senior Vice None
Verani President
Gail S. Vice President Senior Vice None
Attridge President
D. Vice President Managing None
William Director
Kohli
William Vice President Managing None
J. Curtin Director
Ian C. Vice President Senior None
Ferguson Managing
Director
IV. FINANCIAL CONDITION OF THE FUND
1. FINANCIAL STATEMENTS
[Omitted, in Japanese version, financial statements of
the Fund and Japanese translations thereof are
incorporated here]
Financial highlights
The following table presents per share financial
information for class M shares. This information has
been audited and reported on by the Fund's independent
accountants. Financial statements included in the Fund's
annual report to shareholders for the 1997 fiscal year
are presented in their entirety in this SRS. The Fund's
annual report is available without charge upon request.
Financial highlights (For a share outstanding throughout the
period)
March 17, 1995
(commencement of
Year ended operations) to
October 31 October 31
1997 1996 1995
Class M
Net asset value, beginning of period $14.44 $13.59 $12.81
Investment operations
Net investment income .66(c) .77(c) .49
Net realized and unrealized gain (loss) on investments (.23)
.83 .88
Total from investment operations .43 1.60 1.37
Less distributions:
From net investment income (.56) (.75) (.40)
In excess of net investment income (.42) - -
From return of capital - - (.19)
Total distributions (.98) (.75) (.59)
Net asset value, end of period $13.89 $14.44 $13.59
Total investment return at net asset value (%) (a) 3.15
12.14 10.87 *
Net assets, end of period (in thousands) $2,506 $1,892
$509
Ratio of expenses to average net assets (%) (b) 1.54 1.58.96
*
Ratio of net investment income to average net assets (%)
4.74 5.52 4.78 *
Portfolio turnover (%) 638.66 429.38300.66
* Not annualized.
(a) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the
period ended October 31, 1995, and thereafter, includes
amounts paid through expense offset arrangements. Prior
period ratios exclude these amounts.
(c) Per share net investment income has been determined on
the basis of the weighted average number of shares
outstanding during the period.
[The following financial documents are omitted here.]
Financial statements of the Fund for the years 1996 and 1997
(audited) together with the auditors' reports.
Financial statements of the Fund for the semi-annual periods
ended on April 30, 1995 and April 30, 1996 (unaudited)
Financial Highlights
2. CONDITION OF THE FUND
(a) Statement of Net Assets
<TABLE> <CAPTION>
(b) Names of Major Portfolio Holdings other than Equity Shares
(Top 30 Holdings)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(As of the end of
March, 1998
U.S. Inve
Dollar st-
Kind of Inte Par Value Acquisit Current ment
rest ion
Name of Securities Issue Maturity Rate [1,000] curr Cost Value Rati
(%) ency o
(%)
1. GNMA TBA U.S. 2028 7 81,090 USD 81,723,0 81,900,9 13.7
Government 59 00
2. United Kingdom Foreign 2002 7 42,795 GBP 72,633,6 73,584,2 12.3
Treasury Bond Govern. 60 48
3. U.S.Treasury Notes U.S. 2008 5 61,315 USD 60,846,2 60,567,5 10.1
Government 1/2 82 70
4. Germany (Federal Foreign 2008 5 82,070 DEM 45,646,8 45,577,1 7.6
Republic of) Govern. 1/4 76 69
5. United Kingdom Foreign 2007 8 20,070 GBP 35,272,0 36,857,1 6.2
Treasury Bond Govern. 91 30
6. U.S. Treasury Notes U.S. 2008 5 34,080 USD 34,902,9 35,049,2 5.9
Government 1/2 47 35
7. France Treasury Bill Foreign 2000 4 168,115 FRF 27,264,0 27,122,7 4.5
Govern. 52 70
8. Australia (Government Foreign 2005 7 34,040 AUD 25,418,0 25,020,8 4.2
of) Govern. 1/2 99 30
9. Germany (Federal Foreign 2028 5 33,955 DEM 19,233,4 18,728,0 3.1
Republic of) Govern. 5/8 21 89
10. Kreditanstalt Fuer Corporate 2009 5 28,950 USD 15,857,2 15,606,6 2.6
Wiederauf Bonds 77 75
11. Italy (Government of) Foreign 2002 5 27,085,00 ITL 15,689,2 15,468,1 2.6
Govern. 3/4 0 48 98
12. Argentina (Republic Brady 2023 5 20,042 USD 15,594,3 15,358,1 2.6
of) Bonds 1/2 92 85
13. South Africa Foreign 2010 13 73,714 ZAR 14,551,3 14,470,4 2.4
(Republic of) Govern. 59 09
14. Canada (Government Foreign 2007 7 1,975 CAD 13,304,2 13,564,4 2.3
of) Govern. 1/4 09 43
15. Brazil (Government Brady 2014 8 10,245 USD 8,580,38 8,619,31 1.4
of) Bonds 5 7
16. Argentina (Republic Brady 2005 6 7,817 USD 7,162,00 7,210,81 1.2
of) Bonds 2/3 7 4
17. Peru (Government of) Foreign 2017 4 9,000 PEN 5,795,18 6,176,70 1.0
Govern. 8 0
18. Russia (Government Foreign 2020 6 9,330 USD 5,953,70 5,936,21 1.0
