As filed with the Securities and Exchange Commission on
February 27, 1995
Registration
No. 33-11406
811-4531
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 9
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and
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
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ACT OF 1940
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Amendment No. 11
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(Check appropriate box or boxes)
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PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
(Exact name of registrant as specified in charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
(617) 292-1000
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It is proposed that this filing will become
effective
(check appropriate box)
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/ / immediately upon filing pursuant to paragraph (b)
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/ X / on March 1, 1995 pursuant to paragraph (b)
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/ / 60 days after filing pursuant to paragraph
(a) (1)
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<PAGE>
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/ / on (date) pursuant to paragraph (a)(1)
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/ / 75 days after filing pursuant to paragraph (a)(2)
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/ / on (date) pursuant to paragraph (a)(2) of rule 485.
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If appropriate, check the following box:
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/ / this post-effective amendment designates a new
- ---- effective date for a previously filed post-effective
amendment.
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JOHN R. VERANI, VICE PRESIDENT
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
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Copy to:
JOHN W. GERSTMAYR, ESQUIRE
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
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The Registrant has registered an indefinite number or amount
of securities under the Securities Act of 1933 pursuant to Rule
24f-2. A Rule 24f-2 notice for the fiscal year ended October 31,
1994 was filed with the Commission on December 29,
1994 . <PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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- ------------------------
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Proposed Proposed
maximum maximum
Amount offering Aggregate
Amount of
Title of securities being price per
offering registration
being registeredregistered unit* price**
fee
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- ------------------------
<C> <C> <C> <C>
<C>
Shares of Beneficial
Interest 8,394,015 $10.46
$290,000 $100.00
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- ------------------------
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* Based on offering price per share on February 15,
1995 .
** Calculated pursuant to Rule 24e-2 under the Investment
Company Act of 1940. The
total amount of securities redeemed or repurchased during
the Registrant's
previous fiscal year was 19,745,785 shares,
11,379,495 of which have
been used for reductions pursuant to Rules 24e-2(a) or Rule
24f-2(c) under said
Act in the current fiscal year, and 8,366,290 of
which are being used for
such reduction in this Amendment.
/TABLE
<PAGE>
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
PART A
N-1A ITEM NO. LOCATION
1. Cover Page....................... Cover Page
2. Synopsis......................... Expenses summary
3. Condensed Financial Information.. Financial highlights;
How performance is shown
4. General Description of
Registrant........................ Objectives; How
objectives are pursued;
Organization and history
5. Management of the Fund............ Expenses summary; How
the Fund is managed;
About Putnam
Investments, Inc.
5A. Management's Discussion of Fund
Performance....................... (Contained in the Annual
Report of the
Registrant)
6. Capital Stock and Other
Securities........................ Cover Page; Organization
and history; How
distributions are made;
tax information
7. Purchase of Securities Being
Offered........................... How to buy shares;
Distribution Plans: How
to sell shares; How to
exchange shares; How the
Fund values its shares
8. Redemption or Repurchase.......... How to buy shares; How
to sell shares; How to
exchange shares;
Organization and history
9. Pending Legal Proceedings......... Not Applicable <PAGE>
PART B
N-1A ITEM NO. LOCATION
10. Cover Page........................ Cover Page
11. Table of Contents................. Cover Page
12. General Information and History... Organization and history
(Part A)
13. Investment Objectives and
Policies.......................... How objectives are
pursued (Part A);
Investment Restrictions
of the Fund;
Miscellaneous Investment
Practices
14. Management of the Registrant...... Management of the Fund
(Trustees; Officers);
Additional Officers of
the Fund
15. Control Persons and Principal
Holders of Securities............. Management of the Fund
(Trustees; Officers);
Fund Charges and
Expenses (Ownership of
Fund Shares)
16. Investment Advisory and Other
Services.......................... Management of the Fund
(Trustees; Officers; The
Management Contract;
Principal
Underwriter ; Investor
Servicing Agent and
Custodian) ; Fund
Charges and Expenses;
Distribution
Plan ; Independent
Accountants and
Financial
Statements
17. Brokerage Allocation.............. Management of the Fund
(Portfolio
Transactions); Fund
Charges and Expenses
<PAGE>
18. Capital Stock and Other
Securities........................ Organization and history
(Part A); How
distributions are made;
tax information (Part
A); Suspension of
Redemptions
19. Purchase, Redemption and Pricing
of Securities Being Offered....... How to buy shares (Part
A); How to sell shares
(Part A); How to
exchange shares (Part
A); How to Buy Shares;
Determination of Net
Asset Value; Suspension
of Redemptions
20. Tax Status........................ How distributions are
made; tax information
(Part A); Taxes
21. Underwriters...................... Management of the Fund
(Principal Underwriter);
Fund Charges and
Expenses
22. Calculation of Performance Data... How performance is shown
(Part A); Investment
Performance of the Fund;
Standard Performance
Measures
23. Financial Statements.............. Independent Accountants
and Financial Statements
PART C
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C of the
Registration Statement.
<PAGE>
PROSPECTUS
MARCH 1,
1995
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
CLASS A AND B SHARES
INVESTMENT STRATEGY: INCOME
This Prospectus explains concisely what you should know before
investing in Class A or B shares of Putnam Adjustable Rate
U.S. Government Fund (the "Fund") . Please read it carefully
and keep it for future reference. You can find more detailed
information about the Fund in the March 1, 1995 Statement
of Additional Information, as amended from time to time. For a
free copy of the Statement or other information , call
Putnam Investor Services at 1-800-225-1581. The Statement has
been filed with the Securities and Exchange Commission and is
incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
BOSTON*LONDON*TOKYO<PAGE>
ABOUT THE FUND
Expenses summary
.........................................................
Financial highlights
.........................................................
Objectives
.........................................................
How objectives are pursued
.........................................................
How performance is shown
.........................................................
How the Fund is managed
.........................................................
Organization and history
ABOUT YOUR INVESTMENT
Alternative sales arrangements
..........................................................
How to buy shares
..........................................................
Distribution Plans
.........................................................
.
How to sell shares
.........................................................
.
How to exchange shares
.........................................................
.
How the Fund values its shares
.........................................................
.
How distributions are made; tax information
ABOUT PUTNAM INVESTMENTS, INC.
<PAGE>
ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing in
the Fund. The following table summarizes your maximum
transaction costs from investing in the Fund and expenses
incurred by the Fund based on its most recent fiscal year. The
Examples show the cumulative expenses attributable to a
hypothetical $1,000 investment over specified periods.
CLASS A SHARES CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) 3.25% NONE*
Deferred Sales Charge (as a 3.0% in the
percentage of the lower first year,
of the original purchase NONE** declining to,
price or redemption 1.0% in the
proceeds) fourth year and
eliminated
thereafter
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.60% 0.60%
12b-1 Fees 0.25% 0.85%
Other Expenses 0.14% 0.14%
Total Fund Operating Expenses 0.99% 1.59%
The table is provided to help you understand the expenses of
investing in the Fund and your share of the operating expenses
that the Fund incurs. <PAGE>
EXAMPLES
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of each
period:
1 3 5 10
year years years years
CLASS A $42 $63 $85
$150
CLASS B $46 $70 $87
$173** *
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return but no redemption:
1 3 5 10
year years years years
CLASS A $42 $63 $85
$150
CLASS B $16 $50 $87
$173***
The Examples do not represent past or future expense levels.
Actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return,
but actual annual return has varied.
* Class B shares are sold without a front-end sales charge,
but their higher 12b-1 fees may cause long-term
shareholders to pay more than the economic equivalent of the
maximum permitted front-end sales charge for Class A
shares .
** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of Class A shares that were purchased
without an initial sales charge as part of an investment of
$1 million or more. See "How to buy shares--Class A
shares."
*** Reflects conversion of Class B shares to Class A shares
(which pay lower ongoing expenses) approximately eight years
after purchase. See "How to buy shares - Class B shares --
Conversion of Class B shares."
FINANCIAL HIGHLIGHTS
The table on the following page presents per share financial
information for Class A and B shares . This information
has been audited and reported on by the Fund's independent
accountants. The Report of Independent Accountants and financial
statements included in the Fund's Annual Report to shareholders
for the 1994 fiscal year are incorporated by reference
into this Prospectus. The Fund's Annual Report, which contains
additional unaudited performance information, is
available without charge upon request.
On June 6, 1991, the Trustees of the Fund approved changes to the
Fund's investment objectives and policies. Prior to these
changes, the Fund invested exclusively in a shorter-term
portfolio of U.S. government securities, without any emphasis on
adjustable rate mortgage securities.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS *
(For a share outstanding throughout the period)
For
the period
May 11, 1992
(commencement
of
operations)
Year ended
October 31 to October 31
1994 1993
1992
Class B
<S> <C> <C>
<C>
Net Asset Value, Beginning
of Period $10.53 $10.91
$11.15
Investment Operations
Net Investment Income .43 .52
.33(a)
Net Realized and Unrealized
Loss on Investments (.46) (.45)
(.26)
Total from Investment Operations (.03) .07
.07
Less Distributions from:
Net Investment Income (.33) (.45)
(.31)
Tax return of capital (d) (.02) --
--
Total Distributions (.35) (.45)
(.31)
Net Asset Value, End of Period $10.15 $10.53
$10.91
Total Investment Return at
Net Asset Value (%) (b) (.31) .66
.58(c)
Net Assets, End of Period
(in thousands) $38,030 $43,851
$42,017
Ratio of Expenses to Average
Net Assets (%) 1.59 1.67
.82(a)(c)
Ratio of Net Investment Income
to Average Net Assets (%) 3.98 4.78
2.45(a)(c)
Portfolio Turnover (%) 196.0 49.16
237.21
<FN>
* As of November 1, 1993, the fund discontinued the use of
equalization accounting.
a) Reflects a voluntary expense limitation in effect during the
period. As a result of such limitation, expenses of the
fund for the years ended October 31, 1992, 1991, 1990 and 1989
and the period ended October 31, 1988 reflect per share
reductions of $0.01 (for class A shares only), $0.02, $0.03,
$0.03 and $0.02, respectively.
b) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
c) Not annualized.
d) Distributions of capital for the year ended October 31,1994
have been calculated in accordance with Statement of
Position 3-2, "Determination, Disclosure and Financial Statement
Presentation of Income, Capital Gain and Return of
Capital Distributions by Investment Companies."
/TABLE
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued)
(For a share outstanding throughout the period)
For the period
January 5, 1988
(commencement
of operations)
Year
ended October 31 toOctober 31
1994 1993
1992 1991 1990 1989 1988
Class A
<S> <C> <C> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning
of Period $10.55 $10.92
$11.25 $11.34 $11.65 $11.74 $11.97
Investment Operations
Net Investment Income .55 .59
.75(a) .96(a) 1.02(a) 1.07(a) .73(a)
Net Realized and Unrealized
Loss on Investments (.52) (.44)
(.34) (.02) (.25) (.14) (.25)
Total from Investment Operations .03 .15
.41 .94 .77 .93 .48
Less Distributions from:
Net Investment Income (.39) (.52)
(.74) (1.03) (1.08) (1.02) (.71)
Tax return of capital (d) (.02) --
- -- -- -- -- --
Total Distributions (.41) (.52)
(.74) (1.03) (1.08) (1.02) (.71)
Net Asset Value, End of Period $10.17 $10.55
$10.92 $11.25 $11.34 $11.65 $11.74
Total Investment Return at
Net Asset Value (%) (b) .30 1.34
3.72 8.64 6.98 8.37 4.18(c)
Net Assets, End of Period
(in thousands) $110,202 $193,510
$376,353 $203,492 $57,798 $53,076 $59,688
Ratio of Expenses to Average
Net Assets (%) .99 1.07
1.12(a) 1.29(a) 1.26(a) 1.26(a) 1.05(a)(c)
Ratio of Net Investment Income
to Average Net Assets (%) 4.59 5.42
6.44(a) 8.02(a) 8.93(a) 9.23(a) 6.89(a)(c)
Portfolio Turnover (%) 196.0 49.16
237.21 328.29 247.46 173.03 65.14(c)
/TABLE
<PAGE>
OBJECTIVES
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND HAS THE DUAL
INVESTMENT OBJECTIVES OF ATTRACTIVE CURRENT INCOME AND
PRESERVATION OF CAPITAL. The Fund is not intended to be a
complete investment program, and there is no assurance it will
achieve its objectives.
HOW OBJECTIVES ARE PURSUED
BASIC INVESTMENT STRATEGY
THE FUND WILL SEEK ITS OBJECTIVES BY INVESTING UNDER NORMAL
MARKET CONDITIONS AT LEAST 65% OF ITS TOTAL ASSETS IN ADJUSTABLE
RATE MORTGAGE SECURITIES ("ARMS") THAT ARE U.S. GOVERNMENT
SECURITIES (AS DEFINED BELOW). The Fund may also invest in
other types of U.S. Government Securities.
ARMS are securities representing interests in a pool of mortgages
with adjustable interest rates rather than fixed interest rates.
As the interest rates on the mortgages underlying the ARMS are
reset periodically, yields on such securities will gradually
align themselves to reflect changes in market interest rates. As
a result of the Fund's policy of investing primarily in ARMS, the
net asset value of the Fund's shares should fluctuate less than
it would if the Fund invested in fixed-rate debt securities. The
net asset value of the Fund's shares, however, will fluctuate.
UNDER NORMAL MARKET CONDITIONS, THE FUND WILL, EXCEPT FOR OPTIONS
AND FUTURES STRATEGIES WITH RESPECT TO U.S. GOVERNMENT SECURITIES
DESCRIBED BELOW, INVEST EXCLUSIVELY IN U.S. GOVERNMENT SECURITIES
(INCLUDING ARMS), WHICH FOR THIS PURPOSE WOULD INCLUDE FORWARD
COMMITMENTS AND REPURCHASE AGREEMENTS WITH RESPECT TO U.S.
GOVERNMENT SECURITIES.
" U.S. Government Securities " are debt securities
issued or guaranteed by the U.S. government, by various of its
agencies, or by various instrumentalities established or
sponsored by the U.S. government. Certain of these obligations,
including U.S. Treasury bills, notes and bonds, mortgage
participation certificates guaranteed by the Government National
Mortgage Association ( "Ginnie Mae"), and Federal Housing
Administration debentures, are supported by the full faith and
credit of the United States. Other U.S. Government Securities
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 .
The Fund may invest in securities of both longer and shorter
maturities, depending on the assessment by Putnam Investment
Management, Inc., the Fund's investment manager ("Putnam
Management"), of relative yields on securities of different
maturities and its expectations of future changes in interest
rates. In so doing, however, the Fund will seek to maintain an
average portfolio duration of four years or less (excluding
options and futures transactions).
"Duration" is a commonly used measure of the longevity of a debt
instrument. A debt instrument's duration is derived by
discounting principal and interest payments to their present
value using the instrument's current yield to maturity and taking
the dollar-weighted average time until those payments will be
received. Investors and investment analysts consider
duration to be a more useful measure of longevity than "maturity"
because it takes into account the full stream of payments
received on a debt instrument, including both interest and
principal payments, based on their present values.
The values of debt securities generally rise when interest rates
decrease and fall when interest rates increase. The values of
debt securities having shorter durations generally fluctuate less
than securities with longer durations. Thus, Putnam Management
believes that a portfolio which invests primarily in ARMS and
which has an average duration of four years or less will provide
investors with a reduced risk of loss due to changes in interest
rates, although such risk is not eliminated. The Fund's
portfolio may include securities with durations of more than
four years, so long as the Fund seeks to maintain an average
portfolio duration of four years or less.
The Fund may invest in collateralized mortgage obligations
("CMOs") , including certain stripped mortgage-backed
securities. CMOs generally represent a specifically defined
interest in a pool of mortgage loans. Certain CMOs may be more
volatile and less liquid than other types of mortgage-backed
securities. Stripped mortgage-backed securities are usually
structured with two classes that receive different portions of
the interest and principal distributions on a pool of mortgage
assets. The Fund will invest in both the interest-only or "IO"
class and the principal-only or "PO" class. See "Risk
factors" below .
At times Putnam Management may judge that conditions in the
securities markets make pursuing the Fund's basic investment
strategy inconsistent with the best interests of its
shareholders. At such times Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of the Fund's assets. In implementing
these "defensive" strategies, the Fund may invest without limit
in any type of U.S. Government Security and may hold any portion
of its assets in cash. It is impossible to predict when, or for
how long, the Fund will use such alternative strategies.
RISK FACTORS
U.S. Government Securities are considered among the safest of
debt securities, but their values, like those of other debt
securities, will fluctuate with changes in interest rates.
Changes in the value of portfolio securities will not affect
interest income from those securities but will be reflected in
the Fund's net asset value, although changes in interest rates
will generally affect the interest income from ARMS. Thus, a
decrease in interest rates may generally result in an increase in
the value of the Fund's shares. Conversely, during periods of
rising interest rates, the value of the Fund's shares will
generally decline. The magnitude of these fluctuations will
generally be greater when the Fund's average maturity is longer.
Because of their added safety, the yields available from U.S.
Government Securities are generally lower than the yields
available from comparable corporate debt securities.
Whereas certain U.S. Government Securities such as U.S. Treasury
obligations and Ginnie Mae certificates are backed by the full
faith and credit of the U.S. government, other securities in
which the Fund may invest are subject to varying degrees of risk
of default depending upon, among other factors, the
creditworthiness of the issuer and, in the case of mortgage-
backed securities, the ability of the mortgagor or other borrower
to meet its obligations.
ARMS and other mortgage-backed securities have yield and maturity
characteristics corresponding to the underlying assets. Thus,
unlike traditional debt securities, which may pay a fixed rate of
interest until maturity when the entire principal amount comes
due, payments on these securities include both interest and a
partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary
prepayment, refinancing or foreclosure of the underlying mortgage
loans. Such prepayments may significantly shorten the effective
maturities of ARMS and other mortgage-backed securities,
especially during periods of declining interest rates.
ARMS may have less risk of a decline during periods of rapidly
rising rates, but they may also have less potential for capital
appreciation than other debt securities of comparable maturities
due to the periodic adjustment of the interest rate on the
underlying mortgages and due to the likelihood of increased
prepayments of mortgages as interest rates decline. Furthermore,
during periods of declining interest rates, income to the Fund
derived from ARMS which remain in a mortgage pool will decrease
in contrast to the income on fixed-rate mortgages, which will
remain constant.
During periods of rising interest rates, changes in the coupon
rates of the mortgages underlying the Fund's investments may lag
behind changes in market interest rates. This may result in a
slightly lower net asset value until the coupons reset to market
rates. Thus, investors could suffer some principal loss if they
sold their shares of the Fund before the interest rates on the
underlying mortgages are adjusted to reflect current market
rates. During periods of extreme fluctuations in interest rates,
the Fund's net asset value will fluctuate as well. In addition,
since most ARMS in the Fund's portfolio will generally have
"caps" that limit the maximum amount by which the interest rate
paid by the borrower may change at each reset date or over the
life of the loan, fluctuation in interest rates above these
levels could cause such mortgage securities to "cap out" and to
behave more like long-term, fixed-rate debt securities.
CMOs are issued with a number of classes or series which have
different maturities and which may represent interests in some or
all of the interest or principal on the underlying collateral or
a combination thereof. CMOs of different classes are generally
retired in sequence as the underlying mortgage loans in the
mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMO first
to mature generally will be retired prior to its maturity. Thus,
the prepayment of mortgages underlying CMOs could have the same
effect as the prepayment of mortgages underlying other mortgage-
backed securities.
<PAGE>
Due to their prepayment aspect, mortgage-backed securities are
less effective than other types of securities as a means of
"locking in" attractive long-term interest rates. This is caused
by the need to reinvest prepayments of principal generally and
the possibility of significant unscheduled prepayments resulting
from declines in interest rates. These prepayments would have to
be reinvested at lower rates.
The yield to maturity on an IO class of stripped mortgage-backed
securities is extremely sensitive not only to changes in
prevailing interest rates but also to the rate of principal
payments (including prepayments) on the underlying assets, and a
rapid rate of principal payments may have a material adverse
effect on the Fund's yield to maturity. If the underlying
mortgage assets experience greater than anticipated prepayments
of principal, the Fund may fail to fully recoup its initial
investment in these securities. Conversely, POs tend to increase
in value if prepayments are greater than anticipated and decline
if prepayments are slower than anticipated. The secondary market
for stripped mortgage-backed securities may be less liquid than
that for other mortgage-backed securities, potentially limiting
the Fund's ability to buy or sell those securities at any
particular time.
INVESTMENTS IN PREMIUM SECURITIES
The Fund may at times invest in securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities
are typically purchased at prices greater than the principal
amounts payable on maturity. The Fund does not amortize the
premium paid for such securities in calculating its net
investment income. As a result, the purchase of such securities
provides the Fund a higher level of investment income
distributable to shareholders on a current basis than if the Fund
had purchased securities bearing current market rates of
interest. Because the value of premium securities tends to
approach the principal amount as they approach maturity (or call
price in the case of securities approaching their first call
date), the purchase of such securities may increase the Fund's
risk of capital loss if such securities are held to maturity (or
first call date).
During a period of declining interest rates, many of the Fund's
portfolio investments will likely bear coupon rates which are
higher than the current market rates, regardless of whether such
securities were originally purchased at a premium. Such
securities would generally carry premium market values which
would be reflected in the net asset value of the Fund's shares.
As a result, an investor who purchases shares of the Fund during
such periods would initially receive higher taxable monthly
distributions (derived from the higher coupon rates payable on
the Fund's investments) than might be available from alternative
investments bearing current market interest rates, but may face
an increased risk of capital loss as these higher coupon
securities approach maturity (or first call date). In evaluating
the potential performance of an investment in the Fund, investors
may find it useful to compare the Fund's current dividend rate
with the Fund's "yield," which is computed on a yield-to-maturity
basis in accordance with SEC regulations and which reflects
amortization of market premiums. See "How performance is shown."
PORTFOLIO TURNOVER
The length of time the Fund has held a particular security is
not generally a consideration in investment decisions. A change
in the securities held by the Fund is known as "portfolio
turnover." As a result of the Fund's investment policies, under
certain market conditions the Fund's portfolio turnover rate may
be higher than that of other mutual funds. Portfolio turnover
generally involves some expense to the Fund, including brokerage
commissions or dealer mark-ups and other transaction costs on the
sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains.
Portfolio turnover rates for the life of the Fund are shown in
the section "Financial highlights."
OPTIONS AND FUTURES PORTFOLIO STRATEGIES
THE FUND MAY ENGAGE IN A VARIETY OF TRANSACTIONS INVOLVING THE
USE OF OPTIONS AND FUTURES CONTRACTS WITH RESPECT TO
SECURITIES IN WHICH THE FUND MAY INVEST. THE FUND MAY PURCHASE
AND SELL FUTURES CONTRACTS IN ORDER TO HEDGE AGAINST CHANGES IN
THE VALUES OF SECURITIES THE FUND OWNS OR EXPECTS TO PURCHASE OR
TO HEDGE AGAINST INTEREST RATE CHANGES. For example, if Putnam
Management expected interest rates to increase, the Fund might
sell futures contracts on U.S. Government Securities. If rates
were to increase, the value of U.S. Government Securities held by
the Fund would decline, but this decline would be offset in whole
or in part by an increase in the value of the Fund's positions in
its futures contracts. The Fund may also purchase and sell call
and put options on futures contracts or on securities the Fund
owns or expects to purchase in addition to or as an alternative
to purchasing and selling futures contracts. The Fund will not
purchase put and call options with respect to such securities if
as a result more than 5% of its assets would at the time be
invested in such options.
OPTIONS AND FUTURES TRANSACTIONS INVOLVE COSTS AND MAY RESULT IN
LOSSES. The effective use of options and futures strategies
depends on the Fund's ability to terminate options and futures
positions at times when Putnam Management deems it desirable to
do so. Although the Fund will enter into an option or futures
contract position only if Putnam Management believes that a
liquid secondary market exists for such option or futures
contract, there is no assurance that the Fund will be able to
effect closing transactions at any particular time or at an
acceptable price. Options on certain U.S. Government Securities
are traded in significant volume on securities exchanges.
However, other options which the Fund may purchase or sell are
traded in the "over-the-counter" market rather than on an
exchange. This means that the Fund will enter into such option
contracts with particular securities dealers who make markets in
these options. The Fund's ability to terminate options positions
in the over-the-counter market may be more limited than for
exchange-traded options and may also involve the risk that
securities dealers participating in such transactions might
fail to meet their obligations to the Fund.
The use of options and futures strategies also involves the risk
of imperfect correlation among movements in the values of the
securities underlying the futures and options purchased and sold
by the Fund, of the option and futures contract itself, and of
the securities which are the subject of a hedge. The successful
use of these strategies further depends on the ability of Putnam
Management to forecast interest rate and market movements
correctly.
The Fund's ability to engage in options and futures transactions
and to sell related securities may be limited by tax
considerations and by certain regulatory requirements. See
"Taxes" in the Statement of Additional Information.
OTHER INVESTMENT PRACTICES
THE FUND MAY ALSO ENGAGE TO A LIMITED EXTENT IN THE FOLLOWING
INVESTMENT PRACTICES, EACH OF WHICH INVOLVES CERTAIN SPECIAL
RISKS. THE STATEMENT OF ADDITIONAL INFORMATION CONTAINS MORE
DETAILED INFORMATION ABOUT THESE PRACTICES, INCLUDING LIMITATIONS
DESIGNED TO REDUCE THESE RISKS.
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 total assets. These transactions
must be fully collateralized at all times. The Fund may also
purchase securities for future delivery, which may increase its
overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date.
These transactions involve some risk to the Fund if the other
party should default on its obligation and the Fund is delayed or
prevented from recovering the collateral or completing the
transaction.
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT INVESTMENT
RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT THE FUND
FROM: acquiring more than 10% of the voting securities of any
one issuer* and investing more than: (a) 5% of its total assets
in securities of any one issuer (other than U.S. Government
Securities);* (b) 10% of its net assets in securities restricted
as to resale, excluding securities determined by the Fund's
Trustees (or the person designated by the Fund's Trustees to make
such determinations) to be readily marketable;* (c) 25% of its
total assets in any one industry (U.S. Government Securities are
not considered to represent an industry);* or (d) 15% of its net
assets in any combination of securities that are not readily
marketable, in securities restricted as to resale (excluding
securities determined by the Fund's Trustees (or the person
designated by the Fund's Trustees to make such determinations) to
be readily marketable), or in repurchase agreements maturing in
more than seven days.
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the Statement of
Additional Information for the full text of these policies and
the Fund's other fundamental investment policies. Except
for investment policies designated as fundamental in this
Prospectus or the Statement, the investment policies described in
this Prospectus and in the Statement are not fundamental
investment policies. The Trustees may change any
non-fundamental investment policies without shareholder approval.
As a matter of policy, the Trustees would not materially change
the Fund's investment objectives without shareholder approval.
HOW PERFORMANCE IS SHOWN
THE FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE
INCLUDED IN ADVERTISEMENTS ABOUT THE FUND. "Yield" for each
class of shares is calculated by dividing the annualized
net investment income per share during a recent 30-day
period by the maximum public offering price per share of such
class on the last day of that period. For this purpose, net
investment income is calculated in accordance with SEC
regulations and may differ from net investment income as
determined for financial reporting purposes. SEC regulations
require that net investment income be calculated on a "yield-to-
maturity" basis, which has the effect of amortizing any premiums
or discounts in the current market value of fixed-income
securities. The current dividend rate is based on
net investment income as determined for tax
purposes, which may not reflect amortization in the same manner.
See "How objectives are pursued --Investments in premium
securities." Yield reflects the deduction of the maximum
initial sales charge in the case of Class A shares, but does not
reflect the deduction of any contingent deferred sales charge in
the case of Class B shares.
"Total return" for the one- , five- and ten-year periods
(or for the life of a class, if shorter) through the most
recent calendar quarter represents the average annual compounded
rate of return on an investment of $1,000 in the Fund
invested at the maximum public offering price (in the case
of Class A shares) or reflecting the deduction of any applicable
contingent deferred sales charge (in the case of Class B shares).
Total return may also be presented for other periods or based on
investment at reduced sales charge levels . Any quotation
of investment performance not reflecting the maximum
initial sales charge or contingent deferred sales charge would be
reduced if such sales charge were used.
ALL DATA IS BASED ON THE FUND'S PAST INVESTMENT RESULTS AND DOES
NOT PREDICT FUTURE PERFORMANCE. Investment performance, which
will vary, is based on many factors, including market conditions,
the composition of the Fund's portfolio, the Fund's operating
expenses and which class of shares you purchase. Investment
performance also often reflects the risks associated with the
Fund's investment objectives and policies. These factors should
be considered when comparing the Fund's investment results to
those of other mutual funds and other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The Fund's performance may be
compared to various indices. See the Statement of Additional
Information.
HOW THE FUND IS MANAGED
THE TRUSTEES OF THE FUND ARE RESPONSIBLE FOR GENERALLY OVERSEEING
THE CONDUCT OF THE FUND'S BUSINESS. Subject to such policies as
the Trustees may determine, Putnam Management furnishes a
continuing investment program for the Fund and makes investment
decisions on its behalf. Subject to the control of the Trustees,
Putnam Management also manages the Fund's other affairs and
business. Michael Martino,
Managing Director of
of Putnam Management and Vice President of the Fund, has had
primary responsibility for the day-to-day management of the
Fund's portfolio since July, 1994. Mr. Martino has been
employed by Putnam Management since January, 1994. Mr.
Martino was employed by Back Bay Advisors in the positions of
Executive Vice President and Chief Investment Officer from 1992
to 1994, and Senior Vice President and Senior Portfolio Manager
from 1990 to 1992 .
The Fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing and shareholder reporting expenses, and payments under
its Distribution Plans (which are in turn allocated to the
relevant class of shares). The Fund also reimburses Putnam
Management for the compensation and related expenses of certain
officers of the Fund and their staff who provide administrative
services to the Fund. The total reimbursement is determined
annually by the Trustees.
Putnam Management places all orders for purchases and sales of
the Fund's securities. In selecting broker-dealers, Putnam
Management may consider research and brokerage services furnished
to it and its affiliates. Subject to seeking the most favorable
price and execution available, Putnam Management may consider
sales of shares of the Fund (and, if permitted by law, of the
other Putnam funds) as a factor in the selection of
broker-dealers.
ORGANIZATION AND HISTORY
Putnam Adjustable Rate U.S. Government Fund is a Massachusetts
business trust organized on December 3, 1986. A copy of the
Agreement and Declaration of Trust, which is governed by
Massachusetts law, is on file with the Secretary of State of The
Commonwealth of Massachusetts. Prior to June 7, 1991, the Fund
was known as Putnam Capital Preservation/Income Trust.
The Fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Fund may, without shareholder
approval, be divided into two or more series of shares
representing separate investment portfolios. Any such series of
shares may be divided, without shareholder approval,
into two or more classes of shares having such preferences and
special or relative rights and privileges as the Trustees
determine. The Fund's shares are currently divided into three
classes, two of which are currently being offered.
Each share has one vote, with fractional shares voting
proportionally. Shares of each class will vote together as a
single class except when required by law or as determined by the
Trustees. Shares are freely transferable, are entitled to
dividends as declared by the Trustees, and, if the Fund were
liquidated, would receive the net assets of the Fund. The Fund
may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although the Fund is not required to
hold annual meetings of its shareholders, shareholders
holding at least 10% of the outstanding shares entitled to vote
have the right to call a meeting to elect or remove Trustees, or
to take other actions as provided in the Agreement and
Declaration of Trust.
If you own fewer shares than a minimum amount set by the Trustees
(presently 20 shares), the Fund may choose to redeem your shares
and pay you for them. You will receive at least 30 days' written
notice before the Fund redeems your shares, and you may purchase
additional shares at any time to avoid a redemption. The Fund
may also redeem shares if you own shares above a maximum amount
set by the Trustees. There is presently no maximum, but the
Trustees may establish one at any time, which could apply to both
present and future shareholders.
THE FUND'S TRUSTEES: GEORGE PUTNAM,* CHAIRMAN. President of the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; WILLIAM F. POUNDS, VICE
CHAIRMAN. Professor of Management, Alfred P. Sloan School of
Management, M.I.T.; JAMESON ADKINS BAXTER, President, Baxter
Associates, Inc.; HANS H. ESTIN, Vice Chairman, North American
Management Corp. ; JOHN A. HILL, Principal and Managing
Director, First Reserve Corporation; ELIZABETH T. KENNAN,
President, Mount Holyoke College; LAWRENCE J. LASSER,* Vice
President of the Putnam funds. President, Chief Executive
Officer and Director of Putnam Investments, Inc. and Putnam
Management. Director, Marsh & McLennan Companies, Inc.;
ROBERT E. PATTERSON, Executive Vice President, Cabot Partners
Limited Partnership; DONALD S. PERKINS, Chairman of the
Board and Director of Kmart Corporation and Director of
various corporations, including AT&T and Time Warner
Inc.; GEORGE PUTNAM, III,* President, New Generation Research,
Inc.; A.J.C. SMITH,* Chairman, Chief Executive Officer and
Director, Marsh & McLennan Companies, Inc.; and W. NICHOLAS
THORNDIKE, Director of various corporations and charitable
organizations, including Data General Corporatio, Bradley Real
Estate, Inc. and Providence Journal Co. Also, Trustee
of Massachusetts General Hospital, and Trustee of Eastern
Utilities Associates. The Fund's Trustees are also Trustees of
the other Putnam funds. Those marked with an asterisk (*) are
"interested persons" of the Fund, Putnam Management or Putnam
Mutual Funds.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
This Prospectus offers investors two classes of shares
which bear sales charges in different forms and amounts and which
bear different levels of expenses:
CLASS A SHARES. An investor who purchases Class A shares pays a
sales charge at the time of purchase. As a result, Class A shares
are not subject to any charges when they are redeemed (except for
sales at net asset value in excess of $1 million which are
subject to a contingent deferred sales charge). Certain
purchases of Class A shares qualify for reduced sales charges.
Class A shares currently bear a 12b-1 fee at the annual rate of
0.25% of the Fund's average net assets attributable to Class A
shares. See "How to buy shares -- Class A shares."
CLASS B SHARES. Class B shares are sold without an initial sales
charge, but are subject to a contingent deferred sales charge of
up to 3% if redeemed within four years. Class B shares also bear
a higher 12b-1 fee than Class A shares, currently at the annual
rate of 0.85% of the Fund's average net assets attributable to
Class B shares. Class B shares will automatically convert into
Class A shares, based on relative net asset value, approximately
eight years after purchase. Class B shares provide an investor
the benefit of putting all of the investor's dollars to work from
the time the investment is made, but (until conversion) will have
a higher expense ratio and pay lower dividends than Class A
shares due to the higher 12b-1 fee. See "How to buy shares --
Class B shares."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which
class of shares provides a more suitable investment for an
investor depends on a number of factors, including the amount and
intended length of the investment. Investors making investments
that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge
might consider Class B shares. Orders for Class B shares for
$250,000 or more will be treated as orders for Class A shares or
declined. For more information about these sales arrangements,
consult your investment dealer or Putnam Investor Services.
Sales personnel may receive different compensation depending on
which class of shares they sell. Shares may only be exchanged for
shares of the same class of another Putnam fund. See "How to
exchange shares."
HOW TO BUY SHARES
You can open a Fund account with as little as $500 and make
additional investments at any time with as little as $50. You
can buy Fund shares three ways - through most investment dealers,
through Putnam Mutual Funds (at 1-800-225-1581), or through a
systematic investment plan. If you do not have a dealer, Putnam
Mutual Funds can refer you to one.
BUYING SHARES THROUGH PUTNAM MUTUAL FUNDS. Complete an order
form and return it with a check payable to the Fund to Putnam
Mutual Funds, which will act as your agent in purchasing shares
through your designated investment dealer.
BUYING SHARES THROUGH SYSTEMATIC INVESTING. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking account. Application forms are available
from your investment dealer or through Putnam Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange to receive that
day's public offering price.
CLASS A SHARES
The public offering price of Class A shares is the net asset
value plus a sales charge. The Fund receives the net asset
value. The sales charge varies depending on the size of your
purchase and is allocated between your investment dealer and
Putnam Mutual Funds. The current sales charges are:<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE
AMOUNT OF
AS A PERCENTAGE OF:
SALES CHARGE
-------------------
REALLOWED
NET
TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING
AS A PERCENTAGE OF
AT OFFERING PRICE INVESTED PRICE
OFFERING PRICE*
- -----------------------------------------------------------------
- ------------------
<C> <C> <C> <C> <C>
<C>
Less than $ 100,000 3.36% 3.25%
3.00%
$100,000 but less than $ 250,000 2.56 2.50
2.25
250,000 but less than 500,000 2.04 2.00
1.75
500,000 but less than 1,000,000 1.52 1.50
1.25
/TABLE
<PAGE>
*At the discretion of Putnam Mutual Funds, however,
the entire sales charge may at times be reallowed to
dealers. The Staff of the Securities and Exchange
Commission has indicated that dealers who receive more
than 90% of the sales charge may be considered
underwriters.
There is no initial sales charge on purchases of Class A shares
of $1 million or more. However, a contingent deferred
sales charge ("CDSC") of 1.00% or 0.50%, respectively, is
imposed on redemptions of such shares within the first or second
year after purchase, based on the lower of the
shares' cost and current net asset value .
Any shares acquired by reinvestment of distributions will be
redeemed without a CDSC. In addition, shares purchased by
certain investors investing $1 million or more that have made
arrangements with Putnam Mutual Funds and whose dealer of record
waived the commission as described below are not subject to the
CDSC. In determining whether a CDSC is payable, the Fund
will first redeem shares not subject to any charge. Putnam
Mutual Funds receives the entire amount of any CDSC you pay.
See the Statement of Additional Information for more information
about the CDSC.
Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of Class A shares of $1
million or more based on an investor's cumulative purchases
during the one-year period beginning with the date of the initial
purchase at net asset value. Each subsequent one-year measuring
period for these purposes will begin with the first net asset
value purchase following the end of the prior period. Such
commissions are paid at the rate of 1.00% of the amount under $3
million, 0.50% of the next $47 million and 0.25% thereafter. On
sales at net asset value to a participant-directed qualified
retirement plan initially investing less than $20 million in
Putnam funds and other investments managed by Putnam Management
or its affiliates (including a plan sponsored by an employer with
more than 750 employees), Putnam Mutual Funds pays commissions on
cumulative purchases during the life of the account at the rate
of 1.00% of the amount under $3 million and 0.50% thereafter. On
sales at net asset value to all other participant-directed
qualified retirement plans, Putnam Mutual Funds pays commissions
on the initial investment and on subsequent net quarterly sales
at the rate of 0.15%.
YOU MAY BE ELIGIBLE TO BUY CLASS A SHARES AT REDUCED SALES
CHARGES. Consult your investment dealer or Putnam Mutual Funds
for details about Putnam's Combined Purchase Privilege,
Cumulative Quantity Discount, Statement of Intention, Group Sales
Plan, Employee Benefit Plans and other plans. Descriptions are
also included in the order form and in the Statement of
Additional Information. Shares may also be sold at net asset
value to certain categories of investors, and the CDSC may be
waived under certain circumstances. See "How to buy shares --
General" below.
CLASS B SHARES
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within four years of
purchase. The following types of shares may be redeemed without
charge at any time: (i) shares acquired by reinvestment of
distributions and (ii) shares otherwise exempt from the CDSC, as
described in "How to buy shares - General" below. For other
shares , the amount of the charge is determined as a
percentage of the lesser of the current market value or the cost
of the shares being redeemed. The amount of the CDSC
will depend on the number of years since you invested and the
dollar amount being redeemed, according to the following table:
<PAGE>
Contingent Deferred
Sales Charge as a
Percentage of
Years Since Purchase Dollar Amount
Payment Made Subject to
Charge
- ----------------------------------------------------------------
0-1 3.0%
1-2 3.0%
2-3 2.0%
3-4 1.0%
4 and thereafter NONE
In determining whether a CDSC is payable on any redemption, the
Fund will first redeem shares not subject to any charge, and then
shares held longest during the four-year period. For this
purpose, the amount of any increase in a share's value above its
initial purchase price is not regarded as a share exempt from the
CDSC. Thus, when a share that has appreciated in value is
redeemed during the four-year period, a CDSC is assessed on its
initial purchase price. For information on how sales charges
are calculated if you exchange your shares, see "How to exchange
shares." Putnam Mutual Funds receives the entire amount of any
CDSC you pay.
CONVERSION OF CLASS B SHARES. Class B shares will automatically
convert into Class A shares at the end of the month eight years
after the purchase date, except as noted below. Class B shares
acquired by exchanging Class B shares of another Putnam
Fund will convert into Class A shares based on the time of the
initial purchase. Class B shares acquired through reinvestment
of distributions will convert into Class A shares based on the
date of the initial purchase to which such shares relate. For
this purpose, Class B shares acquired through reinvestment of
distributions will be attributed to particular purchases of Class
B shares in accordance with such procedures as the Trustees may
determine from time to time. The conversion of Class B shares to
Class A shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel
that such conversions will not constitute taxable events for
Federal tax purposes. There can be no assurance that such ruling
or opinion will be available, and the conversion of Class B
shares to Class A shares will not occur if such ruling or opinion
is not available. In such event, Class B shares would continue to
be subject to higher expenses than Class A shares for an
indefinite period.
GENERAL
The Fund may sell Class A and Class B shares at net asset value
without an initial sales charge or a CDSC to the Fund's current
and retired Trustees (and their families), current and retired
employees (and their families) of Putnam Management and
affiliates, registered representatives and other employees (and
their families) of broker-dealers having sales agreements with
Putnam Mutual Funds, employees (and their families) of financial
institutions having sales agreements with Putnam Mutual Funds
(or otherwise having an arrangement with a broker-dealer or
financial institution with respect to sales of Fund shares),
financial institution trust departments investing an aggregate of
$1 million or more in Putnam funds, clients of certain
administrators of tax-qualified plans, employee benefit plans of
companies with more than 750 employees, tax-qualified plans when
proceeds from repayments of loans to participants are invested
(or reinvested) in Putnam funds, "wrap accounts" for the benefit
of clients of broker-dealers, financial institutions or financial
planners adhering to certain standards established by Putnam
Mutual Funds, and investors meeting certain requirements who sold
shares of certain Putnam closed-end funds pursuant to a tender
offer by the closed-end fund. In addition, the Fund may sell
shares at net asset value without an initial sales charge or a
CDSC in connection with the acquisition by the Fund of assets of
an investment company or personal holding company, and the CDSC
will be waived on redemptions of shares arising out of death or
disability or in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of Class B shares
subject to a Systematic Withdrawal Plan may also be redeemed each
year without a CDSC. See the Statement of Additional
Information.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
shares of the Fund at net asset value.
If you are considering redeeming or exchanging shares or
transferring shares to another person shortly after purchase, you
should pay for those shares with a certified check to avoid any
delay in redemption, exchange or transfer. Otherwise the Fund
may delay payment until the purchase price of those shares has
been collected or, if you redeem by telephone, until 15 calendar
days after the purchase date.
To eliminate the need for safekeeping, the Fund will not issue
certificates for your shares unless you request them. Putnam
Mutual Funds may, at its expense, provide additional promotional
incentives or payments to dealers that sell shares of the Putnam
funds. In some instances, these incentives or payments may be
offered only to certain dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all
classes of shares.
<PAGE>
DISTRIBUTION PLANS
CLASS A DISTRIBUTION PLAN. The Class A Plan provides
for payments by the Fund to Putnam Mutual Funds at the annual
rate of up to 0.35% of the Fund's average net assets
attributable to Class A shares. The Trustees currently limit
payments under the Class A Plan to the annual rate of
0.25% of such assets . Should the Trustees decide in the
future to approve payments in excess of this amount, shareholders
will be notified and this Prospectus will be revised.
In order to compensate investment dealers (including, for this
purpose, certain financial institutions) for services provided in
connection with sales of Class A shares and the maintenance of
shareholder accounts, Putnam Mutual Funds makes quarterly
payments to qualifying dealers based on the average net asset
value of Class A shares of the Fund which are attributable to
shareholders for whom the dealers are designated as the dealer of
record. This calculation excludes until one year after
purchase shares purchased at net asset value by shareholders
investing $1 million or more and by participant-directed
qualified retirement plans sponsored by employers with more than
750 employees ("NAV Shares"), except for shares owned by certain
investors investing $1 million or more that have made
arrangements with Putnam Mutual Funds and whose dealer of record
waived the sales commission. Except as stated below, Putnam
Mutual Funds makes such payments at the annual rate of 0.25% of
such average net asset value for Class A shares. For
participant-directed qualified retirement plans initially
investing less than $20 million in Putnam funds and other
investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to qualifying dealers on NAV Shares
are 100% of the rate stated above if average plan assets in
Putnam funds (excluding money market funds) during the quarter
are less than $20 million, 60% of the stated rate if average plan
assets are at least $20 million but less than $30 million, and
40% of the stated rate if average plan assets are $30 million or
more. For all other participant-directed qualified retirement
plans purchasing NAV Shares, Putnam Mutual Funds makes
quarterly payments to qualifying dealers at the annual rate
of 0.10% of the average net asset value of such shares.
CLASS B DISTRIBUTION PLAN . The Class B Plan provides for
payments by the Fund to Putnam Mutual Funds at the annual rate
of up to 1.00% of the Fund's average net assets attributable
to Class B shares . The Trustees currently limit payments
under the Class B Plan to the annual rate of 0.85% of such
assets. Should the Trustees decide in the future to approve
payments in excess of this amount, shareholders will be notified
and this Prospectus will be revised.
Although Class B shares are sold without an initial sales charge,
Putnam Mutual Funds pays a sales commission equal to 2.75% of the
amount invested to dealers who sell Class B shares. These
commissions are not paid on exchanges from other Putnam funds and
sales to investors exempt from the CDSC. In addition, in order to
further compensate dealers (including, for this purpose, certain
financial institutions) for services provided in connection with
sales of Class B shares and the maintenance of shareholder
accounts, Putnam Mutual Funds makes quarterly payments to
qualifying dealers based on the average net asset value of Class
B shares which are attributable to shareholders for whom the
dealers are designated as the dealer of record. Putnam Mutual
Funds makes such payments at an annual rate of 0.25% of such
average net asset value of such shares.
<PAGE>
GENERAL. Payments under the Plans are intended to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of the Fund's shares, including
the payments to dealers mentioned above. Putnam Mutual Funds
may suspend or modify such payments to dealers
. Such payments are also subject to the
continuation of the relevant Distribution Plan ,
the terms of Service Agreements between dealers and Putnam Mutual
Funds, and any applicable limits imposed by the National
Association of Securities Dealers, Inc.
HOW TO SELL SHARES
You can sell your shares to the Fund any day the New York Stock
Exchange is open, either directly to the Fund, by check, or
through your investment dealer. The Fund will only
redeem shares for which it has received payment.
SELLING SHARES DIRECTLY TO THE FUND. Send a signed letter of
instruction or stock power form to Putnam Investor Services,
along with any certificates that represent shares you want to
sell. The price you will receive is the next net asset value
calculated after the Fund receives your request in proper form
less any applicable CDSC. In order to receive that day's net
asset value, Putnam Investor Services must receive your request
before the close of regular trading on the New York Stock
Exchange. If you sell shares having a net asset value of $100,000
or more, the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer or
certain other financial institutions. See the Statement of
Additional Information for more information about where to obtain
a signature guarantee. Stock power forms are available from your
investment dealer, Putnam Investor Services and many commercial
banks. If you want your redemption proceeds sent to an address
other than your address as it appears on Putnam's records, a
signature guarantee is required. Putnam Investor Services
usually requires additional documentation for the sale of shares
by a corporation, partnership, agent or fiduciary, or a surviving
joint owner. Contact Putnam Investor Services for details.
THE FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES THE BUSINESS
DAY AFTER YOUR REQUEST IS RECEIVED. Under unusual circumstances,
the Fund may suspend redemptions , or postpone payment for
more than seven days, as permitted by federal securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 from your account, unless you have
notified Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on the
Account Application, Putnam Investor Services will be authorized
to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide Putnam Investor
Services with his or her account registration and address as it
appears on Putnam Investor Services' records. Putnam Investor
Services will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine;
if it fails to employ reasonable procedures, Putnam Investor
Services may be liable for any losses due to unauthorized or
fraudulent instructions. For information, consult Putnam
Investor Services. During periods of unusual market changes and
shareholder activity, you may experience delays in contacting
Putnam Investor Services by telephone in which case you may wish
to submit a written redemption request, as described above, or
contact your investment dealer, as described below. The
Telephone Redemption Privilege is not available if you were
issued certificates for your shares which remain outstanding.
The Telephone Redemption Privilege may be modified or terminated
without notice.
SELLING SHARES BY CHECK. If you would like to use the Fund's
check writing service , mark the proper box on the order
form and complete the signature card and, if applicable, the
resolution. Upon receiving the properly completed order form,
signature card and resolution, the Fund will provide checks drawn
on the Fund's designated bank. These checks may be made payable
to the order of any person in the amount of $500 or more. When a
check is presented for payment, a sufficient number of full and
fractional shares in your account will be redeemed at that day's
net asset value to cover the amount of the check. An additional
amount of shares will be redeemed to cover any applicable CDSC.
Shares to be redeemed by this method may not be represented by
share certificates.
Shareholders utilizing Fund checks are subject to the Fund's
designated bank's rules governing checking accounts. There is
currently no charge to shareholders for the use of checks. You
should make sure that there are sufficient shares in the account
to cover the amount of any check drawn, since the net asset value
of shares will fluctuate. If insufficient shares are in the
account, the check will be returned marked "insufficient funds,"
and no shares will be redeemed. Because dividends declared on
shares held in your account, prior redemptions, and possible
changes in net asset value may cause the value of your account to
change, it is impossible to determine in advance your account's
total value. Accordingly, you should not write a check for the
entire value of your account or close your account by writing a
check. The check writing service is not available for Tax
Qualified Retirement Plans.
SELLING SHARES THROUGH YOUR INVESTMENT DEALER. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange to receive that day's net asset
value. Your dealer will be responsible for furnishing all
necessary documentation to Putnam Investor Services, and may
charge you for its services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same class of
certain other Putnam funds at net asset value beginning 15 days
after purchase. Not all Putnam funds offer all classes of
shares. If you exchange shares subject to a CDSC, the
transaction will not be subject to the CDSC. However, when you
redeem the shares acquired through the exchange, the redemption
may be subject to the CDSC, depending upon when you originally
purchased the shares and using the schedule of any fund into or
from which you have exchanged your shares that would result in
your paying the highest CDSC applicable to your class of
shares. Class B shares of most other Putnam funds have a
higher CDSC than the Fund. For purposes of computing the
CDSC, the length of time you have owned your shares will be
measured from the date of original purchase and will not be
affected by any exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services.
Exchange Authorization Forms are available by calling or writing
Putnam Investor Services. For federal income tax purposes, an
exchange is treated as a sale of shares and generally results in
a capital gain or loss. A Telephone Exchange Privilege is
currently available for amounts up to $500,000. Putnam Investor
Services' procedures for telephonic transactions are described
above under "How to sell shares." The Telephone Exchange
Privilege is not available if you were issued certificates for
shares which remain outstanding. Ask your investment dealer or
Putnam Investor Services for prospectuses of other Putnam funds.
Shares of certain Putnam funds are not available to residents of
all states.
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or
the Trustees believe doing so would be in the best interests
of the Fund, the Fund reserves the right to revise or terminate
the exchange privilege, limit the amount or number of exchanges
or reject any exchange. Shareholders would be notified of any
such action to the extent required by law. Consult Putnam
Investor Services before requesting an exchange. See the
Statement of Additional Information to find out more about the
exchange privilege.
HOW THE FUND VALUES ITS SHARES
THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH CLASS
BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS LIABILITIES, BY
THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF
THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH
DAY THE EXCHANGE IS OPEN. Portfolio securities for which market
quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are
valued at amortized cost, which approximates market value.
The market value of an exchange-listed option is determined using
the last sale price on the principal exchange on which the option
is traded or, in the absence of a sale, the mean between the last
bid and asked price. All other securities and assets are valued
at their fair value following procedures approved by the
Trustees.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The Fund distributes net investment income at least monthly and
any net realized capital gains at least annually. Distributions
from capital gains are made after applying any available capital
loss carryover. A capital loss carryover is currently available.
Distributions paid by the Fund with respect to Class A shares
will generally be greater than those paid with respect to Class B
shares because expenses attributable to Class B shares will
generally be higher.
YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS: (1) reinvest all
distributions in additional Fund shares without a sales charge;
(2) receive distributions from net investment income in cash
while reinvesting capital gains distributions in additional
shares without a sales charge; or (3) receive all distributions
in cash. You can change your distribution option by notifying
Putnam Investor Services in writing. If you do not select an
option when you open your account, all distributions will be
reinvested. All distributions not paid in cash will be reinvested
in shares of the class on which the distributions are
paid. You will receive a statement confirming reinvestment of
distributions in additional Fund shares (or in shares of other
Putnam funds for Dividends Plus accounts) promptly following the
quarter in which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within
a specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting
the distribution in the Fund or in another Putnam fund. If <PAGE>
Putnam Investor Services does not receive your election, the
distribution will be reinvested in the Fund. Similarly, if
correspondence sent by the Fund or Putnam Investor Services is
returned as "undeliverable," Fund distributions will
automatically be reinvested in the Fund or in another Putnam
fund.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gains it distributes to shareholders. The
Fund will distribute substantially all of its ordinary income and
capital gain net income on a current basis.
All Fund distributions will be taxable to you as ordinary income,
except that any distributions of net long-term capital gains will
be taxable as such, regardless of how long you have held
the shares. Distributions will be taxable as described above
whether received in cash or in shares through the reinvestment of
distributions.
Early in each year the Fund will notify you of the amount and tax
status of distributions paid to you by the Fund for the preceding
year.
The Fund's distributions may, to the extent they consist of
interest from securities of the U.S. government and certain of
its agencies and instrumentalities, be exempt from all state and
local income taxes. Interest from obligations which are merely
guaranteed by the U.S. government or one of its agencies, such as
mortgage participation certificates guaranteed by Ginnie Mae,
generally is not entitled to this exemption. Although there is
no assurance that any such state and local exemptions will be
available, the Fund will advise shareholders of the portion of
its distributions which might qualify for such an exemption.
The foregoing is a summary of certain federal income tax
consequences of investing in the Fund. You should consult your
tax adviser to determine the precise effect of an investment in
the Fund on your particular tax situation (including possible
liability for state and local taxes).
<PAGE>
ABOUT PUTNAM INVESTMENTS, INC.
PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937.
Putnam Mutual Funds is the principal underwriter of the Fund and
of other Putnam funds. Putnam Fiduciary Trust Company is the
Fund's custodian. Putnam Investor Services, a division of Putnam
Fiduciary Trust Company, is the Fund's investor servicing and
transfer agent.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., which is
wholly owned by Marsh & McLennan Companies, Inc., a
publicly - owned holding company whose principal businesses
are international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
<PAGE>
GLOSSARY OF TERMS
BOND An IOU issued by a government or corporation
that
usually pays interest.
- -----------------------------------------------------------------
CAPITAL A profit or loss on the sale of securites (stocks
GAIN/LOSS or bonds).
- -----------------------------------------------------------------
CLASS A,B,M Types of shares, each class offering investors a
SHARES different choice about how to pay sales charges
and distribution fees. A fund's prospectus
explains the availability and advantage of each
type.
- -----------------------------------------------------------------
COMMON A unit of ownership of a corporation.
STOCK
- -----------------------------------------------------------------
DISTRIBUTION A payment from a mutual fund to shareholders. It
may include interest from bonds and dividends from
stocks (dividend distribution). It may also
include profits from the sale of securities from
the fund's portfolio (capital gains
distributions).
- -----------------------------------------------------------------
NET ASSET The basic value of one share of a mutual fund
VALUE (NAV) without regard to sales charges. Some bond funds
aim for a steady NAV, representing stability, most
stock funds work to raise NAV, representing growth
in the value of an investment.
- -----------------------------------------------------------------
PUBLIC The purchase price of one class A share or class M
OFFERING share of a mutual fund, including the applicable
PRICE (POP) up-front sales charge.
- -----------------------------------------------------------------
TOTAL RETURN A measure of performance showing change in the
value of an investment over a given period,
assuming all earnings are invested back into the
fund.
- -----------------------------------------------------------------
YIELD The percentage rate at which a fund's portfolio
earns income from its investments.
<PAGE>
MAKE THE MOST OF YOUR PUTNAM PRIVILEGES
As a Putnam mutual fund shareholder, you have access to a number
of services that can help you build a more effective and flexible
financial program. Here are some of the ways you can use these
privileges to make the most of your Putnam mutual fund investment
SYSTEMATIC INVESTMENT PLAN
Invest as much as you wish ($25 or more) on any day of the month
except for the 29th, 30th, or 31st. The amount will be
automatically transferred from your checking or savings account.
SYSTEMATIC WITHDRAWAL
Make regular withdrawals of $50 or more monthly, quarterly, or
semiannually from an account valued at $10,000 or more. You may
establish your withdrawal on any day of the month except for the
29th, 30th, or 31st.
SYSTEMATIC EXCHANGE
Transfer assets automatically from one Putnam account to another
on a regular, prearranged basis. There is no additional charge
for this service.
FREE EXCHANGE PRIVILEGE
Exchange money between Putnam funds in the same class of shares
without charge. The exchange privilege allows you to adjust your
investments as your objectives change. A signature guarantee is
required for exchanges of more than $500,000.
DIVIDENDS PLUS
Diversify your portfolio by investing dividends and other
distributions from one Putnam fund automatically into another at
net asset value.
STATEMENT OF INTENTION
To reduce a front-end sales charge, you agree to invest a minimum
dollar amount over 13 months. Depending on your fund, the
minimum is $25,000, $50,000, or $100,000. Whenever you make an
investment under this arrangement, you or your investment advisor
should notify Putnam that a Statement of Intention is in effect.
Investors may not maintain, within the same fund, simultaneous
plans for systematic investment or exchange and systematic
withdrawal or exchange. These privileges are subject to change
or termination.
For more information about any of these services and privileges,
call your investment advisor or a Putnam customer service
representative toll free at 1-800-225-1581.
PUTNAM FAMILY OF FUNDS
PUTNAM GROWTH FUNDS
Putnam Asia Pacific Growth Fund
Putnam Diversified Equity Trust
Putnam Europe Growth Fund
Putnam Global Growth Fund
Putnam Health Sciences Trust
Putnam Investors Fund
Putnam Natural Resources Fund
Putnam New Opportunities Fund
Putnam OTC Emerging Growth Fund
Putnam Overseas Growth Fund
Putnam Vista Fund
Putnam Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Putnam Convertible Income-Growth Trust
Putnam Dividend Growth Fund
Putnam Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Putnam Growth and Income Fund II
Putnam Managed Income Trust
Putnam Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Putnam Adjustable Rate U.S. Government Fund
Putnam American Government Income Fund
Putnam Balanced Government Fund
Putnam Corporate Asset Trust
Putnam Diversified Income Trust
Putnam Federal Income Trust
Putnam Global Governmental Income Trust
Putnam High Yield Advantage Fund
Putnam High Yield Trust
Putnam Income Fund
Putnam U.S. Government Income Trust
<PAGE>
PUTNAM TAX-FREE INCOME FUNDS
Putnam Intermediate Tax Exempt Fund
Putnam Municipal Income Fund
Putnam Tax Exempt Income Fund
Putnam Tax-Free High Yield Fund
Putnam Tax-Free Insured Fund
Putnam State tax-free income funds*
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio, and Pennsylvania
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that
spread your money across a variety of stocks, bonds, and money
market investments seeking to help maximize your return and
reduce your risk.
The three portfolios:
Balanced Portfolio
Conservative Portfolio
Growth Portfolio
PUTNAM MONEY MARKET FUNDS
Putnam Money Market Fund+
Putnam California Tax Exempt Money Market Fund
Putnam New York Tax Exempt Money Market Fund
Putnam Tax Exempt Money Market Fund
*Not available in all states.
+Formerly Putnam Daily Dividend Trust.
Please call your financial advisor or Putnam to obtain a
prospectus for any Putnam fund. It contains more complete
information, including charges and expenses. Read it carefully
before you invest or send money.
<PAGE>
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
INVESTOR SERVICING AGENT
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
CUSTODIAN
Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
<PAGE>
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1995
This Statement of Additional Information is not a Prospectus and
is only authorized for distribution when accompanied or preceded
by the Prospectus of the Fund dated March 1, 1995 , as
revised from time to time. This Statement contains information
which may be useful to investors but which is not included in the
Prospectus. If the Fund has more than one form of current
Prospectus, each reference to the Prospectus in this Statement
shall include all the Fund's Prospectuses unless otherwise noted.
The Statement should be read together with the applicable
Prospectus. Investors may obtain a free copy of the applicable
Prospectus from Putnam Investor Services, Mailing address: P.O.
Box 41203, Providence, RI 02940-1203.
Part I of this Statement contains specific information about the
Fund. Part II includes information about the Fund and the other
Putnam funds.
<PAGE>
TABLE OF CONTENTS
PART I PAGE
INVESTMENT RESTRICTIONS OF THE FUND . . . . . . . . . .
I- 3
FUND CHARGES AND EXPENSES . . . . . . . . . . . . . . .
I- 6
INVESTMENT PERFORMANCE OF THE FUND. . . . . . . . . . .
I- 8
ADDITIONAL OFFICERS OF THE FUND . . . . . . . . . . .
.I- 13
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS. . .
.I- 13
PART II
MISCELLANEOUS INVESTMENT PRACTICES. . . . . . . . . . .
. . . II-1
TAXES . . . . . . . . . . . . . . . . . . . . . . . . .
. . .II-23
MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . . .
. . .II-28
DETERMINATION OF NET ASSET VALUE. . . . . . . . . . . .
. . .II-37
HOW TO BUY SHARES . . . . . . . . . . . . . . . . . . .
. . .II-39
DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . . .
. . .II-50
INVESTOR SERVICES . . . . . . . . . . . . . . . . . . .
. . .II-51
SIGNATURE GUARANTEES. . . . . . . . . . . . . . . . . .
. . .II-57
SUSPENSION OF REDEMPTIONS . . . . . . . . . . . . . . .
. . .II-57
SHAREHOLDER LIABILITY . . . . . . . . . . . . . . . . .
. . .II-58
STANDARD PERFORMANCE MEASURES . . . . . . . . . . . . .
. . .II-58
COMPARISON OF PORTFOLIO PERFORMANCE . . . . . . . . . .
. . .II-59
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . .
. . .II-64
<PAGE>
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
STATEMENT OF ADDITIONAL INFORMATION
PART I
INVESTMENT RESTRICTIONS OF THE FUND
AS FUNDAMENTAL INVESTMENT RESTRICTIONS, WHICH MAY NOT BE CHANGED
WITHOUT A VOTE OF A MAJORITY OF THE OUTSTANDING VOTING
SECURITIES, THE FUND MAY NOT AND WILL NOT:
(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not
including the amount borrowed) at the time the borrowing is made,
and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such
borrowings will be repaid before any additional investments are
made.
(2) Pledge, hypothecate, mortgage or otherwise encumber its
assets in excess of 15% of its total assets (taken at current
value) and then only to secure borrowings permitted by
restriction 1 above. (The deposit of underlying securities and
other assets in escrow in connection with the writing of put or
call options and collateral arrangements with respect to margin
for futures contracts and related options are not deemed to be
pledges or other encumbrances.)
(3) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and
sales of securities, and except that it may make margin payments
in connection with transactions in futures contracts and related
options.
(4) 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.
(5) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws.
(6) Purchase or sell real estate, although it may purchase
securities which are secured by or represent interests in real
estate.
(7) Purchase or sell commodities or commodity contracts, except
financial futures contracts and related options.
(8) Make loans, except by purchase of debt obligations in which
the Fund may invest consistent with its investment policies, by
entering into repurchase agreements with respect to not more than
25% of its total assets (taken at current value), or through the
lending of its portfolio securities with respect to not more than
25% of its assets.
(9) Invest in securities of any issuer if, to the knowledge of
the Fund, officers and Trustees of the Fund and officers and
directors of Putnam Management who beneficially own more than
0.5% of the securities of that issuer together own more than 5%.
(10) 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 U.S.
Government Securities.
(11) Acquire more than 10% of the voting securities of any
issuer.
(12) Invest more than 25% of the value of its total assets in
any
one industry. (U.S. Government Securities are not considered to
represent an industry.)
(13) Invest in the securities of other registered investment
companies, except as they may be acquired as part of a merger or
consolidation or acquisition of assets.
(14) Purchase securities the disposition of which is
restricted
under federal securities laws, if as a result such investments
would exceed 10% of the value of the Fund's net assets, excluding
restricted securities that have been determined by the Trustees
of the Fund (or the person designated by them to make such
determinations) to be readily marketable.
(15) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
(16) Make investments for the purpose of gaining control of a
company's management.
(17) Issue any class of securities which is senior to the
Fund's
shares of beneficial interest.
IT IS CONTRARY TO THE FUND'S PRESENT POLICY, WHICH MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL, TO:
(1) Invest in (a) securities which at the time of such
investment are not readily marketable, (b) securities restricted
as to resale (excluding securities determined by the Trustees of
the Fund (or person designated by the Trustees of the Fund to
make such determinations) to be readily marketable), and (c)
repurchase agreements maturing in more than seven days, if, as a
result, more than 15% of the Fund's net assets (taken at current
value) would be invested in securities described in (a), (b) and
(c) above.
(2) Invest more than 2% of its net assets in warrants (other
than warrants acquired by the Fund as part of a unit or attached
to securities at the time of purchase).
(3) Purchase or sell real property (including limited
partnership interests), except that the Fund may (a) purchase or
sell readily marketable interests in real estate investment
trusts or readily marketable securities of companies which invest
in real estate (b) purchase or sell securities that are secured
by interests in real estate or interests therein, or (c) acquire
real estate through exercise of its rights as a holder of
obligations secured by real estate or interests therein or sell
real estate so acquired.
--------------------
Although certain of the Funds's fundamental investment
restrictions permit the Fund to borrow money to a limited extent,
the Fund does not currently intend to do so and did not do so
last year.
-------------------------
All percentage limitations on investments will apply at the time
of the making of an investment and shall not be considered
violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The Investment Company Act of 1940 provides that a "vote of a
majority of the outstanding voting securities" of the Fund means
the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares
are represented at the meeting in person or by proxy.
<PAGE>
FUND CHARGES AND EXPENSES
MANAGEMENT FEES
Under a Management Contract dated May 7, 1992, the Fund pays a
quarterly fee to Putnam Management based on the average net
assets of the Fund, as determined at the close of each business
day during the quarter, at an annual rate of 0.60% of the first
$500 million of the Fund's average net assets, 0.50% of the next
$500 million, 0.45% of the next $500 million and 0.40% of any
amount over $1.5 billion. For its 1992 , 1993
and 1994 fiscal years, pursuant to the Management Contract
(and a management contract in effect prior to May 7, 1992, under
which the management fee payable to Putnam Management was paid at
an annual rate of 0.75% of the first $100 million of the Fund's
average net assets, 0.65% of the next $100 million, 0.55% of the
next $300 million, 0.50% of the next $1 billion and 0.45% of any
amount over $1.5 billion), the Fund incurred fees of
$2,100,606, $2,064,382 and $1,189,184 ,
respectively. (This reflects a reduction of
$165,348 pursuant to an expense limitation in effect
during fiscal 1992.)
BROKERAGE COMMISSIONS
In fiscal 1992, the Fund did not incur any brokerage
commissions on agency transactions. In fiscal 1993 and 1994,
the Fund incurred brokerage commissions
on agency
transactions aggregating $39,066 and $42,845, respectively.
In fiscal 1992, the Fund incurred underwriting commissions
aggregating $5,291 on underwritten transactions. In fiscal 1993,
the Fund incurred underwriting commissions aggregating
$16,688 on underwritten transactions. In fiscal 1994, the Fund
did not incur any underwriting commissions. In fiscal 1994,
Putnam Management, on behalf of the Fund, placed agency
transactions having an approximate aggregate dollar value of
$3,862,978 (7.1% of the Fund's agency transactions, on which
approximately $3,046 of commissions were paid) with brokers and
dealers to recognize research, statistical and quotation services
Putnam Management considered to be particularly useful to it and
its affiliates.
ADMINISTRATIVE EXPENSE REIMBURSEMENT
The Fund reimbursed Putnam Management $8,516 for
administrative services in fiscal 1994, including
$7,796 for the compensation of certain officers of the
Fund and their staff and contributions to the Putnam Investments,
Inc. Profit Sharing Retirement Plan for their benefit.