of) Govern. 5/7 6 3
19. United Mexican States Brady 2019 6 5,295 USD 4,540,46 4,494,39 0.8
Bonds 1/4 3 6
20. Bulgaria (Government Brady 2012 2 5,890 USD 3,974,60 3,924,21 0.7
of) Bonds 1/4 0 3
21. Philippines Brady 2017 6 4,312 USD 3,700,95 3,794,56 0.6
(Government of) Bonds 1/2 4 0
22. Reliance Industries Corporate 2007 8 2,310 USD 3,858,56 3,507,28 0.6
Bonds 3/4 8 2
23. Sumitomo Treasury Corporate 2049 9 2,925 USD 3,027,37 3,023,71 0.5
Bonds 2/5 5 9
24. Transamerican Energy Corporate 2002 0 3,150 USD 2,446,85 2,646,00 0.4
Bonds 4 0
25. Grupo Iusacell S.A. Corporate 2004 10 1,450 USD 1,450,00 1,508,00 0.3
de C.V. 144A Bonds 0 0
26. Turkish Treasury Bill Foreign 1998 0 444,760,0 TRL 1,340,14 1,326,75 0.2
Govern. 00 7 7
27. Colt Telecom Corporate 2007 8 2,090 USD 1,196,12 1,227,41 0.2
Bonds 3/4 4 5
28. Turkish Treasury Bill Foreign 1998 0 2,564,800 TRL 887,381 890,911 0.1
Govern. ,000
29. Turkish Treasury Bill Foreign 1998 0 238,280,0 TRL 795,583 829,057 0.1
Govern. 00
30. Central European Corporate 2004 8 1,450 USD 784,538 776,996 0.1
Media Enterprises Bonds 1/8
21. 0.0
</TABLE>
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
989, Boston, MA 02103, 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 are no annual shareholders' meetings. Special
shareholders' meeting may 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 following documents were filed with the Ministry of
Finance of Japan in connection with the Fund.
November 14, 1997: Securities Registration
Statement
November 25, 1997: Amendment to Securities
Registration Statement
January 9, 1998: Amendment to Securities
Registration Statement
April 30, 1998: Annual Securities Report
Amendment to Securities Registration
Statement
(2) The ornamental design is used in cover page of the
Japanese Prospectus.
(3) The following must be set forth in the Prospectus.
Outline of the Prospectus will be included at the
beginning of the Prospectus, summarizing the content of
Part I., Information on the securities, "I. Descriptions
of the Fund", "III. Outline of Other Related Companies"
and "IV. Financial Condition of the Fund" in Part II,
Information on the Issuer, of the SRS.
(4) 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.
(a) The content of the summarized Preliminary
Prospectus may be publicized by leaflets, pamphlets,
direct mails (post cards and mails in envelopes) or at
newspapers, magazines and other books.
(b) The layout, quality of papers, priting colour,
design etc. of the Summarized Preliminary Prospectus
may varyetc. of the Summarized Prelimin ary Prospectus
may vary depending on manner of usage. Photos and
illustrations set forth in the attached may be used.
(c) For information of the Fund's achievements, the
changes of the net asset value per share and
thefluctuation rates since the establishment of the
Fund or for the latest 3 months, 6 months, one year,
two years, three years or five years may be set out in
the figures or graphs. Such information regarding the
Fund's achievement may be converted into and presented
in yen.
(d) An example of dividend receivable corresponding
to a certain amount of purchase may be mentioned on
the basis of historical performance of the Fund. Such
amount of dividend and purchase may be described
converted to Japanese yen may be described as well.
(e) An example of delivery amount corresponding to a
certain number of shares applied may be mentioned on
the basis of the historical Net Asset Value. Such
amount of delivery may be described converted to
Japanese yen may be described as well.
PART III. SPECIAL INFORMATION
I. OUTLINE OF REGULATORY SYSTEM IN UNITED STATES
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 entirety 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.
C. 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 1940 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.
D. Ongoing Requirements
Under U.S. law, a fund is subject to numerous
ongoing requirements, including, but not limited to;
1. Updating its prospectus 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 (generally 4:00 p.m.) 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
The Fund intends to qualify each year 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, the 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, the Fund under present
Massachusetts law is not subject to any excise or income taxes
in Massachusetts.