<PAGE>
<TABLE>
<CAPTION>
The Fund pays each Trustee a fee for his or her services. Each
Trustee also receives fees
for serving as Trustee of other Putnam funds. The Trustees
periodically review their fees
to assure that such fees continue to be appropriate in light of
their responsibilities as
well as in relation to fees paid to trustees of other mutual fund
complexes. The Trustees
meet monthly over a two-day period, except in August. The
Compensation Committee, which
consists solely of Trustees not affiliated with Putnam
Management and is
responsible for recommending Trustee compensation, estimates that
the Committee and
Trustee meeting time together with the appropriate preparation
requires the equivalent of
at least three business days per Trustee meeting. The fees paid
to each Trustee by the
Fund and by all of the Putnam funds are shown below:
RETIREMENT
YEAR FIRST BENEFITS
TOTAL
ELECTED AS A AGGREGATE ACCRUED AS
COMPENSATION
TRUSTEE OF THE COMPENSATION PART OF FUND'S
FROM ALL
TRUSTEES PUTNAM FUNDS FROM THE FUND* EXPENSES
PUTNAM FUNDS**
- -----------------------------------------------------------------
- ----------------
<C> <C> <C> <C> <C>
Jameson A. Baxter 1994 $721 $0
$143,850
Hans H. Estin 1972 935 0
141,850
John A. Hill 1985 943 0
141,850
Elizabeth T. Kennan 1992 933 0
139,850
Lawrence J. Lasser 1992 935 0
141,850
Robert E. Patterson 1984 948 0
143,850
Donald S. Perkins 1982 926 0
139,850
William F. Pounds 1971 943 0
141,850
George Putnam 1957 935 0
141,850
George Putnam, III 1984 935 0
141,850
A.J.C. Smith 1986 918 0
137,850
W. Nicholas Thorndike 1992 948 0
143,850
- -----------------------------------------------------------------
- -----------------
* Reflects amounts paid by the Fund for its fiscal year
ended October 31, 1994.
Includes an annual retainer and, in the case of all
Trustees other than Messrs.
Lasser and Putnam, an attendance fee for each meeting
attended.
** Reflects total payments received from all Putnam funds
in the most recent calendar
year. As of December 31, 1994, there were 86 funds in
the Putnam family.
</TABLE>
The Fund's Trustees have approved Retirement Guidelines for
Trustees of the Putnam funds. These guidelines provide generally
that a Trustee who retires after reaching age 72 and who has at
least 10 years of continuous service will be eligible to receive
a retirement benefit from each Putnam fund for which he or she
served as a Trustee. The amount and form of such benefit is
subject to determination annually by the Trustees and, unless
otherwise determined by the Trustees, will be an annual cash
benefit payable for life equal to one-half of the Trustee
retainer fees paid by the Fund at the time of retirement.
Several retired Trustees are currently receiving benefits
pursuant to the Guidelines and it is anticipated that the current
Trustees of the Fund will receive similar benefits upon their
retirement. A Trustee who retired in the most recent calendar
year and was eligible to receive benefits under these Guidelines
would have received an annual benefit of $60,425, based upon the
aggregate retainer fees paid by the Putnam funds for such year.
The Trustees of the Fund reserve the right to amend or terminate
such Guidelines and the related payments at any time, and may
modify or waive the foregoing eligibility requirements when
deemed appropriate.
For additional information concerning the Fund's Trustees, see
"Management of the Fund" in Part II of this Statement of
Additional Information.
OWNERSHIP OF FUND SHARES
At January 31, 1995 the officers and Trustees of the Fund
as a group owned less than 1% of the outstanding shares of
any class of the Fund, and to the knowledge of the Fund no
person owned of record or beneficially 5% or more of the shares
of any class of the Fund.
CLASS A SALES CHARGES, CONTINGENT DEFERRED SALES CHARGES AND
12B-1 FEES
During fiscal 1992 , 1993 and 1994 , Putnam
Mutual Funds received $4,570,726 , $755,917
and $304,109 , respectively, in sales charges on sales of
Class A shares of the Fund, of which it retained
$479,109 , $69,545 and $26,158 , respectively, after
allowance of dealer concessions. During fiscal 1992, 1993
and 1994 , Putnam Mutual Funds received $80,821 ,
$89,628 and $61,733 , respectively, in contingent deferred
sales charges upon redemptions of Class A shares of the Fund.
During fiscal 1994 , the Fund incurred $386,674 in
12b-1 fees to Putnam Mutual Funds pursuant to the Fund's Class A
Distribution Plan.
CLASS B CONTINGENT DEFERRED SALES CHARGES AND 12B-1 FEES
During fiscal 1992 , 1993 and 1994 , Putnam Mutual
Funds received $28,986 , $159,362 and $227,180 ,
respectively, in contingent deferred sales charges upon
redemptions of Class B shares of the Fund. During fiscal
1994 , the Fund incurred $362,741 in 12b-1 fees to
Putnam Mutual Funds pursuant to the Fund's Class B Distribution
Plan.
INVESTOR SERVICING AND CUSTODY FEES AND EXPENSES
During the 1994 fiscal year, the Fund incurred
$108,109 in fees and out-of-pocket expenses for investor
servicing and custody services provided by Putnam Fiduciary Trust
Company.
INVESTMENT PERFORMANCE OF THE FUND
STANDARD PERFORMANCE MEASURES
The yield for Class A shares for the thirty-day period ended
October 31, 1994 was 4.49% . The Fund's average
annual total return (compounded annually) for Class A shares for
the one- and five-year periods ended October 31, 1994 and
for the life of the class through October 31, 1994 was -
2.93%, +3.46% and +4.37%, respectively. Investment performance is
adjusted to reflect the deduction of the maximum sales charge of
3.25%. The yield for Class B shares for the thirty-day period
ended October 31, 1994 was 4.03%. The average annual total
return (compounded annually) for Class B shares for the one-year
period ended October 31, 1994 and the life of the class through
October 31, 1994 was -3.21% and -0.36% , respectively,
adjusted to reflect the deduction of the applicable
contingent deferred sales charge . The maximum contingent
deferred sales charge is 3.00%. See "Other Performance
Information" below for the inception date of each class. See
"Standard Performance Measures" in Part II of this Statement for
information on how the Fund's investment performance is
calculated.
PERFORMANCE RATINGS
For the 1994 fiscal year, the Class A shares were
ranked 44 of 78 adjustable rate mortgage funds by
Lipper Analytical Services, Inc. and 45 of 165
government mortgage-backed funds by CDA/Weisenberger's
Management Results. As of the end of the fiscal year, Class A
shares were given a 2-star rating (out of 5 stars) by
Morningstar, Inc. For the 1994 fiscal year, the Class B
shares were ranked 55 of 78 adjustable rate
mortgage funds by Lipper Analytical Services, Inc. and 54
of 165 government mortgage-backed funds by
CDA/Weisenberger's Management Results. Class B shares were not
rated by Morningstar, Inc. See "Comparison of Portfolio
Performance" in Part II of this Statement for information about
how these rankings and ratings are determined. Past
performance is no guarantee of future results.
<PAGE>
<TABLE>
<CAPTION>
OTHER PERFORMANCE INFORMATION
The tables below show total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment
in one share of the Fund during the life of the Fund. This was a
period of fluctuating security prices. The tables do
not project the future performance of the Fund. On June 6,
1991, the Trustees of the Fund approved changes to the
Fund's investment objectives and policies. Prior to these
changes, the Fund invested exclusively in a shorter-term
portfolio of U.S. government securities, without any emphasis on
adjustable rate mortgage securities.
CLASS A
SHARES
CUMULATIVE
MAXIMUM
DISTRIBUTIONS NET ASSET VALUE
OFFERING NET ASSET VALUE
- ------------------- AT YEAR-END
FISCAL PRICE AT ------------------ FROM
FROM WITH ALL
YEAR BEGINNING BEGINNING END OF
INVESTMENT TAX
RETURN
DISTRIBUTIONS ENDED OF YEAR(1) OF YEAR YEAR
INCOME OF
CAPITAL EINVESTED
- -----------------------------------------------------------------
- ------------------------
<C> <C> <C> <C> <C>
<C> <C>
10/31/88(2) $12.37 $11.97 $11.74 $0.712
- --- $12.47
10/31/89 12.13 11.74 11.65 1.017
- --- 13.51
10/31/90 12.04 11.65 11.34 1.080
- --- 14.46
10/31/91 11.72 11.34 11.25 1.033
- --- 15.71
10/31/92 11.63 11.25 10.92 0.738
- --- 16.29
10/31/93 11.29 10.92 10.55 0.516
- --- 16.51
10/31/94 10.90 10.55 10.17 0.390
$0.02 16.56
----- ----
Total distributions $5.486
$0.02
===== =====
(1) Figures prior to February 18, 1992 have been restated to
reflect a change in the maximum offering price on that
date.
(2) Investment operations began January 5, 1988.
/TABLE
<PAGE>
<TABLE>
<CAPTION> PERCENTAGE CHANGES DURING
LIFE OF CLASS A SHARES
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
---------------------------------------
LEHMAN
BROTHERS LEHMAN BROTHERS(3)
MAXIMUM OFFERING NET ASSET VALUE
MORTGAGE-BACKEDADJUSTABLE RATE
PRICE TO NET TO NET
SECURITIES MORTGAGE-BACKED CONSUMER
FISCAL ASSET VALUE(1) ASSET VALUE
INDEX SECURITIES INDEX PRICE INDEX
YEAR CUMULA- CUMULA-
CUMULA- CUMULA- CUMULA-
ENDED ANNUAL TIVE ANNUAL TIVE ANNUAL
TIVE ANNUAL TIVE ANNUALTIVE
- -----------------------------------------------------------------
- ------------------------------------------
<C> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
10/31/88 (2) - +0.8% - +4.2% -
+10.9% - - - +4.2%
10/31/89 +4.9% +9.3 +8.4% +12.9
+11.2% +23.3 - - 4.5% +8.0
10/31/90 +3.5 +16.9 +7.0 +20.8 +8.5
+33.8 - - +6.3 +15.7
10/31/91 +5.1 +27.0 +8.6 +31.2 +16.9
+56.4 - - +2.9 +19.1
10/31/92 +0.3 +31.7 +3.7 +36.1 +8.2
+69.2 - +3.9% +3.2 +22.9
10/31/93 -2.0 +33.5 +1.3 +37.9 +7.9
+82.5 +6.7 +10.8 +2.8 +26.3
10/31/94 -2.9 +33.9 +0.3 +38.3 -1.5
+79.8 +0.2 +11.0 +2.6 +29.6
(1) Figures prior to February 18, 1992 have been restated to
reflect a change in the maximum offering price on that
date.
(2) Investment operations began January 5, 1988.
(3)Inception date is December 31, 1991.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
CLASS B SHARES
CUMULATIVE
NET ASSET DISTRIBUTIONS NET
ASSET VALUE
VALUE ------------------- AT
YEAR-END
FISCAL ----------------- FROM FROM
WITH ALL
YEAR BEGINNING END OF INVESTMENT TAX
RETURN DISTRIBUTIONS
ENDED OF YEAR YEAR INCOME OF
CAPITAL REINVESTED
- -----------------------------------------------------------------
- -----------
<C> <C> <C> <C> <C>
<C>
10/31/92 (1) $11.15 $10.91 $0.305 -----
$11.21
10/31/93 10.91 10.53 0.453 -----
11.29
10/31/94 10.53 10.15 0.390 $0.02
11.25
-----
----- -----
Total distributions $1.148 $0.02
(1) Class B shares were offered beginning May 11, 1992.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES
DURING LIFE OF CLASS B SHARES
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
-----------------
LEHMAN BROTHERS LEHMAN
BROTHERS
NET ASSET VALUE MORTGAGE-BACKED ADJUSTABLE
RATE
TO NET SECURITIES
MORTGAGE-BACKED CONSUMER
FISCAL ASSET VALUE INDEX SECURITIES
INDEX PRICE INDEX
YEAR CUMULA- CUMULA-
CUMULA- CUMULA-
ENDED ANNUAL TIVE ANNUAL TIVE ANNUAL
TIVE ANNUALTIVE
- -----------------------------------------------------------------
- -------------------------
<C> <C> <C> <C> <C>
<C> <C> <C> <C>
10/31/92 (1) - +0.6% - +2.1% -
+3.0 - +1.6%
10/31/93 +0.7% +1.3 +7.9% +10.1% +6.7
+9.9 +2.8% +4.5
10/31/94 -0.3 +0.9 -1.5 +8.5 +0.2
+10.1 +2.6 +7.2
(1) Class B shares were offered beginning May 11, 1992.
/TABLE
<PAGE>
The tables are not adjusted for any taxes payable on reinvested
distributions or for any contingent deferred sales charges
which would be applied upon redemption of Class B shares .
The total values for the Fund as of the end of each period
reflect reinvestment of all distributions and all changes in net
asset value.
The Lehman Brothers Mortgage-Backed Securities Index includes 15-
and 30-year fixed rate securities backed by mortgage pools of the
Government National Mortgage Association (GNMA), Federal Home
Loan Mortgage Corporation (FHLMC), and Federal National Mortgage
Association (FNMA). The Lehman Brothers Adjustable Rate
Mortgage-Backed Securities Index includes adjustable-rate
securities backed by mortgage pools of GNMA, FHLMC and FNMA.
The performance figures of the indexes reflect changes in
market prices and reinvestment of all interest payments. Because
the Fund is a managed portfolio investing in a variety of
U. S. Government Securities, the securities it owns will not
match those in the indexes .
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of the rate of inflation.
The index shows the average change in the cost of selected
consumer goods and services and does not represent a return on an
investment vehicle.
ADDITIONAL OFFICERS OF THE FUND
In addition to the persons listed as officers of the Fund in Part
II of this Statement, the following persons are also officers of
the Fund. Officers of Putnam Management hold the same offices in
Putnam Management's parent company, Putnam Investments, Inc.
GARY N. COBURN, Vice President. Senior Managing Director of
Putnam Management. Vice President of certain of the Putnam funds.
MICHAEL MARTINO , Vice President. Managing Director
of Putnam Management. Vice President of certain of the Putnam
funds. Prior to January, 1994, Mr. Martino was employed by Back
Bay Advisors in the positions of Executive Vice President and
Chief Investment Officer from 1992 to 1994 and Senior Vice
President and Senior Portfolio Manager from 1990 to 1992.
<PAGE>
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Price Waterhouse LLP, 160 Federal Street, Boston, MA
02110, are the Fund's independent accountants, providing
audit services, tax return review and other tax consulting
services and assistance and consultation in connection with the
review of various Securities and Exchange Commission filings.
The Report of Independent Accountants and financial statements
included in the Fund's Annual Report for the fiscal year
ended October 31, 1994 , filed electronically on
December 21 , 1994 (File No. 811-4531), are incorporated by
reference into this Statement of Additional Information. The
financial highlights in the Prospectus and the financial
statements incorporated by reference into the Prospectus and the
Statement of Additional Information have been so included and
incorporated in reliance upon the report of the independent
accountants, given on their authority as experts in auditing and
accounting.
<PAGE>
<PAGE>
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-22
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . .II-27
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-36
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-38
DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-50
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-56
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-56
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-56
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-57
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-58
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-63
<PAGE>
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION
PART II
The following information applies generally to your Fund and to
the other Putnam funds. In certain cases the discussion applies
to some but not all of the funds or their shareholders, and you
should refer to your Prospectus to determine whether the matter
is applicable to you or your Fund. You will also be referred to
Part I for certain information applicable to your particular
Fund. Shareholders who purchase shares at net asset value
through employer-sponsored defined contribution plans should also
consult their employer for information about the extent to which
the matters described below apply to them.
MISCELLANEOUS INVESTMENT PRACTICES
YOUR FUND'S PROSPECTUS STATES WHICH OF THE FOLLOWING INVESTMENT
PRACTICES ARE AVAILABLE TO YOUR FUND. THE FACT THAT YOUR FUND IS
AUTHORIZED TO ENGAGE IN A PARTICULAR PRACTICE DOES NOT
NECESSARILY MEAN THAT IT WILL ACTUALLY DO SO. YOU SHOULD
DISREGARD ANY PRACTICE DESCRIBED BELOW WHICH IS NOT MENTIONED IN
THE PROSPECTUS.
SHORT-TERM TRADING
In seeking the Fund's objective, Putnam Management will buy or
sell portfolio securities whenever Putnam Management believes it
appropriate to do so. In deciding whether to sell a portfolio
security, Putnam Management does not consider how long the Fund
has owned the security. From time to time the Fund will buy
securities intending to seek short-term trading profits. A
change in the securities held by the Fund is known as "portfolio
turnover" and generally involves some expense to the Fund. These
expenses may include brokerage commissions or dealer mark-ups and
other transaction costs on both the sale of securities and the
reinvestment of the proceeds in other securities. If sales of
portfolio securities cause the Fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As
a result of the Fund's investment policies, under certain market
conditions the Fund's portfolio turnover rate may be higher than
that of other mutual funds. Portfolio turnover rate for a fiscal
year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of
portfolio securities -- excluding securities whose maturities at
acquisition were one year or less. The Fund's portfolio turnover
rate is not a limiting factor when Putnam Management considers a
change in the Fund's portfolio.
<PAGE>
LOWER-RATED SECURITIES
The Fund may invest in lower-rated fixed-income securities
(commonly known as "junk bonds"), to the extent described in the
Prospectus. The lower ratings of certain securities held by the
Fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates,
may impair the ability of the issuer to make payments of interest
and principal. The inability (or perceived inability) of issuers
to make timely payment of interest and principal would likely
make the values of securities held by the Fund more volatile and
could limit the Fund's ability to sell its securities at prices
approximating the values the Fund had placed on such securities.
In the absence of a liquid trading market for securities held by
it, the Fund may be unable at times to establish the fair value
of such securities. The rating assigned to a security by Moody's
Investors Service, Inc. or Standard & Poor's Corporation (or by
any other nationally recognized securities rating organization)
does not reflect an assessment of the volatility of the
security's market value or the liquidity of an investment in the
security. See the Prospectus or Part I of this Statement for a
description of security ratings.
Like those of other fixed-income securities, the values of
lower-rated securities fluctuate in response to changes in
interest rates. Thus, a decrease in interest rates will
generally result in an increase in the value of the Fund's
assets. Conversely, during periods of rising interest rates, the
value of the Fund's assets will generally decline. In addition,
the values of such securities are also affected by changes in
general economic conditions and business conditions affecting the
specific industries of their issuers. Changes by recognized
rating services in their ratings of any fixed-income security and
in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments.
Changes in the value of portfolio securities generally will not
affect cash income derived from such securities, but will affect
the Fund's net asset value. The Fund will not necessarily
dispose of a security when its rating is reduced below its rating
at the time of purchase, although Putnam Management will monitor
the investment to determine whether its retention will assist in
meeting the Fund's investment objective.
At times, a substantial portion of the Fund's assets may be
invested in securities as to which the Fund, by itself or
together with other funds and accounts managed by Putnam
Management and its affiliates, holds a major portion or all of
such securities. Although Putnam Management generally considers
such securities to be liquid because of the availability of an
institutional market for such securities, it is possible that,
under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, the
Fund could find it more difficult to sell such securities when
Putnam Management believes it advisable to do so or may be able
to sell such securities only at prices lower than if such
securities were more widely held. Under such circumstances, it
may also be more difficult to determine the fair value of such
securities for purposes of computing the Fund's net asset value.
In order to enforce its rights in the event of a default under
such securities, the Fund may be required to take possession of
and manage assets securing the issuer's obligations on such
securities, which may increase the Fund's operating expenses and
adversely affect the Fund's net asset value. In the case of
tax-exempt funds, any income derived from the Fund's ownership or
operation of such assets would not be tax-exempt. In addition,
the Fund's intention to qualify as a "regulated investment
company" under the Internal Revenue Code may limit the extent to
which the Fund may exercise its rights by taking possession of
such assets.
Certain securities held by the Fund may permit the issuer at its
option to "call", or redeem, its securities. If an issuer were
to redeem securities held by the Fund during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
If the Fund's Prospectus describes so-called "zero-coupon" bonds
and "payment-in-kind" bonds as possible investments, the Fund may
invest without limit in such bonds unless otherwise specified in
the Prospectus. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in
cash or in additional bonds. Because zero-coupon bonds do not
pay current interest, their value is subject to greater
fluctuation in response to changes in market interest rates than
bonds which pay interest currently. Both zero-coupon and
payment-in-kind bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly,
such bonds may involve greater credit risks than bonds paying
interest currently. Even though such bonds do not pay current
interest in cash, the Fund is nonetheless required to accrue
interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, the Fund could
be required at times to liquidate investments in order to satisfy
its dividend requirements.
The amount of information about the financial condition of an
issuer of tax exempt securities may not be as extensive as that
which is made available by corporations whose securities are
publicly traded. Therefore, to the extent the Fund invests in
tax exempt securities in the lower rating categories, the
achievement of the Fund's goals is more dependent on Putnam
Management's investment analysis than would be the case if the
Fund were investing in securities in the higher rating
categories.
INVESTMENTS IN MISCELLANEOUS FIXED INCOME SECURITIES
Unless otherwise specified in the Prospectus or elsewhere in this
Statement of Additional Information, if the Fund may invest in
inverse floating obligations and premium securities, it may do so
without limit. The Fund, however, currently does not intend to
invest more than 15% of its assets in inverse floating
obligations under normal market conditions.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities, on
either a short-term or long-term basis, amounting to not more
than 25% of its total assets, thereby realizing additional
income. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in recovery of
the securities or possible loss of rights in the collateral
should the borrower fail financially. As a matter of policy,
securities loans are made to broker-dealers pursuant to
agreements requiring that loans be continuously secured by
collateral consisting of cash or short-term debt obligations at
least equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the Fund an
amount equal to any dividends or interest received on securities
lent. The Fund retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the
borrower. Although voting rights, or rights to consent, with
respect to the loaned securities pass to the borrower, the Fund
retains the right to call the loans at any time on reasonable
notice, and it will do so to enable the Fund to exercise voting
rights on any matters materially affecting the investment. The
Fund may also call such loans in order to sell the securities.
FORWARD COMMITMENTS
The Fund may enter into contracts to purchase securities for a
fixed price at a future date beyond customary settlement time
("forward commitments") if the Fund holds, and maintains until
the settlement date in a segregated account, cash or high-grade
debt obligations in an amount sufficient to meet the purchase
price, or if the Fund enters into offsetting contracts for the
forward sale of other securities it owns. In the case of to-be-
announced ("TBA") purchase commitments, the unit price and the
estimated principal amount are established when the Fund enters
into a contract, with the actual principal amount being within a
specified range of the estimate. Forward commitments may be
considered securities in themselves, and involve a risk of loss
if the value of the security to be purchased declines prior to
the settlement date, which risk is in addition to the risk of
decline in the value of the Fund's other assets. Where such
purchases are made through dealers, the Fund relies on the dealer
to consummate the sale. The dealer's failure to do so may result
in the loss to the Fund of an advantageous yield or price.
Although the Fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or
for delivery pursuant to options contracts it has entered into,
the Fund may dispose of a commitment prior to settlement if
Putnam Management deems it appropriate to do so. The Fund may
realize short-term profits or losses upon the sale of forward
commitments.
The Fund may enter into TBA sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns
under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement
date. During the time a TBA sale commitment is outstanding,
equivalent deliverable securities, or an offsetting TBA purchase
commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction. Unsettled TBA sale
commitments are valued at current market value of the underlying
securities. If the TBA sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund
realizes a gain or loss on the commitment without regard to any
unrealized gain or loss on the underlying security. If the Fund
delivers securities under the commitment, the Fund realizes a
gain or loss from the sale of the securities based upon the unit
price established at the date the commitment was entered into.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements up to the limit
specified in the Prospectus. A repurchase agreement is a
contract under which the Fund acquires a security for a
relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the
Fund's cost plus interest). It is the Fund's present intention
to enter into repurchase agreements only with commercial banks
and registered broker-dealers and only with respect to
obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as
loans made by the Fund which are collateralized by the securities
subject to repurchase. Putnam Management will monitor such
transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total
amount of the repurchase obligation, including the interest
factor. If the seller defaults, the Fund could realize a loss on
the sale of the underlying security to the extent that the
proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the Fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal
and interest if the Fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's
estate.
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the Fund may transfer uninvested cash
balances into a joint account, along with cash of other Putnam
funds and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money
market instruments.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options
and covered put options on optionable securities held in its
portfolio, when in the opinion of Putnam Management such
transactions are consistent with the Fund's investment objectives
and policies. Call options written by the Fund give the
purchaser the right to buy the underlying securities from the
Fund at a stated exercise price; put options give the purchaser
the right to sell the underlying securities to the Fund at a
stated price.
The Fund may write only covered options, which means that, so
long as the Fund is obligated as the writer of a call option, it
will own the underlying securities subject to the option (or
comparable securities satisfying the cover requirements of
securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition,
the Fund will be considered to have covered a put or call option
if and to the extent that it holds an option that offsets some or
all of the risk of the option it has written. The Fund may write
combinations of covered puts and calls on the same underlying
security.
The Fund will receive a premium from writing a put or call
option, which increases the Fund's return on the underlying
security in the event the option expires unexercised or is closed
out at a profit. The amount of the premium reflects, among other
things, the relationship between the exercise price and the
current market value of the underlying security, the volatility
of the underlying security, the amount of time remaining until
expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option
but continues to bear the risk of a decline in the value of the
underlying security. By writing a put option, the Fund assumes
the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current
market value, resulting in a potential capital loss unless the
security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in
which it purchases an offsetting option. The Fund realizes a
profit or loss from a closing transaction if the cost of the
transaction (option premium plus transaction costs) is less or
more than the premium received from writing the option. Because
increases in the market price of a call option generally reflect
increases in the market price of the security underlying the
option, any loss resulting from a closing purchase transaction
may be offset in whole or in part by unrealized appreciation of
the underlying security owned by the Fund.
If the Fund writes a call option but does not own the underlying
security, and when it writes a put option, the Fund may be
required to deposit cash or securities with its broker as
"margin", or collateral, for its obligation to buy or sell the
underlying security. As the value of the underlying security
varies, the Fund may have to deposit additional margin with the
broker. Margin requirements are complex and are fixed by
individual brokers, subject to minimum requirements currently
imposed by the Federal Reserve Board and by stock exchanges and
other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to
protect its portfolio holdings in an underlying security against
a decline in market value. Such protection is provided during
the life of the put option since the Fund, as holder of the
option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying
security's market price. In order for a put option to be
profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the
premium and transaction costs. By using put options in this
manner, the Fund will reduce any profit it might otherwise have
realized from appreciation of the underlying security by the
premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to
hedge against an increase in the price of securities that the
Fund wants ultimately to buy. Such hedge protection is provided
during the life of the call option since the Fund, as holder of
the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying
security's market price. In order for a call option to be
profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and
transaction costs.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the Fund's options strategies depends on
the ability of Putnam Management to forecast correctly interest
rate and market movements. For example, if the Fund were to
write a call option based on Putnam Management's expectation that
the price of the underlying security would fall, but the price
were to rise instead, the Fund could be required to sell the
security upon exercise at a price below the current market price.
Similarly, if the Fund were to write a put option based on Putnam
Management's expectation that the price of the underlying
security would rise, but the price were to fall instead, the Fund
could be required to purchase the security upon exercise at a
price higher than the current market price.
When the Fund purchases an option, it runs the risk that it will
lose its entire investment in the option in a relatively short
period of time, unless the Fund exercises the option or enters
into a closing sale transaction before the option's expiration.
If the price of the underlying security does not rise (in the
case of a call) or fall (in the case of a put) to an extent
sufficient to cover the option premium and transaction costs, the
Fund will lose part or all of its investment in the option. This
contrasts with an investment by the Fund in the underlying
security, since the Fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the Fund's ability
to terminate option positions at times when Putnam Management
deems it desirable to do so. There is no assurance that the Fund
will be able to effect closing transactions at any particular
time or at an acceptable price.
If a secondary market in options were to become unavailable, the
Fund could no longer engage in closing transactions. Lack of
investor interest might adversely affect the liquidity of the
market for particular options or series of options. A market may
discontinue trading of a particular option or options generally.
In addition, a market could become temporarily unavailable if
unusual events -- such as volume in excess of trading or clearing
capability -- were to interrupt its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening
transactions. For example, if an underlying security ceases to
meet qualifications imposed by the market or the Options Clearing
Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options
market were to become unavailable, the Fund as a holder of an
option would be able to realize profits or limit losses only by
exercising the option, and the Fund, as option writer, would
remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the Fund could result in losses on the
options. If trading is interrupted in an underlying security,
the trading of options on that security is normally halted as
well. As a result, the Fund as purchaser or writer of an option
will be unable to close out its positions until options trading
resumes, and it may be faced with considerable losses if trading
in the security reopens at a substantially different price. In
addition, the Options Clearing Corporation or other options
markets may impose exercise restrictions. If a prohibition on
exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option
will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing
Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by
the writers of all outstanding calls in the event of exercise, it
may prohibit indefinitely the exercise of put options. The Fund,
as holder of such a put option, could lose its entire investment
if the prohibition remained in effect until the put option's
expiration.
Special risks are presented by internationally-traded options.
Because of time differences between the United States and various
foreign countries, and because different holidays are observed in
different countries, foreign options markets may be open for
trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of
the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by the Fund and assets
held to cover OTC options written by the Fund may, under certain
circumstances, be considered illiquid securities for purposes of
any limitation on the Fund's ability to invest in illiquid
securities.
FUTURES CONTRACTS AND RELATED OPTIONS
Subject to applicable law, and unless otherwise specified in the
Prospectus, the Fund may invest without limit in the types of
futures contracts and related options identified in the
Prospectus. A financial futures contract sale creates an
obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery
month for a stated price. A financial futures contract purchase
creates an obligation by the purchaser to take delivery of the
type of financial instrument called for in the contract in a
specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date
are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts
are traded in the United States only on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for
such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant
contract market.
Although futures contracts (other than index futures) by their
terms call for actual delivery or acceptance of commodities or
securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific
type of financial instrument or commodity with the same delivery
date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid
the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale,
the seller realizes a loss. Similarly, the closing out of a
futures contract purchase is effected by the purchaser's entering
into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the purchaser realizes a gain, and if
the purchase price exceeds the offsetting sale price, he realizes
a loss. In general 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved
by the CFTC is treated as short-term gain or loss, and 60% is
treated as long-term gain or loss.
Unlike when the Fund purchases or sells a security, no price is
paid or received by the Fund upon the purchase or sale of a
futures contract. Upon entering into a contract, the Fund is
required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of cash and/or U.S.
Government Securities. This amount is known as "initial margin."
The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures
contract margin does not involve the borrowing of funds to
finance the transactions. Rather, initial margin is similar to a
performance bond or good faith deposit which is returned to the
Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts
also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance
margin", to and from the broker (or the custodian) are made on a
daily basis as the price of the underlying security or commodity
fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to
the market." For example, when the Fund has purchased a futures
contract on a security and the price of the underlying security
has risen, that position will have increased in value and the
Fund will receive from the broker a variation margin payment
based on that increase in value. Conversely, when the Fund has
purchased a security futures contract and the price of the
underlying security has declined, the position would be less
valuable and the Fund would be required to make a variation
margin payment to the broker.
The Fund may elect to close some or all of its futures positions
at any time prior to their expiration in order to reduce or
eliminate a hedge position then currently held by the Fund. The
Fund may close its positions by taking opposite positions which
will operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin are then
made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write
call and put options on futures contracts it may buy or sell and
enter into closing transactions with respect to such options to
terminate existing positions. Options on future contracts give
the purchaser the right in return for the premium paid to assume
a position in a futures contract at the specified option exercise
price at any time during the period of the option. The Fund may
use options on futures contracts in lieu of writing or buying
options directly on the underlying securities or purchasing and
selling the underlying futures contracts. For example, to hedge
against a possible decrease in the value of its portfolio
securities, the Fund may purchase put options or write call
options on futures contracts rather than selling futures
contracts. Similarly, the Fund may purchase call options or
write put options on futures contracts as a substitute for the
purchase of futures contracts to hedge against a possible
increase in the price of securities which the Fund expects to
purchase. Such options generally operate in the same manner as
options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option
may terminate his position by selling or purchasing an offsetting
option. There is no guarantee that such closing transactions can
be effected.
The Fund will be required to deposit initial margin and
maintenance margin with respect to put and call options on
futures contracts written by it pursuant to brokers' requirements
similar to those described above in connection with the
discussion of futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS.
Successful use of futures contracts by the Fund is subject to
Putnam Management's ability to predict movements in the direction
of interest rates and other factors affecting securities markets.
For example, if the Fund has hedged against the possibility of
decline in the values of its investments and the values of its
investments increase instead, the Fund will lose part or all of
the benefit of the increase through payments of daily maintenance
margin. The Fund may have to sell investments at a time when it
may be disadvantageous to do so in order to meet margin
requirements.
Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves
less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of
a call or put option on a futures contract would result in a loss
to the Fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the
hedged investments. The writing of an option on a futures
contract involves risks similar to those risks relating to the
sale of futures contracts.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain market clearing facilities inadequate, and thereby result
in the institution by exchanges of special procedures which may
interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the
Fund may seek to close out a position. The ability to establish
and close out positions will be subject to the development and
maintenance of a liquid secondary market. It is not certain that
this market will develop or continue to exist for a particular
futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there
may be insufficient trading interest in certain contracts or
options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of contracts or
options, or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or a clearing corporation may not
at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the
trading of contracts or options (or a particular class or series
of contracts or options), in which event the secondary market on
that exchange for such contracts or options (or in the class or
series of contracts or options) would cease to exist, although
outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms.
U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. If the
Fund invests in tax-exempt securities issued by a governmental
entity, the Fund may purchase and sell futures contracts and
related options on U.S. Treasury securities when, in the opinion
of Putnam Management, price movements in Treasury security
futures and related options will correlate closely with price
movements in the tax-exempt securities which are the subject of
the hedge. U.S. Treasury security futures contracts require the
seller to deliver, or the purchaser to take delivery of, the type
of U.S. Treasury security called for in the contract at a
specified date and price. Options on U.S. Treasury security
futures contracts give the purchaser the right in return for the
premium paid to assume a position in a U.S. Treasury security
futures contract at the specified option exercise price at any
time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the
Fund is subject to Putnam Management's ability to predict
movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if the Fund
has sold U.S. Treasury security futures contracts in order to
hedge against the possibility of an increase in interest rates
which would adversely affect tax-exempt securities held in its
portfolio, and the prices of the Fund's tax-exempt securities
increase instead as a result of a decline in interest rates, the
Fund will lose part or all of the benefit of the increased value
of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily maintenance margin requirements at
a time when it may be disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury
security futures contracts and related options will not correlate
closely with price movements in markets for tax-exempt
securities. For example, if the Fund has hedged against a
decline in the values of tax-exempt securities held by it by
selling Treasury security futures and the values of Treasury
securities subsequently increase while the values of its
tax-exempt securities decrease, the Fund would incur losses on
both the Treasury security futures contracts written by it and
the tax-exempt securities held in its portfolio. Putnam
Management will seek to reduce this risk by monitoring movements
in markets for U.S. Treasury security futures and options and for
tax-exempt securities closely. The Fund will only purchase or
sell Treasury security futures or related options when, in the
opinion of Putnam Management, price movements in Treasury
security futures and related options will correlate closely with
price movements in tax-exempt securities in which the Fund
invests.
INDEX FUTURES CONTRACTS. An index futures contract is a contract
to buy or sell units of an index at a specified future date at a
price agreed upon when the contract is made. Entering into a
contract to buy units of an index is commonly referred to as
buying or purchasing a contract or holding a long position in
the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short
position. A unit is the current value of the index. The Fund
may enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective. The Fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's Composite 500 Stock Price
Index ("S&P 500") is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500
assigns relative weightings to the common stocks included in the
Index, and the value fluctuates with changes in the market values
of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500
were $150, one contract would be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no
delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the
difference between the contract price and the actual level of the
stock index at the expiration of the contract. For example, if
the Fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150
and the S&P 500 is at $154 on that future date, the Fund will
gain $2,000 (500 units x gain of $4). If the Fund enters into a
futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500
is at $152 on that future date, the Fund will lose $1,000 (500
units x loss of $2).
There are several risks in connection with the use by the Fund of
index futures as a hedging device. One risk arises because of
the imperfect correlation between movements in the prices of the
index futures and movements in the prices of securities which are
the subject of the hedge. Putnam Management will, however,
attempt to reduce this risk by buying or selling, to the extent
possible, futures on indices the movements of which will, in its
judgment, have a significant correlation with movements in the
prices of the securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes
is also subject to Putnam Management's ability to predict
movements in the direction of the market. It is possible that,
where the Fund has sold futures to hedge its portfolio against a
decline in the market, the index on which the futures are written
may advance and the value of securities held in the Fund's
portfolio may decline. If this occurred, the Fund would lose
money on the futures and also experience a decline in value in
its portfolio securities. It is also possible that, if the Fund
has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and
securities prices increase instead, the Fund will lose part or
all of the benefit of the increased value of those securities it
has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily
variation margin requirements at a time when it is
disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
index futures and the portion of the portfolio being hedged, the
prices of index futures may not correlate perfectly with
movements in the underlying index due to certain market
distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit requirements, investors
may close futures contracts through offsetting transactions which
could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the
securities market, and as a result the futures market may attract
more speculators than the securities market does. Increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the
imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast
of general market trends by Putnam Management may still not
result in a successful hedging transaction over a short time
period.
OPTIONS ON STOCK INDEX FUTURES. Options on index futures are
similar to options on securities except that options on index
futures give the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the index
futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the
option on the index future. If an option is exercised on the
last trading day prior to its expiration date, the settlement
will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the index
on which the future is based on the expiration date. Purchasers
of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES
As an alternative to purchasing call and put options on index
futures, the Fund may purchase and sell call and put options on
the underlying indices themselves. Such options would be used in
a manner identical to the use of options on index futures.
INDEX WARRANTS
The Fund may purchase put warrants and call warrants whose values
vary depending on the change in the value of one or more
specified securities indices ("index warrants"). Index warrants
are generally issued by banks or other financial institutions and
give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the
time of exercise. In general, if the value of the underlying
index rises above the exercise price of the index warrant, the
holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference
between the value of the index and the exercise price of the
warrant; if the value of the underlying index falls, the holder
of a put warrant will be entitled to receive a cash payment from
the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The
holder of a warrant would not be entitled to any payments from
the issuer at any time when, in the case of a call warrant, the
exercise price is greater than the value of the underlying index,
or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the Fund were not to
exercise an index warrant prior to its expiration, then the Fund
would lose the amount of the purchase price paid by it for the
warrant.
The Fund will normally use index warrants in a manner similar to
its use of options on securities indices. The risks of the
Fund's use of index warrants are generally similar to those
relating to its use of index options. Unlike most index options,
however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only
by the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than
index options. Although the Fund will normally invest only in
exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the
Fund's ability to exercise the warrants at such time, or in such
quantities, as the Fund would otherwise wish to do.
FOREIGN SECURITIES
Under its current policy, which may be changed without
shareholder approval, the Fund may invest up to the limit of its
total assets specified in its Prospectus in securities
principally traded in markets outside the United States.
Eurodollar certificates of deposit are excluded for purposes of
this limitation. Foreign investments can be affected favorably
or unfavorably by changes in currency exchange rates and in
exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of
some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the United
States. Investments in foreign securities can involve other
risks different from those affecting U.S. investments, including
local political or economic developments, expropriation or
nationalization of assets and imposition of withholding taxes on
dividend or interest payments. To hedge against possible
variations in foreign exchange rates, the Fund may purchase and
sell forward foreign currency contracts. These represent
agreements to purchase or sell specified currencies at specified
dates and prices. The Fund will only purchase and sell forward
foreign currency contracts in amounts Putnam Management deems
appropriate to hedge existing or anticipated portfolio positions
and will not use such forward contracts for speculative purposes.
Foreign securities, like other assets of the Fund, will be held
by the Fund's custodian or by a subcustodian.
FOREIGN CURRENCY TRANSACTIONS
Unless otherwise specified in the Prospectus, the Fund may engage
without limit in currency exchange transactions, as well as
foreign currency forward and futures contracts, to protect
against uncertainty in the level of future currency exchange
rates. In addition, the Fund may write covered call and put
options on foreign currencies for the purpose of increasing its
current return.
Generally, the Fund may engage in both "transaction hedging" and
"position hedging". When it engages in transaction hedging, the
Fund enters into foreign currency transactions with respect to
specific receivables or payables, generally arising in connection
with the purchase or sale of portfolio securities. The Fund will
engage in transaction hedging when it desires to "lock in" the
U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging the Fund
will attempt to protect itself against a possible loss resulting
from an adverse change in the relationship between the U.S.
dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or
on which the dividend or interest payment is earned, and the date
on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in
that foreign currency. The Fund may also enter into contracts to
purchase or sell foreign currencies at a future date ("forward
contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes the Fund may also purchase
exchange-listed and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies. A
put option on a futures contract gives the Fund the right to
assume a short position in the futures contract until the
expiration of the option. A put option on a currency gives the
Fund the right to sell the currency at an exercise price until
the expiration of the option. A call option on a futures
contract gives the Fund the right to assume a long position in
the futures contract until the expiration of the option. A call
option on a currency gives the Fund the right to purchase the
currency at the exercise price until the expiration of the
option.
When it engages in position hedging, the Fund enters into foreign
currency exchange transactions to protect against a decline in
the values of the foreign currencies in which its portfolio
securities are denominated (or an increase in the value of
currency for securities which the Fund expects to purchase, when
the Fund holds cash or short-term investments). In connection
with position hedging, the Fund may purchase put or call options
on foreign currency and on foreign currency futures contracts and
buy or sell forward contracts and foreign currency futures
contracts. The Fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved
will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the
dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward
or futures contract. Accordingly, it may be necessary for the
Fund to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of
the security or securities being hedged is less than the amount
of foreign currency the Fund is obligated to deliver and a
decision is made to sell the security or securities and make
delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if
the market value of such security or securities exceeds the
amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in
the underlying prices of the securities which the Fund owns or
intends to purchase or sell. They simply establish a rate of
exchange which one can achieve at some future point in time.
Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the
increase in value of such currency.
The Fund may seek to increase its current return or to offset
some of the costs of hedging against fluctuations in current
exchange rates by writing covered call options and covered put
options on foreign currencies. The Fund receives a premium from
writing a call or put option, which increases the Fund's current
return if the option expires unexercised or is closed out at a
net profit. The Fund may terminate an option that it has written
prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms
as the option written.
The Fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its
portfolio securities are then denominated. Putnam Management
will engage in such "cross hedging" activities when it believes
that such transactions provide significant hedging opportunities
for the Fund. Cross hedging transactions by the Fund involve the
risk of imperfect correlation between changes in the values of
the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability which is
the subject of the hedge.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign
currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number
of days from the date of the contract as agreed by the parties,
at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right
to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage
for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified
amount of a foreign currency at a future date at a price set at
the time of the contract. Foreign currency futures contracts
traded in the United States are designed by and traded on
exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the
maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties,
rather than a predetermined date in a given month. Forward
contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange
contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires
no margin or other deposit.
At the maturity of a forward or futures contract, the Fund either
may accept or make delivery of the currency specified in the
contract, or at or prior to maturity enter into a closing
transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to
the original forward contract. Closing transactions with respect
to futures contracts are effected on a commodities exchange; a
clearing corporation associated with the exchange assumes
responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed
out only on an exchange or board of trade which provides a
secondary market in such contracts. Although the Fund intends to
purchase or sell foreign currency futures contracts only on
exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a secondary market
on an exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse
price movements, the Fund would continue to be required to make
daily cash payments of variation margin.
FOREIGN CURRENCY OPTIONS. In general, options on foreign
currencies operate similarly to options on securities and are
subject to many similar risks. Foreign currency options are
traded primarily in the over-the-counter market, although options
on foreign currencies have recently been listed on several
exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of
currencies, and is the official medium of exchange of the
European Community's European Monetary System.
The Fund will only purchase or write foreign currency options
when Putnam Management believes that a liquid secondary market
exists for such options. There can be no assurance that a liquid
secondary market will exist for a particular option at any
specific time. Options on foreign currencies are affected by all
of those factors which influence foreign exchange rates and
investments generally.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic
factors applicable to the issuing country. In addition, the
exchange rates of foreign currencies (and therefore the values
of foreign currency options) may be affected significantly,
fixed, or supported directly or indirectly by U.S. and foreign
government actions. Government intervention may increase risks
involved in purchasing or selling foreign currency options, since
exchange rates may not be free to fluctuate in response to other
market forces.
The value of a foreign currency option reflects the value of an
exchange rate, which in turn reflects relative values of two
currencies, the U.S. dollar and the foreign currency in question.
Because foreign currency transactions occurring in the interbank
market involve substantially larger amounts than those that may
be involved in the exercise of foreign currency options,
investors may be disadvantaged by having to deal in an odd lot
market for the underlying foreign currencies in connection with
options at prices that are less favorable than for round lots.
Foreign governmental restrictions or taxes could result in
adverse changes in the cost of acquiring or disposing of foreign
currencies.
There is no systematic reporting of last sale information for
foreign currencies and there is no regulatory requirement that
quotations available through dealers or other market sources be
firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot
transactions in the interbank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To
the extent that options markets are closed while the markets for
the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the
Fund's investments in foreign securities and to the Fund's
foreign currency exchange transactions may be more complex than
settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not
present in the Fund's domestic investments. For example,
settlement of transactions involving foreign securities or
foreign currency may occur within a foreign country, and the Fund
may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay
any fees, taxes or charges associated with such delivery. Such
investments may also involve the risk that an entity involved in
the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers
do not charge a fee for currency conversion, they do realize a
profit based on the difference (the "spread") between prices at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Fund at one
rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
RESTRICTED SECURITIES
The SEC Staff currently takes the view that any designation by
the Trustees of the authority to determine that a restricted
security is readily marketable (as described in the investment
restrictions of the Funds) must be pursuant to written procedures
established by the Trustees. It is the present intention of the
Funds' Trustees that, if the Trustees decide to delegate such
determinations to Putnam Management or another person, they would
do so pursuant to written procedures, consistent with the Staff's
position. Should the Staff modify its position in the future,
the Trustees would consider what action would be appropriate in
light of the Staff's position at that time.
TAXES
TAXATION OF THE FUND. The Fund intends to qualify each year as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). In order so to
qualify and to qualify for the special tax treatment accorded
regulated investment companies and their shareholders, the Fund
must, among other things:
(a) Derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and
gains from the sale of stock, securities and foreign currencies,
or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its
business of investing in such stock, securities, or currencies;
(b) derive less than 30% of its gross income from the sale or
other disposition of certain assets (including stock or
securities and certain options, futures contracts, forward
contracts and foreign currencies) held for less than three
months;
(c) distribute with respect to each taxable year at least 90% of
the sum of its taxable net investment income, its net tax-exempt
income, and the excess, if any, of net short-term capital gains
over net long-term capital losses for such year; and
(d) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items, U.S. Government
securities, securities of other regulated investment companies,
and other securities limited in respect of any one issuer to a
value not greater than 5% of the value of the Fund's total assets
and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the
U.S. Government or other regulated investment companies) of any
one issuer or of two or more issuers which the Fund controls and
which are engaged in the same, similar, or related trades or
businesses.
If the Fund qualifies as a regulated investment company that is
accorded special tax treatment, the Fund will not be subject to
federal income tax on income paid to its shareholders in the form
of dividends (including capital gain dividends).
If the Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund
would be subject to tax on its taxable income at corporate rates,
and all distributions from earnings and profits, including any
distributions of net tax-exempt income and net long-term capital
gains, would be taxable to shareholders as ordinary income. In
addition, the Fund could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial
distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially
all of its ordinary income for such year and substantially all of
its capital gain net income for the one-year period ending
October 31 (or later if the Fund is permitted so to elect and so
elects), plus any retained amount from the prior year, the Fund
will be subject to a 4% excise tax on the undistributed amounts.
A dividend paid to shareholders by the Fund in January of a year
generally is deemed to have been paid by the Fund on December 31
of the preceding year, if the dividend was declared and payable
to shareholders of record on a date in October, November or
December of that preceding year. The Fund intends generally to
make distributions sufficient to avoid imposition of the 4%
excise tax.
EXEMPT-INTEREST DIVIDENDS. The Fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the
close of each quarter of the Fund's taxable year, at least 50% of
the total value of the Fund's assets consists of obligations the
interest on which is exempt from federal income tax.
Distributions that the Fund properly designates as exempt-
interest dividends are treated by shareholders as interest
excludable from their gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax
purposes and for state and local purposes. If the Fund intends
to be qualified to pay exempt-interest dividends, the Fund may be
limited in its ability to enter into taxable transactions
involving forward commitments, repurchase agreements, financial
futures, and options contracts on financial futures, tax-exempt
bond indices, and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of a Fund
paying exempt-interest dividends is not deductible. The portion
of interest that is not deductible is equal to the total interest
paid or accrued on the indebtedness, multiplied by the percentage
of the Fund's total distributions (not including distributions
from net long-term capital gains) paid to the shareholder that
are exempt-interest dividends. Under rules used by the Internal
Revenue Service for determining when borrowed funds are
considered used for the purpose of purchasing or carrying
particular assets, the purchase of shares may be considered to
have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to
interest received on certain private activity obligations and
certain industrial development bonds will not be tax-exempt to
any shareholders who are "substantial users" of the facilities
financed by such obligations or bonds or who are "related
persons" of such substantial users.
A Fund which is qualified to pay exempt-interest dividends will
inform investors within 60 days of the Fund's fiscal year-end of
the percentage of its income distributions designated as
tax-exempt. The percentage is applied uniformly to all
distributions made during the year. The percentage of income
designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income
that was tax-exempt during the period covered by the
distribution.
HEDGING TRANSACTIONS. If the Fund engages in transactions,
including hedging transactions in options, futures contracts, and
straddles, or other similar transactions, it will be subject to
special tax rules (including mark-to-market, straddle, wash sale,
and short sale rules), the effect of which may be to accelerate
income to the Fund, defer losses to the Fund, cause adjustments
in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These
rules could therefore affect the amount, timing and character of
distributions to shareholders. The Fund will endeavor to make
any available elections pertaining to such transactions in a
manner believed to be in the best interests of the Fund.
Under the 30% of gross income test described above (see "Taxation
of the Fund"), the Fund will be restricted in selling assets held
or considered under Code rules to have been held for less than
three months, and in engaging in certain hedging transactions
(including hedging transactions in options and futures) that in
some circumstances could cause certain Fund assets to be treated
as held for less than three months.
Certain of the Fund's hedging activities (including its
transactions, if any, in foreign currencies or foreign
currency-denominated instruments) are likely to produce a
difference between its book income and its taxable income. If
the Fund's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as a
dividend to the extent of the Fund's remaining earnings and
profits (including earnings and profits arising from tax-exempt
income), and thereafter as a return of capital or as gain from
the sale or exchange of a capital asset, as the case may be. If
the Fund's book income is less than its taxable income, the Fund
could be required to make distributions exceeding book income to
qualify as a regulated investment company that is accorded
special tax treatment.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a
distribution to you in excess of its current and accumulated
"earnings and profits" in any taxable year, the excess
distribution will be treated as a return of capital to the extent
of your tax basis in your shares, and thereafter as capital gain.
A return of capital is not taxable, but it reduces your tax basis
in your shares, thus reducing any loss or increasing any gain on
a subsequent taxable disposition by you of your shares.
SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The Fund's
investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a
discount may) require the Fund to accrue and distribute income
not yet received. In order to generate sufficient cash to make
the requisite distributions, the Fund may be required to sell
securities in its portfolio that it otherwise would have
continued to hold.
CAPITAL LOSS CARRYOVER. The amounts and expiration dates of any
capital loss carryovers available to the Fund are shown in Note 1
(Federal income taxes) to the financial statements included in
Part I of this Statement or incorporated by reference into this
Statement.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING
TRANSACTIONS. The Fund's transactions in foreign currencies,
foreign currency-denominated debt securities and certain foreign
currency options, futures contracts, and forward contracts (and
similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the
value of the foreign currency concerned.
If more than 50% of the Fund's assets at year end consists of the
debt and equity securities of foreign corporations, the Fund may
elect to permit shareholders to claim a credit or deduction on
their income tax returns for their pro rata portion of qualified
taxes paid by the Fund to foreign countries. In such a case,
shareholders will include in gross income from foreign sources
their pro rata shares of such taxes. A shareholder's ability to
claim a foreign tax credit or deduction in respect of foreign
taxes paid by the Fund may be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not
get a full credit or deduction for the amount of such taxes.
Shareholders who do not itemize on their federal income tax
returns may claim a credit (but no deduction) for such foreign
taxes.
Investment by the Fund in certain "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."
SALE OR REDEMPTION OF SHARES. The sale, exchange or redemption
of Fund shares may give rise to a gain or loss. In general, any
gain or loss realized upon a taxable disposition of shares will
be treated as long-term capital gain or loss if the shares have
been held for more than 12 months, and otherwise as short-term
capital gain or loss. However, if a shareholder sells shares at
a loss within six months of purchase, any loss will be disallowed
for Federal income tax purposes to the extent of any exempt-
interest dividends received on such shares. In addition, any
loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than
short-term, to the extent of any long-term capital gain
distributions received by the shareholder with respect to the
shares. All or a portion of any loss realized upon a taxable
disposition of Fund shares will be disallowed if other Fund
shares are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased
shares will be adjusted to reflect the disallowed loss.
SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS. Special tax rules
apply to investments though defined contribution plans and other
tax-qualified plans. Shareholders should consult their tax
adviser to determine the suitability of shares of a fund as an
investment through such plans and the precise effect of an
investment on their particular tax situation.
BACKUP WITHHOLDING. The Fund generally is required to withhold
and remit to the U.S. Treasury 31% of the taxable dividends and
other distributions paid to any individual shareholder who fails
to furnish the Fund with a correct taxpayer identification number
(TIN), who has underreported dividends or interest income, or who
fails to certify to the Fund that he or she is not subject to
such withholding. Shareholders who fail to furnish their currect
TIN are subject to a penalty of $50 for each such failure unless
the failure is due to reasonable cause and not wilful neglect.
An individual's taxpayer identification number is his or her
social security number.
MANAGEMENT OF THE FUND
TRUSTEES
*+GEORGE PUTNAM, Chairman and President. Chairman and Director
of Putnam Management and Putnam Mutual Funds. Director, The
Boston Company, Inc., Boston Safe Deposit and Trust Company,
Freeport-McMoRan, Inc., General Mills, Inc., Houghton Mifflin
Company, Marsh & McLennan Companies, Inc. and Rockefeller Group,
Inc.
+WILLIAM F. POUNDS, Vice Chairman. Professor of Management,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology. Director of EG&G, Inc., Fisher Price, Inc., IDEXX,
M/A-COM, Inc., and Sun Company, Inc.
JAMESON A. BAXTER, Trustee. President, Baxter Associates, Inc.
(consultants to management). Director of Avondale Federal Savings
Bank, ASHTA Chemicals, Inc. and Banta Corporation. Chairman of
the Board of Trustees, Mount Holyoke College.
+HANS H. ESTIN, Trustee. Vice Chairman, North American
Management Corp. (a registered investment adviser). Director of
The Boston Company, Inc. and Boston Safe Deposit and Trust
Company.
ELIZABETH T. KENNAN, Trustee. President of Mount Holyoke
College. Director, the Kentucky Home Life Insurance Companies,
NYNEX Corporation, Northeast Utilities and Talbots and Trustee of
the University of Notre Dame.
*LAWRENCE J. LASSER, Trustee and Vice President. President,
Chief Executive Officer and Director of Putnam Investments, Inc.
and Putnam Investment Management, Inc. Director of Marsh &
McLennan Companies, Inc. Vice President of the Putnam funds.
JOHN A. HILL, Trustee. Chairman and Managing Director, First
Reserve Corporation (a registered investment adviser). Director,
Lantana Corporation, Maverick Tube Corporation, Snyder Oil
Corporation and various First Reserve Funds.
+ROBERT E. PATTERSON, Trustee. Executive Vice President, Cabot
Partners Limited Partnership (a registered investment adviser).
DONALD S. PERKINS, Trustee. Chairman of the Board and Director,
Kmart Corporation. Director of various corporations, including
American Telephone & Telegraph Company, AON Corp., Cummins Engine
Company, Inc., Illinois Power Company, Inland Steel Industries,
Inc., LaSalle Street Fund, Inc., Springs Industries, Inc., TBG,
Inc. and Time Warner Inc.
*#GEORGE PUTNAM, III, Trustee. President, New Generation
Research, Inc. (publisher of bankruptcy information). Director,
World Environment Center.
*A.J.C. SMITH, Trustee. Chairman, Chief Executive Officer and
Director, Marsh & McLennan Companies, Inc.
W. NICHOLAS THORNDIKE, Trustee. Director of various corporations
and charitable organizations, including Courier Corporation and
Providence Journal Co. Also, Trustee and President of
Massachusetts General Hospital and Trustee of Bradley Real Estate
Trust and Eastern Utilities Associates.
OFFICERS
CHARLES E. PORTER, Executive Vice President. Managing Director
of Putnam Investments, Inc. and Putnam Investment Management,
Inc. Executive Vice President of the Putnam funds.
PATRICIA C. FLAHERTY, Senior Vice President. Senior Vice
President of Putnam Investments, Inc. and Putnam Investment
Management, Inc.
WILLIAM N. SHIEBLER, Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President, Chief
Operating Officer and Director of Putnam Mutual Funds. Vice
President of the Putnam funds.
GORDON H. SILVER, Vice President. Senior Managing Director of
Putnam Investments, Inc. and Putnam Investment Management, Inc.
Director, Putnam Investments, Inc. and Putnam Investment
Management, Inc. Vice President of the Putnam funds.
JOHN R. VERANI, Vice President. Senior Vice President of Putnam
Investments, Inc. and Putnam Investment Management, Inc. Vice
President of the Putnam funds.
PAUL M. O'NEIL, Vice President. Vice President of Putnam
Investments, Inc. and Putnam Investment Management, Inc. Vice
President of the Putnam funds.
JOHN D. HUGHES, Vice President and Treasurer. Vice President and
Treasurer of the Putnam funds.
KATHERINE HOWARD, Assistant Vice President. Assistant Vice
President of the Putnam funds.
BEVERLY MARCUS, Clerk and Assistant Treasurer. Clerk and
Assistant Treasurer of the Putnam funds.
*Trustees who are "interested persons" (as defined in the
Investment Company Act of 1940) of the Fund, Putnam Management or
Putnam Mutual Funds.
+Members of the Executive Committee of the Trustees. The
Executive Committee meets between regular meetings of the
Trustees as may be required to review investment matters and
other affairs of the Fund and may exercise all of the powers of
the Trustees.
#George Putnam, III is the son of George Putnam.
-----------------
Certain other officers of Putnam Management are officers of your
Fund. SEE "ADDITIONAL OFFICERS OF THE FUND" IN PART I OF THIS
STATEMENT. The mailing address of each of the officers and
Trustees is One Post Office Square, Boston, Massachusetts 02109.
Except as stated below, the principal occupations of the officers
and Trustees for the last five years have been with the employers
as shown above, although in some cases they have held different
positions with such employers. Also, prior to January, 1992, Ms.
Baxter was Vice President and Principal, Regency Group, Inc. and
Consultant, The First Boston Corporation. Prior to May, 1991,
Mr. Pounds was Senior Advisor to the Rockefeller Family and
Associates, Chairman of Rockefeller Trust Company and Director of
Rockefeller Group, Inc. Prior to November, 1990, Mr. Shiebler
was President and Chief Operating Officer of the Intercapital
Division of Dean Witter Reynolds, Inc., Vice President of the
Dean Witter Funds and Director of Dean Witter Trust Company.
Each Trustee of the Fund receives an annual fee and an additional
fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance
at certain committee meetings and for special services rendered
in that connection. All of the Trustees are Trustees of all the
Putnam funds and each receives fees for his or her services. FOR
DETAILS OF TRUSTEES' FEES PAID BY THE FUND, SEE "FUND CHARGES AND
EXPENSES" IN PART I OF THIS STATEMENT.
The Agreement and Declaration of Trust of the Fund provides that
the Fund will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the
Fund, except if it is determined in the manner specified in the
Agreement and Declaration of Trust that they have not acted in
good faith in the reasonable belief that their actions were in
the best interests of the Fund or that such indemnification would
relieve any officer or Trustee of any liability to the Fund or
its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his or her duties. The
Fund, at its expense, provides liability insurance for the
benefit of its Trustees and officers.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., a holding
company which is in turn wholly owned by Marsh & McLennan
Companies, Inc., a publicly owned holding company whose principal
operating subsidiaries are international insurance and
reinsurance brokers, investment managers and management
consultants.
Trustees and officers of the Fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh &
McLennan Companies, Inc. will benefit from the advisory fees,
sales commissions, distribution fees (if any), custodian fees and
transfer agency fees paid or allowed by the Fund.
PUTNAM MANAGEMENT
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced
portfolio managers and research analysts selects securities and
constantly supervises the Fund's portfolio. By pooling an
investor's money with that of other investors, a greater variety
of securities can be purchased than would be the case
individually; the resulting diversification helps reduce
investment risk. Putnam Management has been managing mutual funds
since 1937. Today, the firm serves as the investment manager for
the funds in the Putnam Family, with over $67 billion in assets
in over 4.1 million shareholder accounts at December 31, 1994.
An affiliate, The Putnam Advisory Company, Inc., manages domestic
and foreign institutional accounts and mutual funds, including
the accounts of many Fortune 500 companies. Another affiliate,
Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. At
December 31, 1994, Putnam Management and its affiliates managed
over $95 billion in assets, including over $15 billion in tax
exempt securities and over $36 billion in retirement plan assets.
THE MANAGEMENT CONTRACT
Under a Management Contract between the Fund and Putnam
Management, subject to such policies as the Trustees may
determine, Putnam Management, at its expense, furnishes
continuously an investment program for the Fund and makes
investment decisions on behalf of the Fund. Subject to the
control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the
Fund, furnishes office space and equipment, provides bookkeeping
and clerical services (including determination of the Fund's net
asset value, but excluding shareholder accounting services) and
places all orders for the purchase and sale of the Fund's
portfolio securities. Putnam Management may place Fund portfolio
transactions with broker-dealers which furnish Putnam Management,
without cost to it, certain research, statistical and quotation
services of value to Putnam Management and its affiliates in
advising the Fund and other clients. In so doing, Putnam
Management may cause the Fund to pay greater brokerage
commissions than it might otherwise pay.
FOR DETAILS OF PUTNAM MANAGEMENT'S COMPENSATION UNDER THE
MANAGEMENT CONTRACT, SEE "FUND CHARGES AND EXPENSES" IN PART I OF
THIS STATEMENT. Putnam Management's compensation under the
Management Contract may be reduced in any year if the Fund's
expenses exceed the limits on investment company expenses imposed
by any statute or regulatory authority of any jurisdiction in
which shares of the Fund are qualified for offer or sale. The
term "expenses" is defined in the statutes or regulations of such
jurisdictions, and generally, excludes brokerage commissions,
taxes, interest, extraordinary expenses and, if the Fund has a
Distribution Plan, payments made under such Plan. The only such
limitation as of the date of this Statement (applicable to any
Fund registered for sale in California) was 2.5% of the first $30
million of average net assets, 2% of the next $70 million and
1.5% of any excess over $100 million.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that the Fund's expenses exceed such
lower expense limitation as Putnam Management may, by notice to
the Fund, declare to be effective. The expenses subject to this
limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and,
if the Fund has a Distribution Plan, payments required under such
Plan. THE TERMS OF ANY EXPENSE LIMITATION FROM TIME TO TIME IN
EFFECT ARE DESCRIBED IN EITHER THE PROSPECTUS OR PART I OF THIS
STATEMENT.
In addition to the fee paid to Putnam Management, the Fund
reimburses Putnam Management for the compensation and related
expenses of certain officers of the Fund and their assistants who
provide certain administrative services for the Fund and the
other funds in the Putnam Family, each of which bears an
allocated share of the foregoing costs. The aggregate amount of
all such payments and reimbursements is determined annually by
the Trustees. THE AMOUNT OF THIS REIMBURSEMENT FOR THE FUND'S
MOST RECENT FISCAL YEAR IS INCLUDED IN "FUND CHARGES AND
EXPENSES" IN PART I OF THIS STATEMENT. Putnam Management pays
all other salaries of officers of the Fund. The Fund pays all
expenses not assumed by Putnam Management including, without
limitation, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The Fund pays the cost of
typesetting for its Prospectuses and the cost of printing and
mailing any Prospectuses sent to its shareholders. Putnam Mutual
Funds pays the cost of printing and distributing all other
Prospectuses.
The Management Contract provides that Putnam Management shall not
be subject to any liability to the Fund or to any shareholder of
the Fund for any act or omission in the course of or connected
with rendering services to the Fund in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its duties on the part of Putnam Management.
The Management Contract may be terminated without penalty by vote
of the Trustees or the shareholders of the Fund, or by Putnam
Management, on 30 days' written notice. It may be amended only
by a vote of the shareholders of the Fund. The Management
Contract also terminates without payment of any penalty in the
event of its assignment. The Management Contract provides that
it will continue in effect only so long as such continuance is
approved at least annually by vote of either the Trustees or the
shareholders, and, in either case, by a majority of the Trustees
who are not "interested persons" of Putnam Management or the
Fund. In each of the foregoing cases, the vote of the
shareholders is the affirmative vote of a "majority of the
outstanding voting securities" as defined in the Investment
Company Act of 1940.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. Investment decisions for the Fund and for
the other investment advisory clients of Putnam Management and
its affiliates are made with a view to achieving their respective
investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or
sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more
other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously
purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which
in Putnam Management's opinion is equitable to each and in
accordance with the amount being purchased or sold by each.
There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on
other clients.
BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock
exchanges, commodities markets and futures markets and other
agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different
brokers. A particular broker may charge different commissions
according to such factors as the difficulty and size of the
transaction. Transactions in foreign investments often involve
the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated
commission in the case of securities traded in the
over-the-counter markets, but the price paid by the Fund usually
includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the
underwriter or dealer. It is anticipated that most purchases and
sales of securities by funds investing primarily in tax-exempt
securities and certain other fixed-income securities will be with
the issuer or with underwriters of or dealers in those
securities, acting as principal. Accordingly, those funds would
not ordinarily pay significant brokerage commissions with respect
to securities transactions. SEE "FUND CHARGES AND EXPENSES" IN
PART I OF THIS STATEMENT FOR INFORMATION CONCERNING COMMISSIONS
PAID BY THE FUND.
It has for many years been a common practice in the investment
advisory business for advisers of investment companies and other
institutional investors to receive brokerage and research
services (as defined in the Securities Exchange Act of 1934, as
amended (the "1934 Act")) from broker-dealers that execute
portfolio transactions for the clients of such advisers and from
third parties with which such broker-dealers have arrangements.
Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from
many broker-dealers with which Putnam Management places the
Fund's portfolio transactions and from third parties with which
these broker-dealers have arrangements. These services include
such matters as general economic and market reviews, industry and
company reviews, evaluations of investments, recommendations as
to the purchase and sale of investments, newspapers, magazines,
pricing services, quotation services, news services and personal
computers utilized by Putnam Management's managers and analysts.
Where the services referred to above are not used exclusively by
Putnam Management for research purposes, Putnam Management, based
upon its own allocations of expected use, bears that portion of
the cost of these services which directly relates to their
non-research use. Some of these services are of value to Putnam
Management and its affiliates in advising various of their
clients (including the Fund), although not all of these services
are necessarily useful and of value in managing the Fund. The
management fee paid by the Fund is not reduced because Putnam
Management and its affiliates receive these services even though
Putnam Management might otherwise be required to purchase some of
these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for the Fund and buys and sells investments
for the Fund through a substantial number of brokers and dealers.