In order to qualify as a "regulated investment company",
the Fund must, among other things, (a) derive at least 90% of
its gross income from dividends, interest, payments with
respect to certain securities loans, and gains from the sale
of stock, securities and foreign currencies, or other income
(including but not limited to gains from options, futures, or
forward contracts) derived with respect to its business of
investing in such stock, securities, or currencies; (b)
distribute with respect to each taxable year at least 90% of
the sum of its taxable net investment income, its net tax-
exempt income, and the excess, if any, of its net short-term
capital gains over net long-term capital losses for such year;
(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
(other than those of the U.S. Government or other regulated
investment companies) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the
same, similar or related trades or businesses.
If the Fund qualified as a regulated investment company
that is accorded special tax treatment, the Fund will not be
subject to federal income tax on income paid to its
shareholders in the form of dividends (including capital gain
dividends).
If the Fund failed to qualify as a regulated investment
company accorded special tax treatment in any taxable year,
the fund would be subject to tax on its taxable income at
corporate rates, and all distributions from earnings and
profits, including any distributions of net tax-exempt income
and net long-term capital gains, would be taxable to
shareholders as ordinary income. In addition, the Fund could
be required to recognize unrealized gains, pay substantial
taxes and interest and make substantial distributions before
requalifying as a regulated investment company that is
accorded special tax treatment.
If the Fund fails to distribute in a calendar year
substantially all of its ordinary income for such year and
substantially all of its capital gain net income for the one-
year period ending October 31 (or later if the fund is
permitted so to elect and so elects), plus any retained amount
from the prior year, the fund will be subject to a 4% excise
tax on the undistributed amounts. A dividend paid to
shareholders by the Fund in January of a year generally is
deemed to have been paid by the Fund on December 31 of the
preceding year, if the dividend was declared and payable to
shareholders of record on a date in October, November or
December of that preceding year. The Fund intends generally
to make distributions sufficient to avoid imposition of the 4%
excise tax.
Fund distributions will be taxable to shareholders as
ordinary income, except that any distributions of net long-
term capital gains will be taxable as such, regardless of how
long a shareholder has held shares in the Fund.
Distributions will be taxable as described above whether
received in cash or in shares through the reinvestment of
distributions. Shareholders who are not subject to U.S.
federal income tax on their income generally will not have to
pay such tax on amounts distributed to them.
Distributions from capital gains are made after applying
any available capital loss carryovers.
The Fund's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign
currency options, futures contracts and forward contracts (and
similar instruments) may give rise to ordinary income or loss
to the extent such income or loss results from fluctuations in
the value of the foreign currency concerned.
Investments by the Fund in "passive foreign investment
companies" could subject the Fund to a U.S. federal income tax
or other charge on the proceeds from the sale of its
investment in such a company; however, this tax can be avoided
by making an election to mark such investments to market
annually or to treat the passive foreign investment company as
a "qualified electing fund".
A "passive foreign investment company" is any foreign
corporation: (i) 75 percent of more of the income of which for
the taxable year is passive income, or (ii) the average
percentage of the assets of which (generally by value, but by
adjusted tax basis in certain cases) that produce or are held
for the production of passive income is at least 50 percent.
Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties,
rents, annuities, the excess of gains over losses from certain
property transactions and commodities transactions, and
foreign currency gains. Passive income for this purpose does
not include rents and royalties received by the foreign
corporation from active business and certain income received
from related persons.
The sale, exchange or redemption of Fund shares may give
rise to a gain or loss. In general, any gain or loss realized
upon a taxable disposition of shares will be treated as long-
term capital gain or loss if the shares have been held for
more than 12 months, and otherwise as short-term capital gain
or loss. However, any loss realized upon a taxable
disposition of shares held for six months or less will be
treated as long-term, rather than short-term, to the extent of
any long-term capital gain distributions received by the
shareholder with respect to the shares. All or a portion of
any loss realized upon a taxable disposition of Fund shares
will be disallowed if other shares of the Fund are purchased
within 30 days before or after the disposition. In such a
case, the basis of the newly purchased shares will be adjusted
to reflect the disallowed loss.
Special tax ruled apply to investments though defined
contribution plans and other tax-qualified plans.
Shareholders should consult their tax adviser to determine the
suitability of shares of the Fund as an investment through
such plans and the precise effect of an investment on their
particular tax situation.
The Fund generally is required to withhold and remit to
the U.S. Treasury 31% of the taxable dividends and other
distributions paid to any individual shareholder who fails to
furnish the Fund with a correct taxpayer identification number
(TIN), who has under-reported dividends or interest income, or
who fails to certify to the fund that he or she is not subject
to such withholding.
The Fund's investment in securities issued at a discount
and certain other obligations will (and investments in
securities purchased at a discount may) require the Fund to
accrue and distribute income not yet received. In order to
generate sufficient cash to make the requisite distributions,
the Fund may be required to sell securities in its portfolio
that it otherwise would have continued to hold.
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). Shareholders residing in Japan should
consult "Tax Treatment of Shareholders in Japan", above.
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