In so doing, Putnam Management uses its best efforts to obtain
for the Fund the most favorable price and execution available,
except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable
price and execution, Putnam Management, having in mind the Fund's
best interests, considers all factors it deems relevant,
including, by way of illustration, price, the size of the
transaction, the nature of the market for the security or other
investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the
broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the
Management Contract, Putnam Management may cause the Fund to pay
a broker-dealer which provides "brokerage and research services"
(as defined in the 1934 Act) to Putnam Management an amount of
disclosed commission for effecting securities transactions on
stock exchanges and other transactions for the Fund on an agency
basis in excess of the commission which another broker-dealer
would have charged for effecting that transaction. Putnam
Management's authority to cause the Fund to pay any such greater
commissions is also subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently
intend to cause the Fund to make such payments. It is the
position of the staff of the Securities and Exchange Commission
that Section 28(e) does not apply to the payment of such greater
commissions in "principal" transactions. Accordingly Putnam
Management will use its best effort to obtain the most favorable
price and execution available with respect to such transactions,
as described above.
The Management Contract provides that commissions, fees,
brokerage or similar payments received by Putnam Management or an
affiliate in connection with the purchase and sale of portfolio
investments of the Fund, less any direct expenses approved by the
Trustees, shall be recaptured by the Fund through a reduction of
the fee payable by the Fund under the Management Contract.
Putnam Management seeks to recapture for the Fund soliciting
dealer fees on the tender of the Fund's portfolio securities in
tender or exchange offers. Any such fees which may be recaptured
are likely to be minor in amount.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking
the most favorable price and execution available and such other
policies as the Trustees may determine, Putnam Management may
consider sales of shares of the Fund (and, if permitted by law,
of the other Putnam funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
PRINCIPAL UNDERWRITER
Putnam Mutual Funds is the principal underwriter of shares of the
Fund and the other continuously offered Putnam funds. Putnam
Mutual Funds is not obligated to sell any specific amount of
shares of the Fund and will purchase shares for resale only
against orders for shares. SEE "FUND CHARGES AND EXPENSES" IN
PART I OF THIS STATEMENT FOR INFORMATION ON SALES CHARGES AND
OTHER PAYMENTS RECEIVED BY PUTNAM MUTUAL FUNDS.
INVESTOR SERVICING AGENT AND CUSTODIAN
Putnam Investor Services, a division of Putnam Fiduciary Trust
Company ("PFTC"), is the Fund's investor servicing agent
(transfer, plan and dividend disbursing agent), for which it
receives fees which are paid monthly by the Fund as an expense of
all its shareholders. The fee paid to Putnam Investor Services
is determined by the Trustees taking into account the number of
shareholder accounts and transactions. Putnam Investor Services
has won the DALBAR Quality Tested Service Seal every year since
the award's 1990 inception. Over 10,000 tests of 38 separate
shareholders service components demonstrated that Putnam Investor
Services exceeded the industry standard in all categories.
PFTC is the custodian of the Fund's assets. In carrying out its
duties under its custodian contract, PFTC may employ one or more
subcustodians whose responsibilities will include safeguarding
and controlling the Fund's cash and securities, handling the
receipt and delivery of securities and collecting interest and
dividends on the Fund's investments. PFTC and any subcustodians
employed by it have a lien on the securities of the Fund (to the
extent permitted by the Fund's investment restrictions) to secure
charges and any advances made by such subcustodians at the end of
any day for the purpose of paying for securities purchased by the
Fund. The Fund expects that such advances will exist only in
unusual circumstances. Neither PFTC nor any subcustodian
determines the investment policies of the Fund or decides which
securities the Fund will buy or sell. PFTC pays the fees and
other charges of any subcustodians employed by it. The Fund may
from time to time pay custodial expenses in full or in part
through the placement by Putnam Management of the Fund's
portfolio transactions with the subcustodians or with a third-
party broker having an agreement with the subcustodians. The
Fund pays PFTC an annual fee based on the Fund's assets,
securities transactions and securities holdings and reimburses
PFTC for certain out-of-pocket expenses incurred by it or any
subcustodian employed by it in performing custodial services.
SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT FOR
INFORMATION ON FEES AND REIMBURSEMENTS FOR INVESTOR SERVICING AND
CUSTODY RECEIVED BY PFTC. THE FEES MAY BE REDUCED BY CREDITS
ALLOWED BY PFTC.
DETERMINATION OF NET ASSET VALUE
The Fund determines the net asset value per share of each class
of shares once each day the New York Stock Exchange (the
"Exchange") is open. Currently, the Exchange is closed
Saturdays, Sundays and the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving and Christmas. The Fund determines net
asset value as of the close of regular trading on the Exchange,
currently 4:00 p.m. However, equity options held by the Fund are
priced as of the close of trading at 4:10 p.m., and futures
contracts on U.S. Government securities and index options held by
the Fund are priced as of their close of trading at 4:15 p.m.
Securities for which market quotations are readily available are
valued at prices which, in the opinion of the Trustees or Putnam
Management, most nearly represent the market values of such
securities. Currently, such prices are determined using the last
reported sale price or, if no sales are reported (as in the case
of some securities traded over-the-counter), the last reported
bid price, except that certain U.S. Government securities are
stated at the mean between the last reported bid and asked
prices. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates
market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees.
Liabilities are deducted from the total, and the resulting amount
is divided by the number of shares of the class outstanding.
Reliable market quotations are not considered to be readily
available for long-term corporate bonds and notes, certain
preferred stocks, tax-exempt securities, and certain foreign
securities. These investments are stated at fair value on the
basis of valuations furnished by pricing services approved by the
Trustees, which determine valuations for normal,
institutional-size trading units of such securities using methods
based on market transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders.
If any securities held by the Fund are restricted as to resale,
Putnam Management determines their fair value following
procedures approved by the Trustees. The fair value of such
securities is generally determined as the amount which the Fund
could reasonably expect to realize from an orderly disposition of
such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary
from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of
the restrictions on disposition of the securities (including any
registration expenses that might be borne by the Fund in
connection with such disposition). In addition, specific factors
are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of
the same class, the size of the holding, the prices
of any recent transactions or offers with respect to such
securities and any available analysts' reports regarding the
issuer.
Generally, trading in certain securities (such as foreign
securities) is substantially completed each day at various times
prior to the close of the Exchange. The values of these
securities used in determining the net asset value of the Fund's
shares are computed as of such times. Also, because of the
amount of time required to collect and process trading
information as to large numbers of securities issues, the values
of certain securities (such as convertible bonds, U.S. Government
securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange.
Occasionally, events affecting the value of such securities may
occur between such times and the close of the Exchange which will
not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such
securities occur during such period, then these securities will
be valued at their fair value following procedures approved by
the Trustees.
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment
Company Act of 1940.
HOW TO BUY SHARES
General
The Prospectus contains a general description of how investors
may buy shares of the Fund and states whether the Fund offers
more than one class of shares. This Statement contains
additional information which may be of interest to investors.
Class A shares and Class M shares are sold with a sales charge
payable at the time of purchase (except for Class A shares and
Class M shares of money market funds). As used in this Statement
and unless the context requires otherwise, the term "Class A
shares" includes shares of Funds that offer only one class of
shares. The Prospectus contains a table of applicable sales
charges. For information about how to purchase Class A shares of
a Putnam fund at net asset value through an employer's defined
contribution plan, please consult your employer. Certain
purchases of Class A shares and Class M shares may be exempt from
a sales charge or, in the case of Class A shares, may be subject
to a contingent deferred sales charge ("CDSC"). See "General--
Sales without sales charges or contingent deferred sales
charges", "Additional Information About Class A and Class M
Shares", and "Contingent Deferred Sales Charges--Class A shares".
Class B shares and Class C shares are sold subject to a CDSC
payable upon redemption within a specified period after purchase.
The Prospectus contains a table of applicable CDSCs.
Class Y shares, which are available only to employer-sponsored
defined contribution plans initially investing at least $250
million in a combination of Putnam funds and other investments
managed by Putnam Management or its affiliates, are not subject
to sales charges or a CDSC.
Certain purchase programs described below are not available to
defined contribution plans. Consult your employer for
information on how to purchase shares through your plan.
The Fund is currently making a continuous offering of its shares.
The Fund receives the entire net asset value of shares sold. The
Fund will accept unconditional orders for shares to be executed
at the public offering price based on the net asset value per
share next determined after the order is placed. In the case of
Class A shares and Class M shares, the public offering price is
the net asset value plus the applicable sales charge, if any. No
sales charge is included in the public offering price of other
classes of shares. In the case of orders for purchase of shares
placed through dealers, the public offering price will be based
on the net asset value determined on the day the order is placed,
but only if the dealer receives the order before the close of
regular trading on the Exchange. If the dealer receives the
order after the close of the Exchange, the price will be based on
the net asset value next determined. If funds for the purchase
of shares are sent directly to Putnam Investor Services, they
will be invested at the public offering price based on the net
asset value next determined after receipt. Payment for shares of
the Fund must be in U.S. dollars; if made by check, the check
must be drawn on a U.S. bank.
Initial and subsequent purchases must satisfy the minimums stated
in the Prospectus, except that (i) individual investments under
certain employee benefit plans or Tax Qualified Retirement Plans
may be lower, (ii) persons who are already shareholders may make
additional purchases of $50 or more by sending funds directly to
Putnam Investor Services (see "Your Investing Account" below),
and (iii) for investors participating in systematic investment
plans and military allotment plans, the initial and subsequent
purchases must be $25 or more. Information about these plans is
available from investment dealers or from Putnam Mutual Funds.
As a convenience to investors, shares may be purchased through a
systematic investment plan. Preauthorized monthly bank drafts
for a fixed amount (at least $25) are used to purchase Fund
shares at the applicable public offering price next determined
after Putnam Mutual Funds receives the proceeds from the draft
(normally the 20th of each month, or the next business day
thereafter). Further information and application forms are
available from investment dealers or from Putnam Mutual Funds.
Except for Putnam funds that declare a distribution daily,
distributions to be reinvested are reinvested without a sales
charge in shares of the same class as of the ex-dividend date
using the net asset value determined on that date, and are
credited to a shareholder's account on the payment date.
Dividends for Putnam money market funds are credited to a
shareholder's account on the payment date. Distributions for
Putnam Tax-Free Income Trust and Putnam Corporate Asset Trust are
reinvested without a sales charge as of the last day of the
period for which distributions are paid using the net asset value
determined on that date, and are credited to a shareholder's
account on the payment date. Distributions for all other Putnam
funds that declare a distribution daily are reinvested without a
sales charge as of the next day following the period for which
distributions are paid using the net asset value determined on
that date, and are credited to a shareholder's account on the
payment date.
PAYMENT IN SECURITIES. In addition to cash, the Fund may accept
securities as payment for Fund shares at the applicable net asset
value. Generally, the Fund will only consider accepting
securities to increase its holdings in a portfolio security, or
if Putnam Management determines that the offered securities are a
suitable investment for the Fund and in a sufficient amount for
efficient management.
While no minimum has been established, it is expected that the
Fund would not accept securities with a value of less than
$100,000 per issue as payment for shares. The Fund may reject in
whole or in part any or all offers to pay for purchases of Fund
shares with securities, may require partial payment in cash for
such purchases to provide funds for applicable sales charges, and
may discontinue accepting securities as payment for Fund shares
at any time without notice. The Fund will value accepted
securities in the manner described in the section "Determination
of Net Asset Value" for valuing shares of the Fund. The Fund
will only accept securities which are delivered in proper form.
The Fund will not accept options or restricted securities as
payment for shares. The acceptance of securities by certain
Funds in exchange for Fund shares are subject to additional
requirements. In the case of Putnam American Government Income
Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation
Funds: Balanced Portfolio, Putnam Asset Allocation Funds:
Conservative Portfolio, Putnam Asset Allocation Funds: Growth
Portfolio, Putnam Capital Appreciation Fund, Putnam Corporate
Asset Trust, Putnam Diversified Equity Trust, Putnam Equity
Income Fund, Putnam Europe Growth Fund, The Putnam Fund for
Growth & Income, Putnam Global Governmental Income Trust, Putnam
Growth and Income Fund II, Putnam High Yield Advantage Fund,
Putnam Intermediate Tax Exempt Fund, Putnam Municipal Income
Fund, Putnam OTC Emerging Growth Fund, Putnam Overseas Growth
Fund, Putnam Tax Exempt Income Fund and Putnam Total Return Bond
Funds, transactions involving the issuance of Fund shares for
securities or assets other than cash will be limited to a bona-
fide re-organization or statutory merger and to other
acquisitions of portfolio securities that meet all the following
conditions: (a) such securities meet the investment objectives
and policies of the Fund; (b) such securities are acquired for
investment and not for resale; (c) such securities are liquid
securities which are not restricted as to transfer either by law
or liquidity of market; and (d) such securities have a value
which is readily ascertainable, as evidenced by a listing on the
American Stock Exchange, the New York Stock Exchange or NASDAQ.
In addition, Putnam Global Governmental Income Trust may accept
only investment grade bonds with prices regularly stated in
publications generally accepted by investors, such as the London
Financial Times and the Association of International Bond Dealers
manual, or securities listed on the New York or American Stock
Exchanges or with NASDAQ, and Putnam Diversified Income Trust may
accept only bonds with prices regularly stated in publications
generally accepted by investors. For federal income tax
purposes, a purchase of Fund shares with securities will be
treated as a sale or exchange of such securities on which the
investor will realize a taxable gain or loss. The processing of
a purchase of Fund shares with securities involves certain delays
while the Fund considers the suitability of such securities and
while other requirements are satisfied. For information
regarding procedures for payment in securities, contact Putnam
Mutual Funds. Investors should not send securities to the Fund
except when authorized to do so and in accordance with specific
instructions received from Putnam Mutual Funds.
SALES WITHOUT SALES CHARGES OR CONTINGENT DEFERRED SALES CHARGES.
The Fund may sell shares without a sales charge or CDSC to:
(i) current and retired Trustees of the Fund; officers of
the Fund; directors and current and retired U.S. full-time
employees of Putnam Management, Putnam Mutual Funds, their
parent corporations and certain corporate affiliates;
family members of and employee benefit plans for the
foregoing; and partnerships, trusts or other entities in
which any of the foregoing has a substantial interest;
(ii) employee benefit plans, for the repurchase of shares
in connection with repayment of plan loans made to plan
participants (if the sum loaned was obtained by redeeming
shares of a Putnam fund sold with a sales charge) (not
offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employee
benefit plans which have entered into agreements with
Putnam Mutual Funds (not offered by tax-exempt funds);
(iv) registered representatives and other employees of
broker-dealers having sales agreements with Putnam Mutual
Funds; employees of financial institutions having sales
agreements with Putnam Mutual Funds or otherwise having an
arrangement with any such broker-dealer or financial
institution with respect to sales of Fund shares; and
their spouses and children under age 21 (Putnam Mutual
Funds is regarded as the dealer of record for all such
accounts);
(v) investors meeting certain requirements who sold shares
of certain Putnam closed-end funds pursuant to a tender
offer by such closed-end fund;
(vi) a trust department of any financial institution
purchasing shares of the Fund in its capacity as trustee
of any trust, if the value of the shares of the Fund and
other Putnam funds purchased or held by all such trusts
exceeds $1 million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-
dealers, financial institutions or financial planners who
have entered into agreements with Putnam Mutual Funds with
respect to such accounts.
In addition, the Fund may issue its shares at net asset value in
connection with the acquisition of substantially all of the
securities owned by other investment companies or personal
holding companies.
PAYMENTS TO DEALERS. Putnam Mutual Funds may, at its expense,
pay concessions in addition to the payments disclosed in the
Prospectus to dealers which satisfy certain criteria established
from time to time by Putnam Mutual Funds relating to increasing
net sales of shares of the Putnam funds over prior periods, and
certain other factors.
ADDITIONAL INFORMATION ABOUT CLASS A AND CLASS M SHARES
The underwriter's commission is the sales charge shown in the
Prospectus less any applicable dealer discount. Putnam Mutual
Funds will give dealers ten days' notice of any changes in the
dealer discount. Putnam Mutual Funds retains the entire sales
charge on any retail sales made by it.
Putnam Mutual Funds offers several plans by which an investor may
obtain reduced sales charges on purchases of Class A shares and
Class M shares. The variations in sales charges reflect the
varying efforts required to sell shares to separate categories of
purchasers. These plans may be altered or discontinued at any
time.
COMBINED PURCHASE PRIVILEGE. The following persons may qualify
for the sales charge reductions or eliminations shown in the
Prospectus by combining into a single transaction the purchase of
Class A shares or Class M shares with other purchases of any
class of shares:
(i) an individual, or a "company" as defined in Section
2(a)(8) of the Investment Company Act of 1940 (which
includes corporations which are corporate affiliates of
each other);
(ii) an individual, his or her spouse and their children
under twenty-one, purchasing for his, her or their own
account;
(iii) a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account (including a
pension, profit-sharing, or other employee benefit trust
created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code);
(iv) tax-exempt organizations qualifying under Section
501(c)(3) of the Internal Revenue Code (not including
403(b) plans); and
(v) employee benefit plans of a single employer or of
affiliated employers, other than 403(b) plans.
A combined purchase currently may also include shares of any
class of other continuously offered Putnam funds (other than
money market funds) purchased at the same time through a single
investment dealer, if the dealer places the order for such shares
directly with Putnam Mutual Funds.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A
purchaser of Class A shares or Class M shares may qualify for a
cumulative quantity discount by combining a current purchase (or
combined purchases as described above) with certain other shares
of any class of Putnam funds already owned. The applicable sales
charge is based on the total of:
(i) the investor's current purchase; and
(ii) the maximum public offering price (at the close of
business on the previous day) of:
(a) all shares held by the investor in all of the
Putnam funds (except money market funds); and
(b) any shares of money market funds acquired by
exchange from other Putnam funds; and
(iii) the maximum public offering price of all shares
described in paragraph (ii) owned by another shareholder
eligible to participate with the investor in a "combined
purchase" (see above).
To qualify for the combined purchase privilege or to obtain the
cumulative quantity discount on a purchase through an investment
dealer, when each purchase is made the investor or dealer must
provide Putnam Mutual Funds with sufficient information to verify
that the purchase qualifies for the privilege or discount. The
shareholder must furnish this information to Putnam Investor
Services when making direct cash investments.
STATEMENT OF INTENTION. Investors may also obtain the reduced
sales charges for Class A shares or Class M shares shown in the
Prospectus for investments of a particular amount by means of a
written Statement of Intention, which expresses the investor's
intention to invest that amount (including certain "credits," as
described below) within a period of 13 months in shares of any
class of the Fund or any other continuously offered Putnam fund
(excluding money market funds). Each purchase of Class A shares
or Class M shares under a Statement of Intention will be made at
the public offering price applicable at the time of such purchase
to a single transaction of the total dollar amount indicated in
the Statement. A Statement of Intention may include purchases of
shares made not more than 90 days prior to the date that an
investor signs a Statement; however, the 13-month period during
which the Statement is in effect will begin on the date of the
earliest purchase to be included.
An investor may receive a credit toward the amount indicated in
the Statement equal to the maximum public offering price as of
the close of business on the previous day of all shares he or she
owns on the date of the Statement which are eligible for purchase
under a Statement (plus any shares of money market funds acquired
by exchange of such eligible shares). Investors do not receive
credit for shares purchased by the reinvestment of distributions.
Investors qualifying for the "combined purchase privilege" (see
above) may purchase shares under a single Statement of Intention.
The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum
initial investment under a Statement of Intention is 5% of such
amount, and must be invested immediately. Class A shares or
Class M shares purchased with the first 5% of such amount will be
held in escrow to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased. When the full amount indicated has
been purchased, the escrow will be released. If an investor
desires to redeem escrowed shares before the full amount has been
purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the
Statement of Intention, would apply to the total investment made
to date.
To the extent that an investor purchases more than the dollar
amount indicated on the Statement of Intention and qualifies for
a further reduced sales charge, the sales charge will be adjusted
for the entire amount purchased at the end of the 13-month
period, upon recovery from the investor's dealer of its portion
of the sales charge adjustment. Once received from the dealer,
which may take a period of time or may never occur, the sales
charge adjustment will be used to purchase additional shares at
the then current offering price applicable to the actual amount
of the aggregate purchases. These additional shares will not be
considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement
of Intention. No sales charge adjustment will be made unless and
until the investor's dealer returns any excess commissions
previously received.
To the extent that an investor purchases less than the dollar
amount indicated on the Statement of Intention within the 13-
month period, the sales charge will be adjusted upward for the
entire amount purchased at the end of the 13-month period. This
adjustment will be made by redeeming shares from the account to
cover the additional sales charge, the proceeds of which will be
paid to the investor's dealer and Putnam Mutual Funds in
accordance with the Prospectus. If the account exceeds an amount
that would otherwise qualify for a reduced sales charge, that
reduced sales charge will be applied.
Statements of Intention are not available for certain employee
benefit plans.
Statement of Intention forms may be obtained from Putnam Mutual
Funds or from investment dealers. Interested investors should
read the Statement of Intention carefully.
REDUCED SALES CHARGE FOR GROUP PURCHASES OF CLASS A SHARES.
Members of qualified groups may purchase Class A shares of the
Fund at a group sales charge rate of 4.5% of the public offering
price (4.71% of the net amount invested). The dealer discount on
such sales is 3.75% of the offering price.
To receive the group rate, group members must purchase Class A
shares through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial
purchase to Putnam Mutual Funds, together with payment and
completed application forms. After the initial purchase, a
member may send funds for the purchase of Class A shares directly
to Putnam Investor Services. Purchases of Class A shares are
made at the public offering price based on the net asset value
next determined after Putnam Mutual Funds or Putnam Investor
Services receives payment for the shares. The minimum investment
requirements described above apply to purchases by any group
member. Only Class A shares are included in calculating the
purchased amount.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or
association, or other organized groups of persons (the members of
which may include other qualified groups) provided that: (i) the
group has at least 25 members of which at least 10 members
participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some
purpose in addition to the purchase of investment company shares
at a reduced sales charge; (iv) the group's sole organizational
nexus or connection is not that the members are credit card
holders of a company, policy holders of an insurance company,
customers of a bank or broker-dealer, clients of an investment
adviser or security holders of a company; (v) the group agrees to
provide its designated investment dealer access to the group's
membership by means of written communication or direct
presentation to the membership at a meeting on not less
frequently than an annual basis; (vi) the group or its investment
dealer will provide annual certification in form satisfactory to
Putnam Investor Services that the group then has at least 25
members and that at least ten members participated in group
purchases during the immediately preceding 12 calendar months;
and (vii) the group or its investment dealer will provide
periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the
group.
Members of a qualified group include: (i) any group which meets
the requirements stated above and which is a constituent member
of a qualified group; (ii) any individual purchasing for his or
her own account who is carried on the records of the group or on
the records of any constituent member of the group as being a
good standing employee, partner, member or person of like status
of the group or constituent member; or (iii) any fiduciary
purchasing shares for the account of a member of a qualified
group or a member's beneficiary. For example, a qualified group
could consist of a trade association which would have as its
members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the
members of the partnerships and their employees, and the
corporations and their employees, as well as the trustees of
employee benefit trusts acquiring Class A shares for the benefit
of any of the foregoing.
A member of a qualified group may, depending upon the value of
Class A shares of the Fund owned or proposed to be purchased by
the member, be entitled to purchase Class A shares of the Fund at
non-group sales charge rates shown in the Prospectus which may be
lower than the group sales charge rate, if the member qualifies
as a person entitled to reduced non-group sales charges. Such a
group member will be entitled to purchase at the lower rate if,
at the time of purchase, the member or his or her investment
dealer furnishes sufficient information for Putnam Mutual Funds
or Putnam Investor Services to verify that the purchase qualifies
for the lower rate.
Interested groups should contact their investment dealer or
Putnam Mutual Funds. The Fund reserves the right to revise the
terms of or to suspend or discontinue group sales at any time.
EMPLOYEE BENEFIT PLANS; INDIVIDUAL ACCOUNT PLANS. The term
"employee benefit plan" means any plan or arrangement, whether or
not tax-qualified, which provides for the purchase of Class A
shares. The term "affiliated employer" means employers who are
affiliated with each other within the meaning of Section
2(a)(3)(C) of the Investment Company Act of 1940. The term
"individual account plan" means any employee benefit plan whereby
(i) Class A shares are purchased through payroll deductions or
otherwise by a fiduciary or other person for the account of
participants who are employees (or their spouses) of an employer,
or of affiliated employers, and (ii) a separate Investing Account
is maintained in the name of such fiduciary or other person for
the account of each participant in the plan.
The table of sales charges in the Prospectus applies to sales to
employee benefit plans, except that the Fund may sell Class A
shares at net asset value to employee benefit plans, including
individual account plans, of employers or of affiliated employers
which have at least 750 employees to whom such plan is made
available, in connection with a payroll deduction system of plan
funding (or other system acceptable to Putnam Investor Services)
by which contributions or account information for plan
participation are transmitted to Putnam Investor Services by
methods acceptable to Putnam Investor Services. The Fund may
also sell Class A shares at net asset value to employee benefit
plans of employers or of affiliated employers which have at least
750 employees, if such plans are qualified under Section 401 of
the Internal Revenue Code.
Additional information about employee benefit plans and
individual account plans is available from investment dealers or
from Putnam Mutual Funds.
CONTINGENT DEFERRED SALES CHARGES
CLASS A SHARES. Class A shares purchased at net asset value by
shareholders investing $1 million or more, including purchases
pursuant to any Combined Purchase Privilege, Right of
Accumulation or Statement of Intention, are subject to a CDSC of
1.00% or 0.50%, respectively, if redeemed within the first or
second year after purchase. The Class A CDSC is imposed on the
lower of the cost and the current net asset value of the shares
redeemed. The CDSC does not apply to shares sold without a sales
charge through participant-directed qualified retirement plans
and shares purchased by certain investors investing $1 million or
more that have made arrangements with Putnam Mutual Funds and
whose dealer of record waived the commission described in the
next paragraph.
Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of Class A shares of $1
million or more based on an investor's cumulative purchases of
such shares, including purchases pursuant to any Combined
Purchase Privilege, Right of Accumulation or Statement of
Intention, during the one-year period beginning with the date of
the initial purchase at net asset value and each subsequent one-
year period beginning with the first net asset value purchase
following the end of the prior period. Such commissions are paid
at the rate of 1.00% of the amount under $3 million, 0.50% of the
next $47 million and 0.25% thereafter. On sales at net asset
value to a participant-directed qualified retirement plan
initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates
(including a plan sponsored by an employer with more than 750
employees), Putnam Mutual Funds pays commissions on cumulative
purchases during the life of the account at the rate of 1.00% of
the amount under $3 million and 0.50% thereafter. On sales at
net asset value to all other participant-directed qualified
retirement plans, Putnam Mutual Funds pays commissions on the
initial investment and on subsequent net quarterly sales (gross
sales minus gross redemptions during the quarter) at the rate of
0.15%. Money market fund shares are excluded from all commission
calculations, except for determining the amount initially
invested by a participant-directed qualified retirement plan.
Commissions on sales at net asset value to such plans are subject
to Putnam Mutual Funds' right to reclaim such commissions if the
shares are redeemed within two years.
Different CDSC and commission rates may apply to shares purchased
before April 1, 1994.
CLASS B AND CLASS C SHARES. Investors who set up an Automatic
Cash Withdrawal Plan (ACWP) for a Class B and Class C share
account (see "Plans Available To Shareholders -- Automatic Cash
Withdrawal Plan") may withdraw through the ACWP up to 12% of the
net asset value of the account (calculated as set forth below)
each year without incurring any CDSC. Shares not subject to a
CDSC (such as shares representing reinvestment of distributions)
will be redeemed first and will count toward the 12% limitation.
If there are insufficient shares not subject to a CDSC, shares
subject to the lowest CDSC liability will be redeemed next until
the 12% limit is reached. The 12% figure is calculated on a pro
rata basis at the time of the first payment made pursuant to a
ACWP and recalculated thereafter on a pro rata basis at the time
of each ACWP payment. Therefore, shareholders who have chosen a
ACWP based on a percentage of the net asset value of their
account of up to 12% will be able to receive ACWP payments
without incurring a CDSC. However, shareholders who have chosen
a specific dollar amount (for example, $100 per month from a fund
that pays income distributions monthly) for their periodic ACWP
payment should be aware that the amount of that payment not
subject to a CDSC may vary over time depending on the net asset
value of their account. For example, if the net asset value of
the account is $10,000 at the time of payment, the shareholder
will receive $100 free of the CDSC (12% of $10,000 divided by 12
monthly payments). However, if at the time of the next payment
the net asset value of the account has fallen to $9,400, the
shareholder will receive $94 free of any CDSC (12% of $9,400
divided by 12 monthly payments) and $6 subject to the lowest
applicable CDSC. This ACWP privilege may be revised or
terminated at any time.
ALL SHARES. No CDSC is imposed on shares of any class subject to
a CDSC ("CDSC Shares") to the extent that the CDSC Shares
redeemed (i) are no longer subject to the holding period
therefor, (ii) resulted from reinvestment of distributions on
CDSC Shares, or (iii) were exchanged for shares of another Putnam
fund, provided that the shares acquired in such exchange or
subsequent exchanges (including shares of a Putnam money market
fund) will continue to remain subject to the CDSC, if applicable,
until the applicable holding period expires. In determining
whether the CDSC applies to each redemption of CDSC Shares, CDSC
Shares not subject to a CDSC are redeemed first.
The Fund will waive any CDSC on redemptions, in the case of
individual or Uniform Transfers to Minors Act accounts, in case
of death or disability or for the purpose of paying benefits
pursuant to tax-qualified retirement plans. Such payments
currently include, without limitation, (1) distributions from an
IRA due to death or disability, (2) a return of excess
contributions to an IRA or 401(k) plan, and (3) distributions
from retirement plans qualified under section 401(a) or section
403(b)(7) (a "403(b) plan") of the Internal Revenue Code of 1986,
as amended (the "Code"), due to death, disability, retirement or
separation from service. The Fund will also waive any CDSC in
the case of the death of one joint tenant. These waivers may be
changed at any time. Additional waivers may apply to IRA
accounts opened prior to February 1, 1994.
DISTRIBUTION PLAN
If the Fund or a class of shares of the Fund has adopted a
Distribution Plan, the Prospectus describes the principal
features of the Plan. This Statement contains additional
information which may be of interest to investors.
Continuance of a Plan is subject to annual approval by a vote of
the Trustees, including a majority of the Trustees who are not
interested persons of the Fund and who have no direct or indirect
interest in the Plan or related arrangements (the "Qualified
Trustees"), cast in person at a meeting called for that purpose.
All material amendments to a Plan must be likewise approved by
the Trustees and the Qualified Trustees. No Plan may be amended
in order to increase materially the costs which the Fund may bear
for distribution pursuant to such Plan without also being
approved by a majority of the outstanding voting securities of
the Fund or the relevant class of the Fund, as the case may be.
A Plan terminates automatically in the event of its assignment
and may be terminated without penalty, at any time, by a vote of
a majority of the Qualified Trustees or by a vote of a majority
of the outstanding voting securities of the Fund or the relevant
class of the Fund, as the case may be.
If Plan payments are made to reimburse Putnam Mutual Funds for
payments to dealers based on the average net asset value of Fund
shares attributable to shareholders for whom the dealers are
designated as the dealer of record, "average net asset value"
attributable to a shareholder account means the product of (i)
the Fund's average daily share balance of the account and (ii)
the Fund's average daily net asset value per share (or the
average daily net asset value per share of the class, if
applicable). For administrative reasons, Putnam Mutual Funds may
enter into agreements with certain dealers providing for the
calculation of "average net asset value" on the basis of assets
of the accounts of the dealer's customers on an established day
in each quarter.
Financial institutions receiving payments from Putnam Mutual
Funds as described above may be required to comply with various
state and federal regulatory requirements, including among others
those regulating the activities of securities brokers or dealers.
INVESTOR SERVICES
SHAREHOLDER INFORMATION
Each time shareholders buy or sell shares, they will receive a
statement confirming the transaction and listing their current
share balance. (Under certain investment plans, a statement may
only be sent quarterly.) Shareholders will receive a statement
confirming reinvestment of distributions in additional Fund
shares (or in shares of other Putnam funds for Dividends Plus
accounts) promptly following the quarter in which the
reinvestment occurs. To help shareholders take full advantage of
their Putnam investment, they will receive a Welcome Kit and a
periodic publication covering many topics of interest to
investors. The Fund also sends annual and semiannual reports
that keep shareholders informed about its portfolio and
performance, and year-end tax information to simplify their
recordkeeping. Easy-to-read, free booklets on special subjects
such as the Exchange Privilege and IRAs are available from Putnam
Investor Services. Shareholders may call Putnam Investor
Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m.
and 7:00 p.m. Boston time for more information, including account
balances.
YOUR INVESTING ACCOUNT
The following information provides more detail concerning the
operation of a Putnam Investing Account. For further information
or assistance, investors should consult Putnam Investor Services.
Shareholders who purchase shares through a defined contribution
plan should note that not all of the services or features
described below may be available to them, and they should contact
their employer for details.
A shareholder may reinvest a recent cash distribution without a
front-end sales charge or without the reinvested shares being
subject to a CDSC, as the case may be, by delivering to Putnam
Investor Services the uncashed distribution check, endorsed to
the order of the Fund. Putnam Investor Services must receive the
properly endorsed check within 30 days after the date of the
check. Upon written notice to shareholders, the Fund may permit
shareholders who receive cash distributions to reinvest amounts
representing returns of capital without a sales charge or without
being subject to the CDSC.
The Investing Account also provides a way to accumulate shares of
the Fund. In most cases, after an initial investment of $500, a
shareholder may send checks to Putnam Investor Services for $50
or more, made payable to the Fund, to purchase additional shares
at the applicable public offering price next determined after
Putnam Investor Services receives the check. For Putnam
Corporate Asset Trust, the minimum initial investment is $25,000
and the minimum subsequent investment is $5,000. Checks must be
drawn on a U.S. bank and must be payable in U.S. dollars.
Putnam Investor Services acts as the shareholder's agent whenever
it receives instructions to carry out a transaction on the
shareholder's account. Upon receipt of instructions that shares
are to be purchased for a shareholder's account, shares will be
purchased through the investment dealer designated by the
shareholder. Shareholders may change investment dealers at any
time by written notice to Putnam Investor Services, provided the
new dealer has a sales agreement with Putnam Mutual Funds.
Shares credited to an account are transferable upon written
instructions in good order to Putnam Investor Services and may be
sold to the Fund as described under "How to buy shares, sell
shares and exchange shares" in the Prospectus. Money market
funds and certain other funds will not issue share certificates.
A shareholder may send any certificates which have been
previously issued to Putnam Investor Services for safekeeping at
no charge to the shareholder.
Putnam Mutual Funds, at its expense, may provide certain
additional reports and administrative material to qualifying
institutional investors with fiduciary responsibilities to assist
these investors in discharging their responsibilities.
Institutions seeking further information about this service
should contact Putnam Mutual Funds, which may modify or terminate
this service at any time.
Putnam Investor Services may make special services available to
shareholders with investments exceeding $1,000,000. Contact
Putnam Investor Services for details.
The Fund pays Putnam Investor Services' fees for maintaining
Investing Accounts.
REINSTATEMENT PRIVILEGE
An investor who has redeemed shares to the Fund may reinvest
(within 1 year) the proceeds of such sale in shares of the same
class of the Fund, or may be able to reinvest (within 1 year) the
proceeds in shares of the same class of one of the other
continuously offered Putnam funds (through the Exchange Privilege
described in the Prospectus), including, in the case of shares
subject to a CDSC, the amount of CDSC charged on the redemption.
Any such reinvestment would be at the net asset value of the
shares of the fund(s) the investor selects, next determined after
Putnam Mutual Funds receives a Reinstatement Authorization. The
time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions and, in the
case of Class B shares, the eight-year period for conversion to
Class A shares. Shareholders will receive from Putnam Mutual
Funds the amount of any CDSC paid at the time of redemption as
part of the reinstated investment, which may be treated as
capital gains to the shareholder for tax purposes. Exercise of
the Reinstatement Privilege does not alter the federal income tax
treatment of any capital gains realized on a sale of Fund shares,
but to the extent that any shares are sold at a loss and the
proceeds are reinvested in shares of the Fund, some or all of the
loss may be disallowed as a deduction. Consult your tax adviser.
Investors who desire to exercise this Privilege should contact
their investment dealer or Putnam Investor Services.
EXCHANGE PRIVILEGE
Except as otherwise set forth in this section, by calling Putnam
Investor Services, investors may exchange shares valued up to
$500,000 between accounts with identical registrations, provided
that no certificates are outstanding for such shares and no
address change has been made within the preceding 15 days.
During periods of unusual market changes and shareholder
activity, shareholders may experience delays in contacting Putnam
Investor Services by telephone to exercise the Telephone Exchange
Privilege.
Putnam Investor Services also makes exchanges promptly after
receiving a properly completed Exchange Authorization Form and,
if issued, share certificates. If the shareholder is a
corporation, partnership, agent, or surviving joint owner, Putnam
Investor Services will require additional documentation of a
customary nature. Because an exchange of shares involves the
redemption of Fund shares and reinvestment of the proceeds in
shares of another Putnam fund, completion of an exchange may be
delayed under unusual circumstances if the Fund were to suspend
redemptions or postpone payment for the Fund shares being
exchanged, in accordance with federal securities laws. Exchange
Authorization Forms and prospectuses of the other Putnam funds
are available from Putnam Mutual Funds or investment dealers
having sales contracts with Putnam Mutual Funds. The prospectus
of each fund describes its investment objective(s) and policies,
and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
Shares of certain Putnam funds are not available to residents of
all states. The Fund reserves the right to change or suspend the
Exchange Privilege at any time. Shareholders would be notified
of any change or suspension. Additional information is available
from Putnam Investor Services.
Shares of the Fund must be held at least 15 days by the
shareholder requesting an exchange. There is no holding period
if the shareholder acquired the shares to be exchanged through
reinvestment of distributions, transfer from another shareholder,
prior exchange or certain employer-sponsored defined contribution
plans. In all cases, the shares to be exchanged must be
registered on the records of the Fund in the name of the
shareholder requesting the exchange.
Shareholders of other Putnam funds may also exchange their shares
at net asset value for shares of the Fund, as set forth in the
current prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which
the investor generally will realize a capital gain or loss
depending on whether the net asset value at the time of the
exchange is more or less than the investor's basis. The Exchange
Privilege may be revised or terminated at any time. Shareholders
would be notified of any such change or suspension.
DIVIDENDS PLUS
Shareholders may invest the Fund's distributions of net
investment income or distributions combining net investment
income and short-term capital gains in shares of the same class
of another continuously offered Putnam fund (the "receiving
fund") using the net asset value per share of the receiving fund
determined on the date the Fund's distribution is payable. No
sales charge or CDSC will apply to the purchased shares unless
the Fund is a money market fund. The prospectus of each fund
describes its investment objective(s) and policies, and
shareholders should obtain a prospectus and consider these
objective(s) and policies carefully before investing their
distributions in the receiving fund. Shares of certain Putnam
funds are not available to residents of all states.
The minimum account size requirement for the receiving fund will
not apply if the current value of your account in this Fund is
more than $5,000.
Shareholders of other Putnam funds (except for money market
funds, whose shareholders must pay a sales charge or become
subject to a CDSC) may also use their distributions to purchase
shares of the Fund at net asset value.
For federal tax purposes, distributions from the Fund which are
reinvested in another fund are treated as paid by the Fund to the
shareholder and invested by the shareholder in the receiving fund
and thus, to the extent comprised of taxable income and deemed
paid to a taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any
time.
PLANS AVAILABLE TO SHAREHOLDERS
The Plans described below are fully voluntary and may be
terminated at any time without the imposition by the Fund or
Putnam Investor Services of any penalty. All Plans provide for
automatic reinvestment of all distributions in additional shares
of the Fund at net asset value. The Fund, Putnam Mutual Funds or
Putnam Investor Services may modify or cease offering these Plans
at any time.
AUTOMATIC CASH WITHDRAWAL PLAN. An investor who owns or buys
shares of the Fund valued at $10,000 or more at the current
public offering price may open a Withdrawal Plan and have a
designated sum of money ($50 or more) paid monthly, quarterly,
semi-annually or annually to the investor or another person.
(Payments from the Fund can be combined with payments from other
Putnam funds into a single check through a Designated Payment
Plan.) Shares are deposited in a Plan account, and all
distributions are reinvested in additional shares of the Fund at
net asset value (except where the Plan is utilized in connection
with a charitable remainder trust). Shares in a Plan account are
then redeemed at net asset value to make each withdrawal payment.
Payment will be made to any person the investor designates;
however, if shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary,
except in the case of a profit-sharing or pension plan where
payment will be made to a designee. As withdrawal payments may
include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor.
The redemption of shares in connection with a Withdrawal Plan
generally will result in a gain or loss for tax purposes. Some
or all of the losses realized upon redemption may be disallowed
pursuant to the so-called wash sale rules if shares of the same
fund from which shares were redeemed are purchased (including
through the reinvestment of fund distributions) within a period
beginning 30 days before, and ending 30 days after, such
redemption. In such a case, the basis of the replacement shares
will be increased to reflect the disallowed loss. Continued
withdrawals in excess of income will reduce and possibly exhaust
invested principal, especially in the event of a market decline.
The maintenance of a Withdrawal Plan concurrently with purchases
of additional shares of the Fund would be disadvantageous to the
investor because of the sales charge payable on such purchases.
For this reason, the minimum investment accepted while a
Withdrawal Plan is in effect is $1,000, and an investor may not
maintain a Plan for the accumulation of shares of the Fund (other
than through reinvestment of distributions) and a Withdrawal Plan
at the same time. The cost of administering these Plans for the
benefit of those shareholders participating in them is borne by
the Fund as an expense of all shareholders. The Fund, Putnam
Mutual Funds or Putnam Investor Services may terminate or change
the terms of the Withdrawal Plan at any time. A Withdrawal Plan
will be terminated if communications mailed to the shareholder
are returned as undeliverable.
Investors should consider carefully with their own financial
advisers whether the Plan and the specified amounts to be
withdrawn are appropriate in their circumstances. The Fund and
Putnam Investor Services make no recommendations or
representations in this regard.
TAX QUALIFIED RETIREMENT PLANS; 403(B) AND SEP PLANS. (NOT
OFFERED BY FUNDS INVESTING PRIMARILY IN TAX-EXEMPT SECURITIES.)
Investors may purchase shares of the Fund through the following
Tax Qualified Retirement Plans, available to qualified
individuals or organizations:
Standard and variable profit-sharing (including 401(k))
and money purchase pension plans; and
Individual Retirement Account Plans (IRAs).
Each of these Plans has been qualified as a prototype plan by the
Internal Revenue Service. Putnam Investor Services will furnish
services under each plan at a specified annual cost. Putnam
Fiduciary Trust Company serves as trustee under each of these
Plans.
Forms and further information on these Plans are available from
investment dealers or from Putnam Mutual Funds. In addition,
specialized professional plan administration services are
available on an optional basis; contact Putnam Defined
Contribution Plan Services at 1-800-225-2465, extension 8600.
A 403(b) Retirement Plan is available for employees of public
school systems and organizations which meet the requirements of
Section 501(c)(3) of the Internal Revenue Code. Forms and
further information on the 403(b) Plan are also available from
investment dealers or from Putnam Mutual Funds. Shares of the
Fund may also be used in simplified employee pension (SEP) plans.
For further information on the Putnam prototype SEP plan, contact
an investment dealer or Putnam Mutual Funds.
Consultation with a competent financial and tax adviser regarding
these Plans and consideration of the suitability of Fund shares
as an investment under the Employee Retirement Income Security
Act of 1974, or otherwise, is recommended.
SIGNATURE GUARANTEES
Redemption requests for shares having a net asset value of
$100,000 or more must be signed by the registered owners or their
legal representatives and must be guaranteed by a bank,
broker/dealer, municipal securities dealer or broker, government
securities dealer or broker, credit union, national securities
exchange, registered securities association, clearing agency,
savings association or trust company, provided such institution
is acceptable under and conforms with Putnam Fiduciary Trust
Company's signature guarantee procedures. A copy of such
procedures is available upon request. If you want your
redemption proceeds sent to an address other than your address as
it appears on Putnam's records, you must provide a signature
guarantee. Putnam Investor Services usually requires additional
documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
SUSPENSION OF REDEMPTIONS
The Fund may not suspend shareholders' right of redemption, or
postpone payment for more than seven days, unless the New York
Stock Exchange is closed for other than customary weekends or
holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange
is restricted or during any emergency which makes it
impracticable for the Fund to dispose of its securities or to
determine fairly the value of its net assets, or during any other
period permitted by order of the Commission for protection of
investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Fund. However, the Agreement and Declaration of Trust
disclaims shareholder liability for acts or obligations of the
Fund and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
the Fund or the Trustees. The Agreement and Declaration of Trust
provides for indemnification out of Fund property for all loss
and expense of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to
meet its obligations. The likelihood of such circumstances is
remote.
STANDARD PERFORMANCE MEASURES
Yield and total return data for the Fund may from time to time be
presented in Part I of this Statement and in advertisements. In
the case of funds with more than one class of shares, all
performance information is calculated separately for each class.
The data is calculated as follows.
Total return for one-, five- and ten-year periods (or for such
shorter periods as the Fund has been in operation or shares of
the relevant class have been outstanding) is determined by
calculating the actual dollar amount of investment return on a
$1,000 investment in the Fund made at the beginning of the
period, at the maximum public offering price for Class A shares
and Class M shares and net asset value for other classes of
shares, and then calculating the annual compounded rate of return
which would produce that amount. Total return for a period of
one year is equal to the actual return of the Fund during that
period. Total return calculations assume deduction of the Fund's
maximum sales charge or CDSC, if applicable, and reinvestment of
all Fund distributions at net asset value on their respective
reinvestment dates.
The Fund's yield is presented for a specified thirty-day period
(the "base period"). Yield is based on the amount determined by
(i) calculating the aggregate amount of dividends and interest
earned by the Fund during the base period less expenses accrued
for that period, and (ii) dividing that amount by the product of
(A) the average daily number of shares of the Fund outstanding
during the base period and entitled to receive dividends and (B)
the per share maximum public offering price for Class A shares or
Class M shares, as appropriate and net asset value for other
classes of shares on the last day of the base period. The result
is annualized on a compounding basis to determine the yield. For
this calculation, interest earned on debt obligations held by the
Fund is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their
market values (or, in the case of receivables-backed securities
such as GNMA's, based on cost). Dividends on equity securities
are accrued daily at their stated dividend rates.
If the Fund is a money market fund, yield is computed by
determining the percentage net change, excluding capital changes,
in the value of an investment in one share over the seven-day
period for which yield is presented (the "base period"), and
multiplying the net change by 365/7 (or approximately 52 weeks).
Effective yield represents a compounding of the yield by adding 1
to the number representing the percentage change in value of the
investment during the base period, raising that sum to a power
equal to 365/7, and subtracting 1 from the result.
If the Fund is a tax-exempt fund, the tax-equivalent yield during
the base period may be presented for shareholders in one or more
stated tax brackets. Tax-equivalent yield is calculated by
adjusting the tax-exempt yield by a factor designed to show the
approximate yield that a taxable investment would have to earn to
produce an after-tax yield equal, for that shareholder, to the
tax-exempt yield. The tax-equivalent yield will differ for
shareholders in other tax brackets.
At times, Putnam Management may reduce its compensation or assume
expenses of the Fund in order to reduce the Fund's expenses. The
per share amount of any such fee reduction or assumption of
expenses during the Fund's past ten fiscal years (or for the life
of the Fund, if shorter) is reflected in the table in the section
entitled "Financial history" in the Prospectus. Any such fee
reduction or assumption of expenses would increase the Fund's
yield and total return during the period of the fee reduction or
assumption of expenses.
All data are based on past performance and do not predict future
results.
COMPARISON OF PORTFOLIO PERFORMANCE
Independent statistical agencies measure the Fund's investment
performance and publish comparative information showing how the
Fund, and other investment companies, performed in specified time
periods. Three agencies whose reports are commonly used for such
comparisons are set forth below. From time to time, the Fund may
distribute these comparisons to its shareholders or to potential
investors. THE AGENCIES LISTED BELOW MEASURE PERFORMANCE BASED
ON THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED
PERFORMANCE MEASURES DESCRIBED IN THE PRECEDING SECTION.
LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund
rankings monthly. The rankings are based on total return
performance calculated by Lipper, reflecting generally
changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a
variety of performance periods, for example year-to-date,
1-year, 5-year, and 10-year performance. Lipper
classifies mutual funds by investment objective and asset
category.
MORNINGSTAR, INC. distributes mutual fund ratings twice a
month. The ratings are divided into five groups:
highest, above average, neutral, below average and lowest.
They represent a fund's historical risk/reward ratio
relative to other funds with similar objectives. The
performance factor is a weighted-average assessment of the
Fund's 3-year, 5-year, and 10-year total return
performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using
quantitative techniques to reflect the risk profile of the
fund. The ratings are derived from a purely quantitative
system that does not utilize the subjective criteria
customarily employed by rating agencies such as Standard &
Poor's Corporation and Moody's Investor Service, Inc.
CDA/WIESENBERGER'S MANAGEMENT RESULTS publishes mutual
fund rankings and is distributed monthly. The rankings
are based entirely on total return calculated by
Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year. Mutual funds are ranked in
general categories (e.g., international bond,
international equity, municipal bond, and maximum capital
gain). Weisenberger rankings do not reflect deduction of
sales charges or fees.
Independent publications may also evaluate the Fund's
performance. Certain of those publications are listed below, at
the request of Putnam Mutual Funds, which bears full
responsibility for their use and the descriptions appearing
below. From time to time the Fund may distribute evaluations by
or excerpts from these publications to its shareholders or to
potential investors. The following illustrates the types of
information provided by these publications.
BUSINESS WEEK publishes mutual fund rankings in its
Investment Figures of the Week column. The rankings are
based on 4-week and 52-week total return reflecting
changes in net asset value and the reinvestment of all
distributions. They do not reflect deduction of any sales
charges. Funds are not categorized; they compete in a
large universe of over 2000 funds. The source for
rankings is data generated by Morningstar, Inc.
INVESTOR'S BUSINESS DAILY publishes mutual fund rankings
on a daily basis. The rankings are depicted as the top 25
funds in a given category. The categories are based
loosely on the type of fund, e.g., growth funds, balanced
funds, U.S. government funds, GNMA funds, growth and
income funds, corporate bond funds, etc. Performance
periods for sector equity funds can vary from 4 weeks to
39 weeks; performance periods for other fund groups vary
from 1 year to 3 years. Total return performance reflects
changes in net asset value and reinvestment of dividends
and capital gains. The rankings are based strictly on
total return. They do not reflect deduction of any sales
charges. Performance grades are conferred from A+ to E.
An A+ rating means that the fund has performed within the
top 5% of a general universe of over 2000 funds; an A
rating denotes the top 10%; an A- is given to the top 15%,
etc.
BARRON'S periodically publishes mutual fund rankings. The
rankings are based on total return performance provided by
Lipper Analytical Services. The Lipper total return data
reflects changes in net asset value and reinvestment of
distributions, but does not reflect deduction of any sales
charges. The performance periods vary from short-term
intervals (current quarter or year-to-date, for example)
to long-term periods (five-year or ten-year performance,
for example). Barron's classifies the funds using the
Lipper mutual fund categories, such as Capital
Appreciation Funds, Growth Funds, U.S. Government Funds,
Equity Income Funds, Global Funds, etc. Occasionally,
Barron's modifies the Lipper information by ranking the
funds in asset classes. "Large funds" may be those with
assets in excess of $25 million; "small funds" may be
those with less than $25 million in assets.
THE WALL STREET JOURNAL publishes its Mutual Fund
Scorecard on a daily basis. Each Scorecard is a ranking
of the top-15 funds in a given Lipper Analytical Services
category. Lipper provides the rankings based on its total
return data reflecting changes in net asset value and
reinvestment of distributions and not reflecting any sales
charges. The Scorecard portrays 4-week, year-to-date,
one-year and 5-year performance; however, the ranking is
based on the one-year results. The rankings for any given
category appear approximately once per month.
FORTUNE magazine periodically publishes mutual fund
rankings that have been compiled for the magazine by
Morningstar, Inc. Funds are placed in stock or bond fund
categories (for example, aggressive growth stock funds,
growth stock funds, small company stock funds, junk bond
funds, Treasury bond funds, etc.), with the top-10 stock
funds and the top-5 bond funds appearing in the rankings.
The rankings are based on 3-year annualized total return
reflecting changes in net asset value and reinvestment of
distributions and not reflecting sales charges.
Performance is adjusted using quantitative techniques to
reflect the risk profile of the fund.
MONEY magazine periodically publishes mutual fund rankings
on a database of funds tracked for performance by Lipper
Analytical Services. The funds are placed in 23 stock or
bond fund categories and analyzed for five-year risk
adjusted return. Total return reflects changes in net
asset value and reinvestment of all dividends and capital
gains distributions and does not reflect deduction of any
sales charges. Grades are conferred (from A to E): the
top 20% in each category receive an A, the next 20% a B,
etc. To be ranked, a fund must be at least one year old,
accept a minimum investment of $25,000 or less and have
had assets of at least $25 million as of a given date.
FINANCIAL WORLD publishes its monthly Independent
Appraisals of Mutual Funds, a survey of approximately 1000
mutual funds. Funds are categorized as to type, e.g.,
balanced funds, corporate bond funds, global bond funds,
growth and income funds, U.S. government bond funds, etc.
To compete, funds must be over one year old, have over $1
million in assets, require a maximum of $10,000 initial
investment, and should be available in at least 10 states
in the United States. The funds receive a composite past
performance rating, which weighs the intermediate- and
long-term past performance of each fund versus its
category, as well as taking into account its risk, reward
to risk, and fees. An A+ rated fund is one of the best,
while a D-rated fund is one of the worst. The source for
Financial World rating is Schabacker investment management
in Rockville, MD.
FORBES magazine periodically publishes mutual fund ratings
based on performance over at least two bull and bear
market cycles. The funds are categorized by type,
including stock and balanced funds, taxable bond funds,
municipal bond funds, etc. Data sources include Lipper
Analytical Services and CDA Investment Technologies. The
ratings are based strictly on performance at net asset
value over the given cycles. Funds performing in the top
5% receive an A+ rating; the top 15% receive an A rating;
and so on until the bottom 5% receive an F rating. Each
fund exhibits two ratings, one for performance in "up"
markets and another for performance in "down" markets.
KIPLINGER'S PERSONAL FINANCE MAGAZINE (formerly Changing
Times), periodically publishes rankings of mutual funds
based on one-, three- and five-year total return
performance reflecting changes in net asset value and
reinvestment of dividends and capital gains and not
reflecting deduction of any sales charges. Funds are
ranked by tenths: a rank of 1 means that a fund was among
the highest 10% in total return for the period; a rank of
10 denotes the bottom 10%. Funds compete in categories of
similar funds--aggressive growth funds, growth and income
funds, sector funds, corporate bond funds, global
governmental bond funds, mortgage-backed securities funds,
etc. Kiplinger's also provides a risk-adjusted grade in
both rising and falling markets. Funds are graded against
others with the same objective. The average weekly total
return over two years is calculated. Performance is
adjusted using quantitative techniques to reflect the risk
profile of the fund.
U.S. NEWS AND WORLD REPORT periodically publishes mutual
fund rankings based on an overall performance index (OPI)
devised by Kanon Bloch Carre & Co., a Boston research
firm. Over 2000 funds are tracked and divided into 10
equity, taxable bond and tax-free bond categories. Funds
compete within the 10 groups and three broad categories.
The OPI is a number from 0-100 that measures the relative
performance of funds at least three years old over the
last 1, 3, 5 and 10 years and the last six bear markets.
Total return reflects changes in net asset value and the
reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales
charges. Results for the longer periods receive the most
weight.
THE 100 BEST MUTUAL FUNDS YOU CAN BUY (1992), authored by
Gordon K. Williamson. The author's list of funds is
divided into 12 equity and bond fund categories, and the
100 funds are determined by applying four criteria.
First, equity funds whose current management teams have
been in place for less than five years are eliminated.
(The standard for bond funds is three years.) Second, the
author excludes any fund that ranks in the bottom 20
percent of its category's risk level. Risk is determined
by analyzing how many months over the past three years the
fund has underperformed a bank CD or a U.S. Treasury bill.
Third, a fund must have demonstrated strong results for
current three-year and five-year performance. Fourth, the
fund must either possess, in Mr. Williamson's judgment,
"excellent" risk-adjusted return or "superior" return with
low levels of risk. Each of the 100 funds is ranked in
five categories: total return, risk/volatility,
management, current income and expenses. The rankings
follow a five-point system: zero designates "poor"; one
point means "fair"; two points denote "good"; three points
qualify as a "very good"; four points rank as "superior";
and five points mean "excellent."
In addition, Putnam Mutual Funds may distribute to shareholders
or prospective investors illustrations of the benefits of
reinvesting tax-exempt or tax-deferred distributions over
specified time periods, which may include comparisons to fully
taxable distributions. These illustrations use hypothetical
rates of tax-advantaged and taxable returns and are not intended
to indicate the past or future performance of any fund.
DEFINITIONS
"Putnam Management" -- Putnam Investment Management,
Inc., the Fund's investment
manager.
"Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the
Fund's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the Fund's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a
division of Putnam Fiduciary
Trust Company, the Fund's
investor servicing agent.
<PAGE>
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Index to Financial Statements and Supporting
Schedule:
(1) Financial Statements:
Statement of assets and liabilities --October
31, 1994 (a).
Statement of operations -- Year ended October
31, 1994 (a).
Statement of changes in net assets -- Year
ended October 31, 1994 and year ended
October 31, 1993(a) .
Financial highlights (a)(b).
Notes to financial statements (a).
(2) Supporting Schedules:
Schedule I - Portfolio of investments owned
-October 31, 1994 (a).
Schedules II through IX omitted because the
required matter is not present.
(a) Incorporated by reference into Parts A
and B.
(b) Included in Part A.
- --------------------------
(b) Exhibits:
1. Agreement and Declaration of Trust dated
December 3, 1986, as amended May 7, 1992
--Incorporated by reference to Post-Effective
Amendment No. 7 to the Registrant's
Registration Statement.
2. By-Laws, as amended through February 1,
1994 --Exhibit 1.
3. Not applicable.
4a. Class A Specimen share certificate
--Incorporated by reference to Post-Effective
Amendment No. 7 to the Registrant's
Registration Statement.<PAGE>
4b. Class B Specimen share certificate --
Incorporated by reference to Post-Effective
Amendment No. 7 to the Registrant's
Registration Statement.
4c. Portions of Agreement and Declaration of
Trust relating to Shareholders' Rights --
Incorporated by reference to Post-
Effective Amendment No. 8 to the Registrant's
Registration Statement.
4d. Portions of By-Laws Relating to Shareholders'
Rights - Exhibit 2 .
5. Copy of Management Contract dated May 7,
1992. -- Incorporated by reference to Post-
Effective Amendment No. 7 to the Registrant's
Registration Statement.
6a. Copy of Distributor's Contract dated May
6, 1994 -- Exhibit 3.
6b. Copy of Specimen Dealer Sales Contract
--Incorporated by reference to Post-Effective
Amendment No. 5 to the Registrant's
Registration Statement.
6c. Copy of Specimen Financial Institution Sales
Contract -- Incorporated by reference to
Post-Effective Amendment No. 5 to the
Registrant's Registration Statement.
7. Not applicable.
8. Copy of Custodian Agreement with Putnam
Fiduciary Trust Company dated May 3, 1991,
amended July 13, 1992 -- Incorporated by
reference to Post-Effective Amendment No. 8
to the Registrant's Registration
Statement.
9. Copy of Investor Servicing Agreement dated
June 3, 1991 with Putnam Fiduciary Trust
Company -- Incorporated by reference to Post-
Effective Amendment No. 5 to the Registrant's
Registration Statement.
10. Opinion of Ropes & Gray, including consent--
Exhibit 4 .
11. Not applicable.
12. Not applicable.
13. Investment Letter from Putnam Investment
Management, Inc. to the Registrant
--Incorporated by reference to Post-Effective
Amendment No. 7 to the Registrant's
Registration Statement.
14a. Copy of Prototype Individual Retirement
Account Plan -- Exhibit 5.
14b. Copy of The Putnam Basic Plan Document and
Related Plan Agreements -- Exhibit 6.
15a. Copy of Class A Distribution Plan and
Agreement -- Incorporated by reference to
Post-Effective Amendment No. 7 to the
Registrant's Registration Statement.
15b. Copy of Class B Distribution Plan and
Agreement -- Incorporated by
reference to Post-Effective Amendment No. 7
to the Registrant's Registration Statement.
15c. Form of Class C Distribution Plan and
Agreement -- Incorporated by
reference to Post-Effective Amendment No. 7
to the Registrant's Registration Statement.
15d. Copy of Specimen Dealer Service Agreement
--Incorporated by reference to Post-Effective
Amendment No. 7 to the Registrant's
Registration Statement.
15e. Copy of Specimen Financial Service Agreement
-- Incorporated by reference to Post-
Effective Amendment No. 7 to the Registrant's
Registration Statement.
16. Schedules for computation of performance
quotations. -- Exhibit 7 .
17a. Financial Data Schedule for Class A shares
- -- Exhibit 8.
17b. Financial Data Schedule for Class B shares --
Exhibit 9.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of December 31, 1994 there were 5,235 and
2,097 holders , respectively, of the Registrant's
Class A and Class B shares of beneficial interest
ITEM 27. INDEMNIFICATION
The information required by this item is incorporated
by reference from the Registrant's Initial Registration Statement
on Form N-1A under the Investment Company Act of 1940 (File No.
811-4531).<PAGE>
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Except as set forth below, the directors and officers
of the Registrant's investment adviser have been engaged during
the past two fiscal years in no business, vocation or employment
of a substantial nature other than as directors or officers of
the investment adviser or certain of its corporate affiliates.
Certain officers of the investment adviser serve as officers of
some or all of the Putnam funds. The address of the investment
adviser, its corporate affiliates and the Putnam Funds is One
Post Office Square, Boston, Massachusetts 02109.
NAME NON-PUTNAM BUSINESS AND OTHER
CONNECTIONS
John V. Adduci Prior to July, 1993, Human Resources
Assistant Vice President Manager, First Security Services, 80
Main St., Reading, MA 01867
Gail S. Attridge Prior to November, 1993, International
Vice President Analyst, Keystone Custodian Funds,
200 Berkley Street, Boston, MA 02116
James D. Babcock Prior to June, 1994, Interest
Assistant Vice President Supervisor, Salomon Brothers, Inc.
7 World Trade Center, New York, NY
10048
Prior to June, 1993, Audit Manager,
Coopers & Lybrand, One Sylvan Way,
Parsipanny, NJ 07054
Robert K. Baumbach Prior to August, 1994, Vice President
Vice President and Analyst, Keystone Custodian
Funds, 200 Berkley St., Boston, MA
02110
Sharon A. Berka Prior to January, 1994, Vice
Vice President President - Compensation Manager,
BayBanks, Inc., 175 Federal Street,
Boston, MA 02110
Thomas Bogan Prior to November, 1994, Analyst
Senior Vice President Lord, Abbett & Co., 767 Fifth
Avenue, New York, NY 10153
Michael F. Bouscaren Prior to May, 1994, President and
Senior Vice President Chairman of the Board of Directors
at Salomon Series Funds, Inc. and a
Director of Salomon Brothers Asset
Management, 7 World Trade Center,
New York, NY 10048
Brett Browchuk Prior to April, 1994, Managing
Managing Director Director, Fidelity Investments, 82
Devonshire St., Boston, MA 02109
Carolyn S. Bunten Prior to July, 1993, Assistant Trader,
Assistant Vice President Scudder Stevens & Clark, Inc., 175
Federal St., Boston, MA 02110
Andrea Burke Prior to August, 1994, Vice President
Vice President and Portfolio Manager, Back Bay
Advisors, 399 Boylston St., Boston,
MA 02116
John M. Burton Prior to June, 1994, Manager --
Assistant Vice President Marketing Asset Management Pension
Services, The Travelers, Inc., 1
Tower Square, Hartford, CT 06183
Patricia A. Carey Prior to May, 1993, Research Analyst,
Assistant Vice President John Hancock Financial Services, 100
Clarendon St., Boston, MA 02116
Peter Carman Prior to August, 1993, Chief
Senior Managing Director Investment Officer, Chairman, U.S.
Equity Investment Policy Committee,
Member of Board of Directors,
Sanford C. Bernstein & Co., Inc.,
767 Fifth Avenue, New York, NY 10153
Steven Cheshire Prior to January, 1994, Assistant
Vice President Vice President, Wellington
Management, 75 State Street, Boston,
MA 02109
Anna Coppola Prior to May, 1993, Associate,
Assistant Vice President Heidrick & Struggles, One Post
Office Square, Boston, MA 02109
Kenneth L. Daly Prior to August, 1993, Vice
Senior Vice President President, Fidelity Investments,
82 Devonshire St., Boston, MA 02109
John A. DeTore Prior to January, 1994, Director of
Managing Director Quantitative Portfolio Management,
Wellington Management, 75 State
Street, Boston, MA 02109
<PAGE>
Theodore J. Deutz Prior to January, 1995, Senior Vice
Vice President President, Metropolitan West
Securities, Inc.
10880 Wilshire Blvd., Suite 200, Los Angeles, CA
90024
Michael G. Dolan Prior to February, 1994, Senior
Assistant Vice President Financial Analyst, General Electric
Company, 1000 Western Ave., Lynn, MA
01905
Joseph J. Eagleeye Prior to August, 1994, Associate,
Assistant Vice President David Taussig & Associates, 424
University Ave., Sacramento, CA
95813
Michael T. Fitzgerald Prior to September, 1994, Senior
Senior Vice President Vice President, Vantage Global
Advisers, 1201 Morningside Dr.,
Manhattan Beach, CA 90266
Jonathan H. Francis Prior to March, 1993, President,
Senior Vice President J.H. Francis & Co., N. Pheasant
Lane, Westport, CT 06880
James F. Giblin Prior to April, 1993, Managing
Senior Vice President Director, CIGNA Corp. Investments,
Inc., 900 Cottage Grove Rd.
Bloomfield, CT 06152
Thomas C. Goggins Prior to June, 1993, Portfolio
Vice President Manager, Transamerica Investment
Services, 1150 South Olive Street,
Los Angeles, CA 90015
Mark D. Goodwin Prior to May, 1994, Manager, Audit &
Assistant Vice President Operations Analysis, Mitre
Corporation, 202 Burlington Rd.,
Bedford, MA 01730
Stephen A. Gorman Prior to July, 1994, Financial
Assistant Vice President Analyst, Boston Harbor Trust
Company, 100 Federal St., Boston, MA
02110
Kimberly A. Gravel Prior to March, 1993, Account Manager,
Assistant Vice President Estee Lauder Corp. - Prescriptives
Division, 767 Fifth Ave., New York,
NY 10153
<PAGE>
Daniel J. Grim Prior to May 1993, Consultant,
Vice President Connie Lee, 2445 M Street N.W.,
Washington, D.C. 20037;
Chief Operating Officer, Boardwalk,
Inc., Minocqua, WI 54548
Deborah R. Healey Prior to June, 1994, Senior Equity
Senior Vice President Trader, Fidelity Management &
Research Company, 82 Devonshire St.,
Boston, MA 02109
Lisa Heitman Prior to July, 1994, Securities
Vice President Analyst, Lord, Abbett & Company, 767
Fifth Ave., New York, NY 10153
Michael F. Hotchkiss Prior to May, 1994, Vice President,
Vice President Massachusetts Financial Services,
500 Boylston St., Boston, MA 02116
Walter Hunnewell, Jr. Prior to April, 1994, Managing
Vice President Director, Veronis, Suhler &
Associates, 350 Park Avenue, New
York, NY 10022
Joseph Joseph Prior to October, 1994, Managing
Vice President Director, Vert Independent Capital
Research, 53 Wall St., New York, NY
10052
Prior to August, 1993, Manager,
Price Waterhouse, 6th Avenue, New
York, NY 10036
Jeffrey L. Knight Prior to March, 1993, Teacher,
Assistant Vice President Greater Newburyport Educational
Collaborative, Newburyport, MA 01950
Jeffrey J. Kobylarz Prior to May, 1993, Credit Analyst,
Vice President Dean Witter Reynolds, Inc.,
Two World Trade Center,
New York, NY 10048
D. William Kohli Prior to September, 1994, Executive
Senior Vice President Vice President and Co-Director of
Global Bond Managment; Prior to
1993, Portfolio Manager, Franklin
Advisors/Templeton Investments
Counsel, 777 Mariners Island Blvd.,
San Mateo, CA 94404
<PAGE>
Karen R. Korn Prior to June, 1994, Vice President,
Vice President Assistant to the President, Designs,
Inc. 1244 Boylston St., Chestnut
Hill, MA 02167
Prior to March, 1993, Vice President,
Paine Webber, Inc., 265 Franklin
St., Boston, MA 02110
Peter B. Krug Prior to January, 1995, Owner and
Vice President Director, Griswold Special Care, 42
Ethan Allen Drive, Acton, MA 01720
Lawrence J. Lasser Director, Marsh & McLennan Companies,
President, Director Inc., 1221 Avenue of the Americas,
and Chief Executive New York, NY 10020
Officer Director, INROADS/Central New England,
Inc., 99 Bedford St., Boston,
MA 02111
Jeffrey R. Lindsay Prior to April, 1994, Vice President
Vice President and Board Member, Strategic
Portfolio Management, 900 Ashwood
Parkway, Suite 290, Atlanta, GA
30338
Michael Martino Prior to January, 1994, Executive
Senior Vice President Vice President and Chief Investment
Officer until 1992; Senior Vice
President and Portfolio Manager from
1990 to 1992, Back Bay Advisors, 399
Boylston St, Boston, MA 02116
Andrew S. Matteis Prior to March, 1993, Vice President,
Vice President Fitch Investors Service, One
State Street Plaza, New York,
NY 10004
Susan A. McCormack Prior to May, 1994, Associate
Vice President Investment Banker, Merrill Lynch &
Co., 350 South Grand Ave., Suite
2830, Los Angeles, CA 90071
Maziar Minovi Prior to January, 1995, Associate
Vice President Privatization Specialist, The
International Bank for
Reconstruction and Development, 1818
H St. N.W., Washington, DC 20433
<PAGE>
Michael J. Mufson Prior to June, 1993, Senior Equity
Vice President Analyst, Stein Roe & Farnham,
One South Wacker Drive, Chicago, Il
60606
Paul G. Murphy Prior to January, 1995, Section
Assistant Vice President Manager, First Data Corp., 53 State
Street, Boston, MA 02109
Warren S. Naphtal Prior to January, 1994, Managing
Senior Vice President Director, Continental Bank, 231
So. Lasalle St., Chicago, IL 60697
C. Patrick O'Donnell, Jr. Prior to May, 1994, President,
Managing Director Exeter Research, Inc., 163 Water
Street, Exeter, New Hampshire, 03833
Brian O'Keefe Prior to December, 1993, Vice
Vice President President - Foreign Exchange Trader,
Bank of Boston, 100 Federal Street,
Boston, MA 02109
Pat G. Patel Prior to April, 1993, Regional
Vice President Manager, Zacks Investment Research,
155 N. Wacker Drive, Chicago,
IL 60606
Margaret Pietropaolo Prior to January, 1994, Data Base/
Assistant Vice President Production Analyst, Wellington
Management, 75 State Street, Boston,
MA 02109
George Putnam Chairman and Director, Putnam Mutual
Chairman and Director Funds Corp.
Director, The Boston Company, Inc.,
One Boston Place, Boston, MA 02108
Director, Boston Safe Deposit and
Trust Company, One Boston Place,
Boston, MA 02108
Director, Freeport-McMoRan, Inc., 200
Park Avenue, New York, NY 10166
Director, General Mills, Inc., 9200
Wayzata Boulevard, Minneapolis,
MN 55440
Director, Houghton Mifflin Company,
One Beacon Street, Boston, MA 02108
Director, Marsh & McLennan Companies,
Inc., 1221 Avenue of the Americas,
New York, NY 10020
Director, Rockefeller Group, Inc.,
1230 Avenue of the Americas,
New York, NY 10020
<PAGE>
Robert M. Shafto Prior to January, 1995, Account
Assistant Vice President Manager, IBM Corporation, 404 Wyman
St., Waltham, MA 02254
Mark J. Siegel Prior to June, 1993, Vice President,
Vice President Salomon Brothers International,
Ltd., Victoria Plaza, 111 Buckingham
Palace Road, London SW1W 0SB,
England
Joanne Soja Prior to June, 1993, Managing
Senior Vice President Director/Portfolio Manager,
Chancellor Capital Management,
153 East 53rd Street, New York, NY
10002
Steven Spiegel Prior to January, 1995, Managing
Senior Managing Director Director/Retirement, Lehman
Brothers, Inc., 200 Vesey St., World
Financial Center, New York, NY 10285
George W. Stairs Prior to July, 1994, Equity Research
Vice President Analyst, ValueQuest Limited,
Roundy's Hill, Marblehead, MA 01945
Roger Sullivan Prior to December, 1994, Vice
Senior Vice President President, State Street Research &
Management Co., One Financial
Center, Boston, MA 02111
Hillary F. Till Prior to May, 1994, Fixed-Income
Vice President Derivative Trader, Bank of Boston,
100 Federal Street, Boston, MA 02109
Prior to December, 1993, Equity
Analyst, Harvard Management Company,
600 Atlantic St., Boston, MA 02109
Bonnie L. Troped Prior to May, 1993, Assistant Vice
Vice President President/Director of Corporate
Events, The Boston Company, One
Boston Place, Boston, MA 02108
Elizabeth A. Underhill Prior to August, 1994, Vice President
Vice President and Senior Equity Analyst, State
Street Bank and Trust Company, 225
Franklin St., Boston, MA 02110
<PAGE>
Charles C. Van Vleet Prior to August, 1994, Vice President
Senior Vice President and Fixed-Income Manager, Alliance
Capital Management, 1345 Avenue of
the Americas, New York, NY 10105
Francis P. Walsh Prior to November, 1994, Research
Vice President Analyst, Furman, Selz, Inc. 230 Park
Avenue, New York, NY 10169
Prior to December, 1993, Strategic
Marketing Analyst, Lotus
Development, Corporation 55
Cambridge Parkway, Cambridge, MA
02142
Michael R. Weinstein Prior to March, 1994, Management
Vice President Consultant, Arthur D. Little, Acorn
Park, Cambridge, MA 02140
<PAGE>
Item 29. Principal Underwriter
(a) Putnam Mutual Funds Corp. is the principal underwriter for
each of the following investment companies, including the
Registrant:
Putnam Adjustable Rate U.S. Government Fund, Putnam American
Government Income Fund, Putnam Arizona Tax Exempt Income Fund,
Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds,
Putnam Balanced Government Fund, Putnam California Tax Exempt
Income Trust, Putnam California Tax Exempt Money Market Fund,
Putnam Capital Appreciation Fund, Putnam Capital Growth and
Income Fund, Putnam Capital Manager Trust, Putnam Convertible
Income-Growth Trust, Putnam Corporate Asset Trust, Putnam
Diversified Equity Trust, Putnam Diversified Income Trust, Putnam
Dividend Growth Fund, Putnam Equity Income Fund, Putnam Europe
Growth Fund, Putnam Federal Income Trust, Putnam Florida Tax
Exempt Income Fund, The George Putnam Fund of Boston, Putnam
Global Governmental Income Trust, Putnam Global Growth Fund,
Putnam Growth Fund, Putnam Growth and Income Fund II, The Putnam
Fund for Growth and Income, Putnam Health Sciences Trust, Putnam
High Yield Trust, Putnam High Yield Advantage Fund, Putnam Income
Fund, Putnam Intermediate Tax Exempt Income Fund, Putnam
Investment Funds, Putnam Investment Grade Bond Fund, Putnam
Investors Fund, Putnam Managed Income Trust, Putnam Massachusetts
Tax Exempt Income Fund II, Putnam Michigan Tax Exempt Income Fund
II, Putnam Minnesota Tax Exempt Income Fund II, Putnam Money
Market Fund, Putnam Municipal Income Fund, Putnam Natural
Resources Fund, Putnam New Jersey Tax Exempt Income Fund, Putnam
New Opportunities Fund, Putnam New York Tax Exempt Income Trust,
Putnam New York Tax Exempt Money Market Fund, Putnam New York Tax
Exempt Opportunities Fund, Putnam Ohio Tax Exempt Income Fund II,
Putnam OTC Emerging Growth Fund, Putnam Overseas Growth Fund,
Putnam Pennsylvania Tax Exempt Income Fund, Putnam Research
Analyst Fund, Putnam Tax-Free Income Trust, Putnam Tax Exempt
Income Fund, Putnam Tax Exempt Money Market Fund, Putnam U.S.
Government Income Trust, Putnam Utilities Growth and Income Fund,
Putnam Vista Fund, Putnam Voyager Fund
<TABLE>
<CAPTION>
(b) The directors and officers of the Registrant's principal underwriter are:
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
<C> <C> <C>
John V. Adduci Assistant Vice President None
Christopher S. Alpaugh Vice President None
Paulette C. Amisano Vice President None
Ronald J. Anwar Vice President None
Karen M. Apatow Assistant Vice President None
Steven E. Asher Senior Vice President None
Scott A. Avery Vice President None
Ira G. Baron Senior Vice President None
John L. Bartlett Senior Vice President None
Steven M. Beatty Vice President None
Matthew F. Beaudry Vice President None
Robert A. Benish Vice President None
John J. Bent Vice President None
Thomas A. Beringer Vice President None
Sharon A. Berka Vice President None
James R. Besher Vice President None
Suzanne J. Bessett Vice President None
Maureen L. Boisvert Vice President None
Keith R. Bouchard Vice President None
Leslee R. Bresnahan Vice President None
James D. Brockelman Senior Vice President None
Scott C. Brown Vice President None
Gail D. Buckner Senior Vice President None
Robert W. Burke Senior Managing Director None
Ellen S. Callahan Assistant Vice President None
Peter J. Campagna Vice President None
William A. Campagna Senior Vice President None
Charles A. Carey Assistant Vice President None
Patricia A. Cartwright Assistant Vice President None
Janet Casale-Sweeney Vice President None
Stephen J. Chaput Assistant Vice President None
Daniel J. Church Vice President None
James E. Clinton Assistant Vice President None
Kathleen M. Collman Managing Director None
Mark L. Coneeny Vice President None
Donald A. Connelly Senior Vice President None
Anna Coppola Assistant Vice President None
F. Nicholas Corvinus Senior Vice President None
Chad H. Cristo Assistant Vice President None
Jessica E. Dahill Vice President None
Kenneth L. Daly Senior Vice President None
Edward H. Dane Assistant Vice President None
Nancy M. Days Assistant Vice President None
Daniel J. Delianedis Vice President None
Teresa F. Dennehy Assistant Vice President None
J. Thomas Despres Senior Vice President None
Michael G. Dolan Assistant Vice President None
Scott M. Donaldson Vice President None
Emily J. Durbin Assistant Vice President None
Susan Cabana Dwyer Vice President None
David B. Edlin Senior Vice President None
James M. English Senior Vice President None
Vincent Esposito Senior Vice President None
Mary K. Farrell Assistant Vice President None
Michael J. Fechter Assistant Vice President None
Susan H. Feldman Vice President None
Paul F. Fichera Senior Vice President None
C. Nancy Fisher Senior Vice President None
Mitchell B. Fishman Vice President None
Joseph C. Fiumara Vice President None
Patricia C. Flaherty Senior Vice President None
Judy P. Frodigh Vice President None
Samuel F. Gagliardi Vice President None
Judy S. Gates Vice President None
Richard W. Gauger Assistant Vice President None
Joseph P. Gennaco Vice President None
Steven E. Gibson Managing Director None
Robert Goodman Managing Director None
Mark D. Goodwin Assistant Vice President None
Robert G. Greenly Vice President None
Jeffrey P. Gubala Vice President None
James E. Halloran Vice President None
Thomas W. Halloran Vice President None
Marilyn M. Hausammann Senior Vice President None
Howard W. Hawkins, III Vice President None
Deanna R. Hayes-Castro Assistant Vice President None
Paul P. Heffernan Vice President None
Susan M. Heimanson Vice President None
Bradley J. Hilsabeck Vice President None
Bess J.M. Hochstein Vice President None
Maureen A. Holmes Assistant Vice President None
Paula J. Hoyt Assistant Vice President None
William J. Hurley Senior Vice President None
Gregory E. Hyde Senior Vice President None
Dwight D. Jacobsen Senior Vice President None
Douglas B. Jamieson Director and Senior Managing Director None
Jay M. Johnson Vice President None
Kevin M. Joyce Senior Vice President None
Karen R. Kay Senior Vice President None
John P. Keating Vice President None
James J. Kilbane Vice President None
Deborah H. Kirk Senior Vice President None
Jill A. Koontz Assistant Vice President None
James D. Lathrop Vice President None
Howard H. Kreutzberg Senior Vice President None
Edward V. Lewandowski Senior Vice President None
Edward V. Lewandowski, Jr. Vice President None
Samuel L. Lieberman Vice President None
Maura A. Lockwood Assistant Vice President None
Rufino R. Lomba Vice President None
Robert F. Lucey Senior Managing Director None
Alana Madden Vice President None
Ann Malatos Assistant Vice President None
Renee L. Maloof Assistant Vice President None
Frederick S. Marius Assistant Vice President None
Karen E. Marotta Vice President None
Kathleen M. McAnulty Assistant Vice President None
Anne B. McCarthy Assistant Vice President None
Paul McConville Vice President None
Marla J. McDougall Assistant Vice President None
Walter S. McFarland Vice President None
Mark J. McKenna Vice President None
Greg J. McMillan Vice President None
Robert E. McMurtrie Vice President None
Claye A. Metelmann Assistant Vice President None
J. Chris Meyer Senior Vice President None
Douglas W. Miller Vice President None
Ronald K. Mills Vice President None
Timothy P. Moran Treasurer, Director, Senior Vice President None
Mitchell L. Moret Vice President None
Donald E. Mullen Vice President None
Paul G. Murphy Assistant Vice President None
Brendan R. Murray Vice President None
Robert Nadherny Vice President None
Alexander L. Nelson Managing Director None
Jane M. Nickodemus Vice President None
John P. Nickodemus Vice President None
Michael C. Noonis Assistant Vice President None
Kristen P. O'Brien Vice President None
Kevin L. O'Shea Vice President None
Philip G. Padgett, Jr. Vice President None
Joseph R. Palombo Managing Director None
Scott A. Papes Vice President None
Cynthia O. Parr Vice President None
John D. Pataccoli Vice President None
John G. Phoenix Vice President None
Joseph Phoenix Vice President None
Jeffrey E. Place Senior Vice President None
Keith Plapinger Vice President None
Douglas H. Powell Vice President None
Susannah Psomas Vice President None
George Putnam Director Chairman & President
Robert B. Rowe Vice President None
Kevin A. Rowell Senior Vice President None
Thomas C. Rowley Vice President None
Charles A. Ruys de Perez Vice President None
Deborah A. Ryan Assistant Vice President None
Catherine A. Saunders Senior Vice President None
Robbin L. Saunders Assistant Vice President None
Karl W. Saur Vice President None
Christine A. Scordato Vice President None
Joseph W. Scott Assistant Vice President None
Kathleen G. Sharpless Senior Vice President None
John B. Shamburg Vice President None
John F. Sharry Managing Director None
Vincent P. Sheehan Vice President None
William N. Shiebler Director, Chief Executive Vice President
Officer and President
Daniel S. Shore Vice President None
Mark J. Siebold Assistant Vice President None
Gordon H. Silver Senior Managing Director Vice President
Barry Sommers Vice President None
Nicholas T. Stanojev Senior Vice President None
Steven Spiegel Senior Managing Director None
Brian L. Sullivan Vice President None
Kevin J. Sullivan Vice President None
Moira A. Sullivan Vice President None
James S. Tambone Senior Vice President None
B. Iris Tanner Assistant Vice President None
Louis Tasiopoulos Senior Vice President None
David S. Taylor Vice President None
John R. Telling Vice President None
Richard B. Tibbetts Senior Vice President None
Patrice M. Tirado Vice President None
Janet E. Tosi Assistant Vice President None
John C. Tredinnick Vice President None
Bonnie L. Troped Vice President None
Larry R. Unger Vice President None
Douglas J. Vander Linde Vice President None
Edward F. Whalen Vice President None
Robert J. Wheeler Senior Vice President None
John B. White Vice President None
Kirk E. Williamson Senior Vice President None
Leigh T. Williamson Vice President None
Benjamin I. Woloshin Vice President None
William H. Woolverton Senior Vice President None
Timothy R. Young Vice President None
SooHee L. Zebedee Assistant Vice President None
Laura J. Zografos Vice President None
</TABLE>
<PAGE>
The principal business address of each person listed above is One
Post Office Square, Boston, MA 02109, except for:
Mr. Alpaugh, 5980 Richmond Highway, Alexandria, VA 22303
Mr. Anwar, 3000 Valley Forge Circle, King of Prussia, PA 19406
Mr. Avery, 7031 Spring Ridge Rd., Cary NC 27511
Mr. Baron, 31 Cala Moreya, Laguna Niguel, CA 92667
Mr. Bartlett, 7 Fairfield St., Boston, MA 02116
Mr. Beringer, 3722 West 50th St., Edina,MN 55410
Mr. Besher, 14000 Margaux, Town & Country, MO 63017
Ms. Besset, 1140 North LaSalle Blvd, Chicago, IL 60610
Mr. Bouchard, 18 Brice Rd., Annapolis, MD 21401
Mr. Brown, 2012 West Grove Drive, Gibson, PA 15044
Ms. Buckner, 8338 Timber Trail, Pittsburgh, PA 15237
Mr. Busher, 12005 Ridge Knoll Drive, Fairfax, VA 22033
Mr. Campagna, 2179-D Lake Park Drive, Smyrna, GA 30080
Ms. Castro, 26 Gould Road, Andover, MA 01810
Mr. Church, 4504 Sir Winston Place, Charlotte, NC 28211
Mr. Cristo, 11 Schenck Ave., Great Neck, NY 11021
Mr. Connelly, 4634 Mirada Way, Sarasota, FL 34238
Mr. Corvinus, 208 Water St., Newburyport, MA 01950
Ms. Dahill, 270-1C Iven Ave., St David's, PA 19087
Mr. Deliandis, 206 Promontory Drive, Newport Beach, CA 92660
Mr. Edlin, 7 River Road, 305 Palmer Point, Cos Cob, CT 06807
Mr. English, 1184 Pintail Circle, Boulder, CO 80303
Mr. Goodman, 14 Clover Place, Cos Cob, CT 06807
Mr. Gubala, 490 Beacon Knoll Lane, Ft. Mill, SC 29715
Mr. J. Halloran, 978 W. Creek Lane, Westlake Village, CA 91362
Mr. T. Halloran, 19449 Misty Lake Dr., Strongsville, OH 44136
Mr. Hyde, 3305 Sulky, Marietta, GA 30067
Mr. Jacobsen, 2744 Joyce Ridge Drive, Chesterfield, MO 63017
Mr. Johnson, 200 Clock Tower Place, Carmel, CA 93923
Mr. Keating, 5521 Greenville Avenue, Dallas, TX 75206
Ms. Kirk, 124 Rivermist Dr., Buffalo, NY 14202
Mr. Lathrop, 14814 Straub Hill Lane, Chesterfield, MO 63017
Mr. Lewandowski, 805 Darrell Road, Hillsborough, CA 94010
Mr. Lewandowski, Jr., 2120 The Strand, Manhattan Beach, CA 90266
Mr. Lieberman, 200 Roy St., Seattle, WA 98199
Ms. Madden, 8649 North Himes Avenue, Tampa, FL 33614
Mr. McConville, 515 S. Arlington Heights Rd., Arlington
Heights, IL 6005
Mr. McFarland, 8012 Dancing Fern Trail, Chattanooga, TN 37421
Mr. McMillan, 203 D. Zigler St., Zelienople, PA 16063
Mr. McMurtrie, 14529 Glastonbury, Detroit, MI 48223
Mr. Miller, 70 Williams St., Greenwich, CT 06830
Mr. Moret, 4519 Lawn Avenue, Western Springs, IL 60558
Mr. Murray, 13 Ridge Court, Saratoga Springs, NY 12866
Mr. Nadherny, 9714 Marmount Drive, Seattle, WA 98117
Mr. and Mrs. Nickodemus, 463 Village Oaks Court, Ann Arbor,
MI 48103
Mr. Padgett, Jr., 7709 Charleston Drive, Bethesda, MD 20817
Mr. Papes, 3102 Wood View Bridge Drive, Kansas City, KS 66103
Mr. Pataccoli, 1500 Bay Rd., Miami, FL 33139
Mr. Phoenix, 1426 Asbury Avenue, Hubbard Woods, IL 60093
Mr. Place, 4211 Loch Highland Parkway, Roswell, GA 30075
Mr. Powell, 1508 Ruth Lane, Newport Beach, CA 92660
Mr. Rowe, 109 Shore Drive, Longwood, FL 32779
Mr. Rowell, 1508 Ruth Lane, Newport Beach, CA 92660
Mr. Rowley, 237 Peeke Avenue, Kirkwood, MO 63122
Ms. Saunders, 39939 Stevenson Common, Freemont, CA 94538
Mr. Shamburg, 10603 N. 100th Street, Scottsdale, AZ 85260
Mr. Sheehan, Parkway Center, 1150 Galapago, Denver, CO 80204
Mr. Shore, 2870 Pharr Court South, N.W., Atlanta, BA 30305
Mr. Sommers, 397 North Little Tour, New City, NY 10956
Mr. B. Sullivan, 777 Pinoake Road, Mt. Lebanon, PA 15243
Ms. M. Sullivan, 493 Zinfandel Lane, St. Helena, CA 94574
Ms. Sweeney, 8 Surf Street, Marblehead, MA 01945
Mr. Syring, 7540 Mandarian Dr., Boca Raton, FL 33433
Mr. Tambone, 10 Commercial Wharf, Boston, MA 02110
Mr. Tredinnick, 2995 Glenwood Drive, Boulder, CO 80301
Mr. Telling, 1995 Delaware Ave., Buffalo, NY 14216
Mr. Unger, 212 E. Broadway, New York, NY 10002
Mr. Vessels, 7 Riverview Drive, Norwalk, CT 06850
Mr. Williamson, 640-4 Tete L'Ours, Mandeville, LA 70471
Mr. White, 10 Mannion Place, Littleton, MA 01460
Mr. Woloshin, 730 North Bundy Drive, Los Angeles, CA 90049
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of accounts,
books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are Registrant's Clerk, Beverly Marcus;
Registrant's investment adviser, Putnam Investment Management ,
Inc.; Registrant's principal underwriter, Putnam Mutual Funds
Corp.; Registrant's custodian, Putnam Fiduciary Trust Company
("PFTC"); Registrant's transfer and dividend disbursing agent,
Putnam Investor Services, a division of PFTC. The address of the
Clerk, investment adviser, principal underwriter, transfer and
dividend disbursing agent and custodian is One Post Office
Square, Boston, Massachusetts 02109.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to
whom a prospectus of the Registrant is delivered a copy of the
Registrant's latest annual report to shareholders, upon request
and without charge.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus and Statement of Additional Information constituting
parts of this Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-11406) (the
"Registration Statement") of our report dated December 12,
1994 , relating to the financial statements and financial
highlights appearing in the October 31, 1994 Annual Report
of Putnam Adjustable Rate U.S. Government Fund, which financial
statements and financial highlights are also incorporated by
reference into the Registration Statement. We also consent to
the references to us under the heading "Independent Accountants"
in such Statement of Additional Information and under the heading
"Financial highlights" in such Prospectus.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 23, 1995
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust of Putnam
Adjustable Rate U.S. Government Fund is on file with the
Secretary of State of The Commonwealth of Massachusetts and
notice is hereby given that this instrument is executed on behalf
of the Registrant by an officer of the Registrant as an officer
and not individually and the obligations of or arising out of
this instrument are not binding upon any of the Trustees,
officers or shareholders individually but are binding only upon
the assets and property of the Registrant.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston,
and The Commonwealth of Massachusetts, on the 23rd day of
February, 1995 .
PUTNAM ADJUSTABLE RATE U.S.
GOVERNMENT
FUND
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement of Putnam Adjustable
Rate U.S. Government Fund has been signed below by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLE
George Putnam President and Chairman of the
Board; Principal Executive
Officer; Trustee
William F. Pounds Vice Chairman; Trustee
John D. Hughes Vice President; Treasurer and
Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and
Principal Accounting Officer
Jameson A. Baxter Trustee
Hans H. Estin Trustee
John A. Hill Trustee
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
Robert E. Patterson Trustee
Donald S. Perkins Trustee
<PAGE>
George Putnam, III Trustee
A.J.C. Smith Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver,
as Attorney-in-Fact
February 23, 1995
BYLAWS
OF
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND,
PUTNAM AMERICAN GOVERNMENT INCOME FUND,
PUTNAM ARIZONA TAX EXEMPT INCOME FUND,
PUTNAM ASIA PACIFIC GROWTH FUND,
PUTNAM ASSET ALLOCATION FUNDS,
PUTNAM BALANCED GOVERNMENT FUND,
PUTNAM CALIFORNIA TAX EXEMPT MONEY MARKET FUND,
PUTNAM CONVERTIBLE INCOME-GROWTH TRUST,
PUTNAM DIVERSIFIED INCOME TRUST,
PUTNAM DIVIDEND GROWTH FUND,
PUTNAM EQUITY INCOME FUND,
PUTNAM EUROPE GROWTH FUND,
PUTNAM FLORIDA TAX EXEMPT INCOME FUND,
THE GEORGE PUTNAM FUND OF BOSTON,
PUTNAM GLOBAL GOVERNMENTAL INCOME TRUST,
PUTNAM GLOBAL GROWTH FUND,
PUTNAM HEALTH SCIENCES TRUST,
PUTNAM HIGH YIELD TRUST,
PUTNAM INCOME FUND,
PUTNAM INVESTORS FUND,
PUTNAM MANAGED INCOME TRUST,
PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II,
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND II,
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II,
PUTNAM MONEY MARKET FUND,
PUTNAM MUNICIPAL INCOME FUND,
PUTNAM NEW JERSEY TAX EXEMPT INCOME FUND,
PUTNAM NEW OPPORTUNITIES FUND,
PUTNAM NEW YORK TAX EXEMPT MONEY MARKET FUND,
PUTNAM NEW YORK TAX EXEMPT OPPORTUNITIES FUND,
PUTNAM OHIO TAX EXEMPT INCOME FUND II,
PUTNAM OTC EMERGING GROWTH FUND,
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND,
PUTNAM RESEARCH ANALYSTS FUND,
PUTNAM TAX EXEMPT INCOME FUND,
PUTNAM TAX EXEMPT MONEY MARKET FUND,
PUTNAM TAX-FREE INCOME TRUST,
PUTNAM U.S. GOVERNMENT INCOME TRUST,
PUTNAM UTILITIES GROWTH AND INCOME FUND,
PUTNAM VISTA FUND,
PUTNAM VOYAGER FUND
(AS AMENDED THROUGH FEBRUARY 1, 1994),
PUTNAM INTERMEDIATE TAX EXEMPT FUND
(AS AMENDED THROUGH MARCH 7, 1994),
PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST,
PUTNAM NEW YORK TAX EXEMPT INCOME TRUST
(AS AMENDED THROUGH APRIL 8, 1994),
PUTNAM DIVERSIFIED EQUITY TRUST
(AS APPROVED APRIL 13, 1994)
PUTNAM HIGH YIELD ADVANTAGE FUND,
PUTNAM OVERSEAS GROWTH FUND
(AS AMENDED THROUGH JUNE 1, 1994),
PUTNAM FEDERAL INCOME TRUST
(AS AMENDED THROUGH JUNE 6, 1994),
PUTNAM NATURAL RESOURCES FUND
(AS AMENDED THROUGH JULY 1, 1994),
THE PUTNAM FUND FOR GROWTH AND INCOME
(AS AMENDED THROUGH JULY 7, 1994), <PAGE>
PUTNAM TOTAL RETURN BOND FUNDS,
PUTNAM GROWTH AND INCOME FUND II,
(AS AMENDED THROUGH OCTOBER 5, 1994) AND
PUTNAM EQUITY FUNDS
(AS AMENDED THROUGH OCTOBER 30, 1994)
ARTICLE 1
Agreement and Declaration of Trust and Principal Office
1.1 AGREEMENT AND DECLARATION OF TRUST. These Bylaws shall
be subject to the Agreement and Declaration of Trust, as from
time to time in effect (the "Declaration of Trust"), of the
Massachusetts business trust established by the Declaration of
Trust (the "Trust").
1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of
the Trust shall be located in Boston, Massachusetts.
ARTICLE 2
MEETINGS OF TRUSTEES
2.1 REGULAR MEETINGS. 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, provided that
notice of the first regular meeting following any such
determination shall be given to absent Trustees.
2.2 SPECIAL MEETINGS. Special meetings of the Trustees may
be held at any time and at any place designated in the call of
the meeting when called by the Chairman of the Trustees, the
President or the Treasurer or by two or more Trustees, sufficient
notice thereof being given to each Trustee by the Clerk or an
Assistant Clerk or by the officer or the Trustees calling the
meeting.
2.3 NOTICE OF SPECIAL MEETINGS. 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 addressed to the Trustee at his or her
usual or last known business or residence address or to give
notice to him or her in person or by telephone at least
twenty-four hours before the meeting. Notice of a special
meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before or after the meeting, is
filed with the records of the meeting, or to any Trustee who
attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her. Neither notice of
a meeting nor a waiver of a notice need specify the purposes of
the meeting.
2.4 QUORUM. At any meeting of the Trustees a majority of
the Trustees then in office shall constitute a quorum. Any
meeting may be adjourned from time to time by a majority of the
votes cast upon the question, whether or not a quorum is present,
and the meeting may be held as adjourned without further notice.
2.5 NOTICE OF CERTAIN ACTIONS BY CONSENT. If in accordance
with the provisions of the Declaration of Trust any action is
taken by the Trustees by a written consent of less than all of
the Trustees, then prompt notice of any such action shall be
<PAGE>
furnished to each Trustee who did not execute such written
consent, provided that the effectiveness of such action shall not
be impaired by any delay or failure to furnish such notice.
ARTICLE 3
OFFICERS
3.1 ENUMERATION; QUALIFICATION. The officers of the Trust
shall be a Chairman of the Trustees, a President, a Treasurer, a
Clerk and such other officers, if any, as the Trustees from time
to time may in their discretion elect. The Trust may also have
such agents as the Trustees from time to time may in their
discretion appoint. The Chairman of the Trustees and the
President shall be a Trustee and may but need not be a
shareholder; and any other officer may but need not be a Trustee
or a shareholder. Any two or more offices may be held by the
same person. A Trustee may but need not be a shareholder.
3.2 ELECTION. The Chairman of the Trustees, the President,
the Treasurer and the Clerk shall be elected by the Trustees upon
the occurrence of any vacancy in any such office. Other
officers, if any, may be elected or appointed by the Trustees at
any time. Vacancies in any such other office may be filled at
any time.
3.3 TENURE. The Chairman of the Trustees, the President,
the Treasurer and the Clerk shall hold office in each case until
he or she dies, resigns, is removed or becomes disqualified.
Each other officer shall hold office and each agent shall retain
authority at the pleasure of the Trustees.
3.4 POWERS. Subject to the other provisions of these
Bylaws, each officer shall have, in addition to the duties and
powers herein and in the Declaration of Trust set forth, such
duties and powers as are commonly incident to the office occupied
by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the
Trustees may from time to time designate.
3.5 CHAIRMAN; PRESIDENT. Unless the Trustees otherwise
provide, the Chairman of the Trustees or, if there is none or in
the absence of the Chairman of the Trustees, the President shall
preside at all meetings of the shareholders and of the Trustees.
Unless the Trustees otherwise provide, the President shall be the
chief executive officer.
3.6 TREASURER. Unless the Trustees shall provide
otherwise, the Treasurer shall be the chief financial and
accounting officer of the Trust, and shall, subject to the
provisions of the Declaration of Trust and to any arrangement
made by the Trustees with a custodian, investment adviser or
manager, or transfer, shareholder servicing or similar agent, be
in charge of the valuable papers, books of account and accounting
records of the Trust, and shall have such other duties and powers
as may be designated from time to time by the Trustees or by the
President.
3.7 CLERK. The Clerk shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which
books or a copy thereof shall be kept at the principal office of
the Trust. In the absence of the Clerk from any meeting of the
shareholders or Trustees, an Assistant Clerk, or if there be none
or if he or she is absent, a temporary Clerk chosen at such
meeting shall record the proceedings thereof in the aforesaid
books.
3.8 RESIGNATIONS AND REMOVALS. Any Trustee or officer may
resign at any time by written instrument signed by him or her and
delivered to the Chairman of the Trustees, the President or the
Clerk or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some
other time. The Trustees may remove any officer elected by them
with or without cause. Except to the extent expressly provided
in a written agreement with the Trust, no Trustee or officer
resigning and no officer removed shall have any right to any
compensation for any period following his or her resignation or
removal, or any right to damages on account of such removal.
ARTICLE 4
COMMITTEES
4.1 QUORUM; VOTING. A majority of the members of any
Committee of the Trustees shall constitute a quorum for the
transaction of business, and any action of such a Committee may
be taken at a meeting by a vote of a majority of the members
present (a quorum being present) or evidenced by one or more
writings signed by such a majority. Members of a Committee may
participate in a meeting of such Committee by means of a
conference telephone or other communications equipment by means
of which all persons participating in the meeting can hear each
other at the same time and participation by such means shall
constitute presence in person at a meeting.
ARTICLE 5
REPORTS
5.1 GENERAL. The Trustees and officers shall render
reports at the time and in the manner required by the Declaration
of Trust or any applicable law. Officers and Committees shall
render such additional reports as they may deem desirable or as
may from time to time be required by the Trustees.
ARTICLE 6
FISCAL YEAR
6.1 GENERAL. Except as from time to time otherwise
provided by the Trustees, the initial fiscal year of the Trust
shall end on such date as is determined in advance or in arrears
by the Treasurer, and subsequent fiscal years shall end on such
date in subsequent years.
<PAGE>
ARTICLE 7
SEAL
7.1 GENERAL. The seal of the Trust shall consist of a
flat-faced die with the word "Massachusetts", together with the
name of the Trust and the year of its organization cut or
engraved thereon but, unless otherwise required by the Trustees,
the seal shall not be necessary to be placed on and its absence
shall not impair the validity of, any document, instrument or
other paper executed and delivered by or on behalf of the Trust.
ARTICLE 8
EXECUTION OF PAPERS
8.1 GENERAL. Except as the Trustees may generally or in
particular cases authorize the execution thereof in some other
manner, all deeds, leases, contracts, notes and other obligations
made by the Trustees shall be signed by the President, the Vice
Chairman, a Vice President or the Treasurer and need not bear the
seal of the Trust.
ARTICLE 9
ISSUANCE OF SHARES AND SHARE CERTIFICATES
9.1 SALE OF SHARES. Except as otherwise determined by the
Trustees, the Trust will issue and sell for cash or securities
from time to time, full and fractional shares of its shares of
beneficial interest, such shares to be issued and sold at a price
of not less than the par value per share, if any, and not less
than the net asset value per share as from time to time
determined in accordance with the Declaration of Trust and these
Bylaws and, in the case of fractional shares, at a proportionate
reduction in such price. In the case of shares sold for
securities, such securities shall be valued in accordance with
the provisions for determining the value of the assets of the
Trust as stated in the Declaration of Trust and these Bylaws.
The officers of the Trust are severally authorized to take all
such actions as may be necessary or desirable to carry out this
Section 9.1.
9.2 SHARE CERTIFICATES. In lieu of issuing certificates
for shares, the Trustees or the transfer agent may either issue
receipts therefor or may keep accounts upon the books of the
Trust for the record holders of such shares, who shall in either
case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and
agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates. In that event, each shareholder shall be entitled
to a certificate stating the number of shares of each class owned
by him, in such form as shall be prescribed from time to time by
the Trustees. Such certificate shall be signed by the President
or a Vice President and by the Treasurer or an Assistant
Treasurer. Such signatures may be facsimile if the certificate
is signed by a transfer agent or by a registrar. In case any
officer who has signed or whose facsimile signature has been
placed on such certificate shall cease to be such officer before
such certificate is issued, it may be issued by the Trust with
the same effect as if he were such officer at the time of its
issue.
9.3 LOSS OF CERTIFICATES. The transfer agent of the Trust,
with the approval of any two officers of the Trust, is authorized
to issue and countersign replacement certificates for the shares
of the Trust which have been lost, stolen or destroyed upon (i)
receipt of an affidavit or affidavits of loss or non-receipt and
of an indemnity agreement executed by the registered holder or
his legal representative and supported by an open penalty surety
bond, said agreement and said bond in all cases to be in form and
content satisfactory to and approved by the President or the
Treasurer, or (ii) receipt of such other documents as may be
approved by the Trustees.
9.4 ISSUANCE OF NEW CERTIFICATE TO PLEDGEE. A pledgee of
shares transferred as collateral security shall be entitled to a
new certificate if the instrument of transfer substantially
describes the debt or duty that is intended to be secured
thereby. Such new certificate shall express on its face that it
is held as collateral security, and the name of the pledgor shall
be stated thereon, who alone shall be liable as a shareholder and
entitled to vote thereon.
9.5 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The
Trustees may at any time discontinue the issuance of share
certificates and may, by written notice to each shareholder,
require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect
the ownership of shares in the Trust.
ARTICLE 10
PROVISIONS RELATING TO THE CONDUCT OF THE TRUST'S
BUSINESS
10.1 CERTAIN DEFINITIONS. When used herein the following
words shall have the following meanings: "Distributor" shall mean
any one or more corporations, firms or associations which have
distributor's or principal underwriter's contracts in effect with
the Trust providing that redeemable shares issued by the Trust
shall be offered and sold by such Distributor. "Manager" shall
mean any corporation, firm or association which may at the time
have an advisory or management contract with the Trust.
10.2 LIMITATIONS ON DEALINGS WITH OFFICERS OR TRUSTEES.
The Trust will not lend any of its assets to the Distributor or
Manager or to any officer or director of the Distributor or
Manager or any officer or Trustee of the Trust, and shall not
permit any officer or Trustee or any officer or director of the
Distributor or Manager to deal for or on behalf of the Trust with
himself or herself as principal or agent, or with any
partnership, association or corporation in which he or she has a
financial interest; provided that the foregoing provisions shall
not prevent (a) officers and Trustees of the Trust or officers
and directors of the Distributor or Manager from buying, holding
or selling shares in the Trust or from being partners, officers
or directors of or otherwise financially interested in the
Distributor or the Manager; (b) purchases or sales of securities
or other property if such transaction is permitted by or is
exempt or exempted from the provisions of the Investment Company
Act of 1940 or any Rule or Regulation thereunder and if such
transaction does not involve any commission or profit to any
security dealer who is, or one or more of whose partners,
shareholders, officers or directors is, an officer or Trustee of
the Trust or an officer or director of the Distributor or
Manager; (c) employment of legal counsel, registrar, transfer
agent, shareholder servicing agent, dividend disbursing agent or
custodian who is, or has a partner, shareholder, officer or
director who is, an officer or Trustee of the Trust or an officer
or director of the Distributor or Manager; (d) sharing
statistical, research, legal and management expenses and office
hire and expenses with any other investment company in which an
officer or Trustee of the Trust or an officer or director of the
Distributor or Manager is an officer or director or otherwise
financially interested.
10.3 SECURITIES AND CASH OF THE TRUST TO BE HELD BY
CUSTODIAN SUBJECT TO CERTAIN TERMS AND CONDITIONS.
(a) All securities and cash owned by the Trust
shall be held by or deposited with one or more banks or
trust companies having (according to its last published
report) not less than $1,000,000 aggregate capital,
surplus and undivided profits (any such bank or trust
company being hereby designated as "Custodian"),
provided such a Custodian can be found ready and
willing to act; subject to such rules, regulations and
orders, if any, as the Securities and Exchange
Commission may adopt, the Trust may, or may permit any
Custodian to, deposit all or any part of the securities
owned by the Trust in a system for the central handling
of securities pursuant to which all securities of any
particular class or series of any issue deposited
within the system may be transferred or pledged by
bookkeeping entry, without physical delivery. The
Custodian may appoint, subject to the approval of the
Trustees, one or more subcustodians.
(b) The Trust shall enter into a written contract
with each Custodian regarding the powers, duties and
compensation of such Custodian with respect to the cash
and securities of the Trust held by such Custodian.
Said contract and all amendments thereto shall be
approved by the Trustees.
(c) The Trust shall upon the resignation or
inability to serve of any Custodian or upon change of
any Custodian:
(i) in case of such resignation or inability to
serve, use its best efforts to obtain a successor
Custodian;
(ii) require that the cash and securities owned
by the Trust be delivered directly to the successor
Custodian; and
(iii) in the event that no successor Custodian
can be found, submit to the shareholders, before
permitting delivery of the cash and securities owned by
the Trust otherwise than to a successor Custodian, the
question whether the Trust shall be liquidated or shall
function without a Custodian.
10.4 REPORTS TO SHAREHOLDERS. The Trust shall send to each
shareholder of record at least semi-annually a statement of the
condition of the Trust and of the results of its operations,
containing all information required by applicable laws or
regulations.
10.5 DETERMINATION OF NET ASSET VALUE PER SHARE. Net asset
value per share of each class or series of shares of the Trust
shall mean: (i) the value of all the assets properly allocable
to such class or series; (ii) less total liabilities properly
allocable to such class or series; (iii) divided by the number of
shares of such class or series outstanding, in each case at the
time of each determination. Except as otherwise determined by
the Trustees, the net asset value per share of each class or
series shall be determined no less frequently than once daily,
Monday through Friday, on days on which the New York Stock
Exchange is open for trading, at such time or times that the
Trustees set at least annually.
In valuing the portfolio investments of any class or series
of shares for the determination of the net asset value per share
of such class or series, securities for which market quotations
are readily available shall be valued at prices which, in the
opinion of the Trustees or the person designated by the Trustees
to make the determination, most nearly represent the market value
of such securities, and other securities and assets shall be
valued at their fair value as determined by or pursuant to the
direction of the Trustees, which in the case of debt obligations,
commercial paper and repurchase agreements may, but need not, be
on the basis of yields for securities of comparable maturity,
quality and type, or on the basis of amortized cost. Expenses
and liabilities of the Trust shall be accrued each day.
Liabilities may include such reserves for taxes, estimated
accrued expenses and contingencies as the Trustees or their
designates may in their sole discretion deem fair and reasonable
under the circumstances. No accruals shall be made in respect of
taxes on unrealized appreciation of securities owned unless the
Trustees shall otherwise determine.
ARTICLE 11
SHAREHOLDERS
11.1 MEETINGS. A meeting of the shareholders shall 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 such meeting. If the Clerk, when so ordered or
requested, refuses or neglects for more than two days to call
such meeting, the Trustees, Chairman of the Trustees or the
shareholders so requesting may, in the name of the Clerk, call
the meeting by giving notice thereof in the manner required when
notice is given by the Clerk.
11.2 ACCESS TO SHAREHOLDER LIST. Shareholders of record
may apply to the Trustees for assistance in communicating with
other shareholders for the purpose of calling a meeting in order
to vote upon the question of removal of a Trustee. When ten or
more shareholders of record who have been such for at least six
months preceding the date of application and who hold in the
aggregate shares having a net asset value of at least $25,000 so
apply, the Trustees shall within five business days either:
(i) afford to such applicants access to a list of
names and addresses of all shareholders as recorded on
the books of the Trust; or
(ii) inform such applicants of the approximate
number of shareholders of record and the approximate
cost of mailing material to them, and, within a
reasonable time thereafter, mail, at the applicants'
expense, materials submitted by the applicants, to all
such shareholders of record. The Trustees shall not be
obligated to mail materials which they believe to be
misleading or in violation of applicable law.
11.3 RECORD DATES. For the purpose of determining the
shareholders of any class or series of shares of the Trust who
are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to receive payment of any dividend
or of any other distribution, the Trustees may from time to time
fix a time, which shall be not more than 90 days before the date
of any meeting of shareholders or more than 60 days before the
date of payment of any dividend or of any other distribution, as
the record date for determining the shareholders of such class or
series having the right to notice of and to vote at such meeting
and any adjournment thereof or the right to receive such dividend
or distribution, and in such case only shareholders of record on
such record date shall have such right notwithstanding any
transfer of shares on the books of the Trust after the record
date; or without fixing such record date the Trustees may for any
such purposes close the register or transfer books for all or
part of such period.
11.4 PROXIES. The placing of a shareholder's name on a
proxy pursuant to telephone or electronically transmitted
instructions obtained pursuant to procedures reasonably designed
to verify that such instructions have been authorized by such
shareholder shall constitute execution of such proxy by or on
behalf of such shareholder.
<PAGE>
ARTICLE 12
PREFERENCES, RIGHTS AND PRIVILEGES OF THE
TRUST'S CLASSES OF SHARES
12.1 GENERAL. Each class of shares of the Trust or of a
particular series of the Trust, as the case may be, will
represent interests in the same portfolio of investments of the
Trust (or that series) and be identical in all respects, except
as set forth below: (a) each class of shares shall be charged
with the expense of any Distribution Plan adopted by the Trust
pursuant to Rule 12b-1 under the Investment Company Act of 1940
with respect to such class of shares, (b) each class of shares
will be charged with any incremental shareholder servicing
expense attributable solely to such class, as determined by the
Trustees, (c) each class of shares shall be charged with any
other expenses properly allocated to such class, as determined by
the Trustees and approved by the Securities and Exchange
Commission, (d) each class of shares shall vote as a separate
class on matters which pertain to any Rule 12b-1 Distribution
Plan pertaining to such class of shares, (e) each class of shares
will have only such exchange privileges as may from time to time
be described in the Trust's prospectus with respect to such
class, (f) each class of shares shall bear such designation as
may be approved from time to time by the Trustees and (g)
reinvestments of distributions from the Trust paid with respect
to the shares of a particular class will be paid in additional
shares of such class.
12.2. CONVERSION OF CLASS B SHARES. Except as hereinafter
provided with respect to shares acquired by exchange or
reinvestment of distributions, Class B shares of the Trust will
automatically convert into Class A shares of the Trust at the end
of the month eight years after the month of purchase, or at such
earlier time as the Trustees may in their sole discretion
determine from time to time as to all Class B shares purchased on
or before such date as the Trustees may specify. Class B shares
acquired by exchange from Class B shares of another Putnam Fund
will convert into Class A shares based on the date of the initial
purchase of the Class B shares of such other Fund. Class B
shares acquired through reinvestment of distributions will
convert into Class A shares based on the date of the initial
purchase of Class B shares to which such reinvestment shares
relate. For this purpose, Class B shares acquired through
reinvestment of distributions will be attributed to particular
purchases of Class B shares in accordance with such procedures,
which may include without limitation methods of proration or
approximation, as the Trustees may in their sole discretion
determine from time to time.
<PAGE>
ARTICLE 13
AMENDMENTS TO THE BYLAWS
13.1 GENERAL. These 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.
NF-04F
(PORTIONS OF BYLAWS OF
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
RELATING TO SHAREHOLDERS' RIGHTS)
ARTICLE 9
ISSUANCE OF SHARES AND SHARE CERTIFICATES
9.1 SALE OF SHARES. Except as otherwise determined by the
Trustees, the Trust will issue and sell for cash or securities
from time to time, full and fractional shares of its shares of
beneficial interest, such shares to be issued and sold at a price
of not less than the par value per share, if any, and not less
than the net asset value per share as from time to time
determined in accordance with the Declaration of Trust and these
Bylaws and, in the case of fractional shares, at a proportionate
reduction in such price. In the case of shares sold for
securities, such securities shall be valued in accordance with
the provisions for determining the value of the assets of the
Trust as stated in the Declaration of Trust and these Bylaws.
The officers of the Trust are severally authorized to take all
such actions as may be necessary or desirable to carry out this
Section 9.1.
9.2 SHARE CERTIFICATES. In lieu of issuing certificates
for shares, the Trustees or the transfer agent may either issue
receipts therefor or may keep accounts upon the books of the
Trust for the record holders of such shares, who shall in either
case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and
agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates. In that event, each shareholder shall be entitled
to a certificate stating the number of shares of each class owned
by him, in such form as shall be prescribed from time to time by
the Trustees. Such certificate shall be signed by the President
or a Vice President and by the Treasurer or an Assistant
Treasurer. Such signatures may be facsimile if the certificate
is signed by a transfer agent or by a registrar. In case any
officer who has signed or whose facsimile signature has been
placed on such certificate shall cease to be such officer before
such certificate is issued, it may be issued by the Trust with
the same effect as if he were such officer at the time of its
issue.
9.3 LOSS OF CERTIFICATES. The transfer agent of the Trust,
with the approval of any two officers of the Trust, is authorized
to issue and countersign replacement certificates for the shares
of the Trust which have been lost, stolen or destroyed upon (i)
receipt of an affidavit or affidavits of loss or non-receipt and
of an indemnity agreement executed by the registered holder or
his legal representative and supported by an open penalty surety
bond, said agreement and said bond in all cases to be in form and
content satisfactory to and approved by the President or the
Treasurer, or (ii) receipt of such other documents as may be
approved by the Trustees.
9.4 ISSUANCE OF NEW CERTIFICATE TO PLEDGEE. A pledgee of
shares transferred as collateral security shall be entitled to a
new certificate if the instrument of transfer substantially
describes the debt or duty that is intended to be secured
thereby. Such new certificate shall express on its face that it
is held as collateral security, and the name of the pledgor shall
be stated thereon, who alone shall be liable as a shareholder and
entitled to vote thereon.
9.5 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The
Trustees may at any time discontinue the issuance of share
certificates and may, by written notice to each shareholder,
require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect
the ownership of shares in the Trust.
ARTICLE 10
PROVISIONS RELATING TO THE CONDUCT OF THE TRUST'S
BUSINESS
10.4 REPORTS TO SHAREHOLDERS. The Trust shall send to each
shareholder of record at least semi-annually a statement of the
condition of the Trust and of the results of its operations,
containing all information required by applicable laws or
regulations.
ARTICLE 11
SHAREHOLDERS
11.1 MEETINGS. A meeting of the shareholders shall 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 such meeting. If the Clerk, when so ordered or
requested, refuses or neglects for more than two days to call
such meeting, the Trustees, Chairman of the Trustees or the
shareholders so requesting may, in the name of the Clerk, call
the meeting by giving notice thereof in the manner required when
notice is given by the Clerk.
11.2 ACCESS TO SHAREHOLDER LIST. Shareholders of record
may apply to the Trustees for assistance in communicating with
other shareholders for the purpose of calling a meeting in order
to vote upon the question of removal of a Trustee. When ten or
more shareholders of record who have been such for at least six
months preceding the date of application and who hold in the
aggregate shares having a net asset value of at least $25,000 so
apply, the Trustees shall within five business days either:
(i) afford to such applicants access to a list of
names and addresses of all shareholders as recorded on
the books of the Trust; or
(ii) inform such applicants of the approximate
number of shareholders of record and the approximate
cost of mailing material to them, and, within a
reasonable time thereafter, mail, at the applicants'
expense, materials submitted by the applicants, to all
such shareholders of record. The Trustees shall not be
obligated to mail materials which they believe to be
misleading or in violation of applicable law.
11.3 RECORD DATES. For the purpose of determining the
shareholders of any class or series of shares of the Trust who
are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to receive payment of any dividend
or of any other distribution, the Trustees may from time to time
fix a time, which shall be not more than 90 days before the date
of any meeting of shareholders or more than 60 days before the
date of payment of any dividend or of any other distribution, as
the record date for determining the shareholders of such class or
series having the right to notice of and to vote at such meeting
and any adjournment thereof or the right to receive such dividend
or distribution, and in such case only shareholders of record on
such record date shall have such right notwithstanding any
transfer of shares on the books of the Trust after the record
date; or without fixing such record date the Trustees may for any
such purposes close the register or transfer books for all or
part of such period.
11.4 PROXIES. The placing of a shareholder's name on a
proxy pursuant to telephone or electronically transmitted
instructions obtained pursuant to procedures reasonably designed
to verify that such instructions have been authorized by such
shareholder shall constitute execution of such proxy by or on
behalf of such shareholder.
ARTICLE 12
PREFERENCES, RIGHTS AND PRIVILEGES OF THE
TRUST'S CLASSES OF SHARES
12.1 GENERAL. Each class of shares of the Trust or of a
particular series of the Trust, as the case may be, will
represent interests in the same portfolio of investments of the
Trust (or that series) and be identical in all respects, except
as set forth below: (a) each class of shares shall be charged
with the expense of any Distribution Plan adopted by the Trust
pursuant to Rule 12b-1 under the Investment Company Act of 1940
with respect to such class of shares, (b) each class of shares
will be charged with any incremental shareholder servicing
expense attributable solely to such class, as determined by the
Trustees (c) each class of shares shall be charged with any other
expenses properly allocated to such class, as determined by the
Trustees and approved by the Securities and Exchange Commission,
(d) each class of shares shall vote as a separate class on
matters which pertain to any Rule 12b-1 Distribution Plan
pertaining to such class of shares, (e) each class of shares will
have only such exchange privileges as may from time to time be
described in the Trust's prospectus with respect to such class,
(f) each class of shares shall bear such designation as may be
approved from time to time by the Trustees and (g) reinvestments
of distributions from the Fund paid with respect to the shares of
a particular class will be paid in additional shares of such
class.
12.2. CONVERSION OF CLASS B SHARES. Except as hereinafter
provided with respect to shares acquired by exchange or
reinvestment of distributions, Class B shares of the Fund will
automatically convert into Class A shares of the Fund at the end
of the month eight years after the month of purchase, or at such
earlier time as the Trustees may in their sole discretion
determine from time to time as to all Class B shares purchased on
or before such date as the Trustees may specify. Class B shares
acquired by exchange from Class B shares of another Putnam Fund
will convert into Class A shares based on the date of the initial
purchase of the Class B shares of such other Fund. Class B
shares acquired through reinvestment of distributions will
convert into Class A shares based on the date of the initial
purchase of Class B shares to which such reinvestment shares
relate. For this purpose, Class B shares acquired through
reinvestment of distributions will be attributed to particular
purchases of Class B shares in accordance with such procedures,
which may include without limitation methods of proration or
approximation, as the Trustees may in their sole discretion
determine from time to time.
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
DISTRIBUTOR'S CONTRACT
Distributor's Contract dated May 6, 1994, by and between
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND, a Massachusetts
business trust (the "Fund"), and PUTNAM MUTUAL FUNDS CORP., a
Massachusetts corporation ("Putnam").
WHEREAS, the Fund and Putnam are desirous of entering into
this agreement to provide for the distribution by Putnam of
shares of the Fund;
NOW, THEREFORE, in consideration of the mutual agreements
contained in the Terms and Conditions of Distributor's Contract
attached to and forming a part of this Contract (the "Terms and
Conditions"), the Fund hereby appoints Putnam as a distributor of
shares of the Fund, and Putnam hereby accepts such appointment,
all as set forth in the Terms and Conditions.
A copy of the Agreement and Declaration of Trust of the Fund
is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this instrument is
executed on behalf of the Trustees of the Fund as Trustees and
not individually, and that the obligations of or arising out of
this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets
and property of the Fund.
IN WITNESS WHEREOF, PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT
FUND and PUTNAM MUTUAL FUNDS CORP. have each caused this
Distributor's Contract to be signed in duplicate in its behalf,
all as of the day and year first above written.
PUTNAM ADJUSTABLE RATE U.S.
GOVERNMENT FUND
/s/ Charles E. Porter
By: -----------------------------
Executive Vice President
PUTNAM MUTUAL FUNDS CORP.
/s/ William N. Shiebler
By: -----------------------------
President<PAGE>
TERMS AND CONDITIONS
OF
DISTRIBUTOR'S CONTRACT
1. RESERVATION OF RIGHT NOT TO SELL. The Fund reserves the
right to refuse at any time or times to sell any of its shares of
beneficial interest ("shares") hereunder for any reason deemed
adequate by it.
2. PAYMENTS TO PUTNAM. In connection with the distribution of
shares of the Fund, Putnam will be entitled to receive: (a)
payments pursuant to any Distribution Plan and Agreement from
time to time in effect between the Fund and Putnam with respect
to the Fund or any particular class of shares of the Fund, (b)
any contingent deferred sales charges applicable to the
redemption of shares of the Fund or of any particular class of
shares of the Fund, determined in the manner set forth in the
then current Prospectus and Statement of Additional Information
of the Fund and (c) subject to the provisions of Section 3 below,
any front-end sales charges applicable to the sale of shares of
the Fund or of any particular class of shares of the Fund, less
any applicable dealer discount.
3. SALES OF SHARES TO PUTNAM AND SALES BY PUTNAM. Putnam will
have the right, as principal, to sell shares of the Fund to
investment dealers against orders therefor (a) at the public
offering price (calculated as described below) less a discount
determined by Putnam, which discount shall not exceed the amount
of the sales charge referred to below, or (b) at net asset value.
Upon receipt of an order to purchase Fund shares from an
investment dealer with whom Putnam has a Sales Contract, Putnam
will promptly purchase shares from the Fund to fill such order.
The public offering price of a class of shares shall be the net
asset value of such shares then in effect, plus any applicable
front-end sales charge determined in the manner set forth in the
then current Prospectus and Statement of Additional Information
of the Fund or as permitted by the Investment Company Act of
1940, as amended, and the Rules and Regulations of the Securities
and Exchange Commission promulgated thereunder. In no event
shall the public offering price exceed 1000/915ths of such net
asset value, and in no event shall any applicable sales charge
exceed 8 1/2% of the public offering price. The net asset value
of the shares shall be determined in the manner provided in the
Agreement and Declaration of Trust of the Fund as then amended
and when determined shall be applicable to transactions as
provided for in the then current Prospectus and Statement of
Additional Information of the Fund.
Putnam will also have the right, as principal, to purchase
shares from the Fund at their net asset value and to sell such
shares to the public against orders therefor at the public
offering price or at net asset value.
Putnam will also have the right, as principal, to sell
shares at their net asset value and not subject to a contingent
deferred sales charge to such persons as may be approved by the
Trustees of the Fund, all such sales to comply with the
provisions of the Investment Company Act of 1940, as amended, and
the Rules and Regulations of the Securities and Exchange
Commission promulgated thereunder.
Putnam will also have the right, as agent for the Fund, to
sell shares at the public offering price or at net asset value to
such persons and upon such conditions as the Trustees of the Fund
may from time to time determine.
On every sale the Fund shall receive the applicable net
asset value of the shares. Putnam will reimburse the Fund for
any increased issue tax paid on account of sales charges. Upon
receipt of registration instructions in proper form and payment
for shares, Putnam will transmit such instructions to the Fund or
its agent for registration of the shares purchased.
4. SALES OF SHARES BY THE FUND. The Fund reserves the right to
issue shares at any time directly to its shareholders as a stock
dividend or stock split and to sell shares to its shareholders or
to other persons approved by Putnam at not less than net asset
value.
5. REPURCHASE OF SHARES. Putnam will act as agent for the Fund
in connection with the repurchase of shares by the Fund upon the
terms and conditions set forth in the then current Prospectus and
Statement of Additional Information of the Fund.
6. BASIS OF PURCHASES AND SALES OF SHARES. Putnam will use its
best efforts to place shares sold by it on an investment basis.
Putnam does not agree to sell any specific number of shares.
Shares will be sold by Putnam only against orders therefor.
Putnam will not purchase shares from anyone other than the Fund
except in accordance with Section 5, and will not take "long" or
"short" positions in shares contrary to the Agreement and
Declaration of Trust of the Fund.
7. RULES OF NASD, ETC. Putnam will conform to the Rules of
Fair Practice of the National Association of Securities Dealers,
Inc. and the sale of securities laws of any jurisdiction in which
it sells, directly or indirectly, any shares. Putnam also agrees
to furnish to the Fund sufficient copies of any agreements or
plans it intends to use in connection with any sales of shares in
adequate time for the Fund to file and clear them with the proper
authorities before they are put in use, and not to use them until
so filed and cleared.
8. PUTNAM INDEPENDENT CONTRACTOR. Putnam shall be an
independent contractor and neither Putnam nor any of its officers
or employees as such is or shall be an employee of the Fund.
Putnam is responsible for its own conduct and the employment,
control and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents or
employees. Putnam assumes full responsibility for its agents and
employees under applicable statutes and agrees to pay all
employer taxes thereunder.
Putnam will maintain at its own expense insurance against
public liability in such an amount as the Trustees of the Fund
may from time to time reasonably request.
9. EXPENSES. Putnam will pay all expenses of qualifying shares
of the Fund for sale under the so-called "Blue Sky" laws of any
state (except expenses of any action by the Fund relating to its
Agreement and Declaration of Trust or other matters in which the
Fund has a direct concern), and expenses of preparing, printing
and distributing advertising and sales literature (apart from
expenses of registering shares under the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
and the preparation and printing of Prospectuses and Statements
of Additional Information and reports as required by said Acts
and the direct expenses of the issue of shares, except that
Putnam will pay the cost of the preparation and printing of
Prospectuses and Statements of Additional Information and
shareholders' reports used by it and by others in the sale of
Fund shares to the extent such cost is not paid by others).
10. INDEMNIFICATION OF FUND. Putnam agrees to indemnify and
hold harmless the Fund and each person who has been, is, or may
hereafter be a Trustee of the Fund against expenses reasonably
incurred by any of them in connection with any claim or in
connection with any action, suit or proceeding to which any of
them may be a party, which arises out of or is alleged to arise
out of any misrepresentation or omission to state a material
fact, or out of any alleged misrepresentation or omission to
state a material fact, on the part of Putnam or any agent or
employee of Putnam or any other person for whose acts Putnam is
responsible or is alleged to be responsible unless such
misrepresentation or omission was made in reliance upon written
information furnished by the Fund. Putnam also agrees likewise
to indemnify and hold harmless the Fund and each such person in
connection with any claim or in connection with any action, suit
or proceeding which arises out of or is alleged to arise out of
Putnam's (or an affiliate of Putnam's) failure to exercise
reasonable care and diligence with respect to its services
rendered in connection with investment, reinvestment, automatic
withdrawal and other plans for shares. The term "expenses"
includes amounts paid in satisfaction of judgments or in
settlements which are made with Putnam's consent. The foregoing
rights of indemnification shall be in addition to any other
rights to which the Fund or a Trustee may be entitled as a matter
of law.
11. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT. This Contract shall automatically terminate, without
the payment of any penalty, in the event of its assignment. This
Contract may be amended only if such amendment be approved either
by action of the Trustees of the Fund or at a meeting of the
shareholders of the Fund by the affirmative vote of a majority of
the outstanding shares of the Fund, and by a majority of the
Trustees of the Fund who are not interested persons of the Fund
or of Putnam by vote cast in person at a meeting called for the
purpose of voting on such approval.
12. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT. This
Contract shall take effect upon the date first above written and
shall remain in full force and effect continuously (unless
terminated automatically as set forth in Section 11) until
terminated:
(a) Either by the Fund or Putnam by not more
than sixty (60) days' nor less than ten (10) days'
written notice delivered or mailed by registered
mail, postage prepaid, to the other party; or
(b) If the continuance of this Contract after
January 31, 1995 is not specifically approved at
least annually by the Trustees of the Fund or the
shareholders of the Fund by the affirmative vote of a
majority of the outstanding shares of the Fund, and
by a majority of the Trustees of the Fund who are not
interested persons of the Fund or of Putnam by vote
cast in person at a meeting called for the purpose of
voting on such approval.
Action by the Fund under (a) above may be taken either (i)
by
vote of its Trustees or (ii) by the affirmative vote of a
majority of the outstanding shares of the Fund. The requirement
under (b) above that continuance of this Contract be
"specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of 1940, as
amended, and the Rules and Regulations thereunder.
Termination of this Contract pursuant to this Section 12
shall be without the payment of any penalty.
13. CERTAIN DEFINITIONS. For the purposes of this
Contract, the "affirmative vote of a majority of the outstanding
shares of the Fund" means the affirmative vote, at a duly called
and held meeting of shareholders of the Fund, (a) of the holders
of 67% or more of the shares of the Fund present (in person or by
proxy) and entitled to vote at such meeting, if the holders of
more than 50% of the outstanding shares of the Fund entitled to
vote at such meeting are present in person or by proxy, or (b) of
the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "interested
person" and "assignment" shall have the meanings defined in the
Investment Company Act of 1940, as amended, subject, however, to
such exemptions as may be granted by the Securities and Exchange
Commission under said Act.
S:\shared\discon1
ROPES & GRAY
One International Place
Boston, Massachusetts 02110-2624
(617) 951-7000
February 24, 1995
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND (the "Fund")
One Post Office Square
Boston, Massachusetts 02109
Gentlemen:
You have informed us that you propose to offer and sell from
time to time 8,394,015 of your shares of beneficial interest (the
"Shares"), for cash or securities at the net asset value per
share, determined in accordance with your Bylaws, which Shares
are in addition to your shares of beneficial interest which you
have previously offered and sold or which you are currently
offering.
We have examined copies of (i) your Agreement and
Declaration of Trust as on file at the office of the Secretary of
State of The Commonwealth of Massachusetts, which provides for an
unlimited number of authorized shares of beneficial interest, and
(ii) your Bylaws, which provide for the issue and sale by the
Fund of such Shares.
We assume that appropriate action will be taken to register
or qualify the sale of the Shares under any applicable state and
federal laws regulating offerings and sales of securities.
Based upon the foregoing, we are of the opinion that:
1. The Fund is a legally organized and validly existing
voluntary association with transferable shares of beneficial
interest under the laws of The Commonwealth of Massachusetts and
is authorized to issue an unlimited number of shares of
beneficial interest.
2. Upon the issue of any of the Shares referred to in the
first paragraph hereof for cash or securities at net asset value,
and the receipt of the appropriate consideration therefor as
provided in your Bylaws, such Shares so issued will be validly
issued, fully paid and nonassessable by the Fund.
<PAGE>
ROPES & GRAY
PUTNAM ADJUSTABLE RATE
U.S. GOVERNMENT FUND -2- February 24, 1995
The Fund is an entity of the type commonly known as a
"Massachusetts business trust". Under Massachusetts law,
shareholders could, under certain circumstances, be held
personally liable for the obligations of the Fund. However, the
Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Fund and requires that
notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Fund or its
Trustees. The Agreement and Declaration of Trust provides for
indemnification out of the property of the Fund for all loss and
expense of any shareholder of the Fund held personally liable for
the obligations of the Fund solely by reason of his being or
having been a shareholder. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable
to meet its obligations.
We understand that this opinion is to be used in connection
with the registration of the Shares for offering and sale
pursuant to the Securities Act of 1933, as amended, and the
provisions of Rule 24e-2 under the Investment Company Act of
1940, as amended. We consent to the filing of this opinion with
and as a part of Post-Effective Amendment No. 9 to your
Registration Statement No. 33-11406.
Very truly yours,
Ropes & Gray
<PAGE>
PUTNAM INDIVIDUAL RETIREMENT ACCOUNT PLAN
ARTICLE I
INTRODUCTION
By executing the related Adoption Agreement, the
Participant, or the Employer on behalf of the Participants, has
established an Individual Retirement Account Plan for the
exclusive benefit of the Participant(s) and his or their
Beneficiaries intended to qualify under Section 408(a) or 408(c),
in the case of a Plan established by the Employer on behalf of
the Participants, of the Code.
ARTICLE II
DEFINITIONS
As used in this Plan the following terms shall have the
following meanings, unless a different meaning is plainly
required by the context:
2.1 "Agreement" shall mean the Adoption Agreement pursuant
to which the Participant or the Employer has adopted the Plan.
2.2 "Annuity" shall mean an annuity contract or
participating in any annuity contract which is made available as
a funding option by the Trustee to an Employer or a particular
class of Participants under the Plan. Each such contract or
participating interest, when it is issued in the name of any
person other than the Trustee, shall provide that it is non-
transferable, that the owner shall have no right or power to
sell, assign, discount or pledge as collateral or security for
the performance of any obligation or for any other purpose, any
interest in such annuity contract other than to the issuer.
2.3 "Beneficiary" shall mean the person or persons
designated by a Participant pursuant to Section 7.4.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as
it may be amended from time to time.
2.5 "Compensation" shall mean wages, salaries, professional
fees, or other amounts derived from or received for personal
service actually rendered (including, but not limited to,
commissions paid salesmen, compensation for services on the basis
of a percentage of profits, commissions on insurance premiums,
tips, and bonuses) and includes earned income, as defined in
Section 401(c)(2) of the Code (reduced by the deduction the self-
employed individual takes for contributions to a plan qualified
under Section 401(a) of the Code). For purposes of this
definition, section 401(c)(2) shall be applied as if the term
trade or business for purposes of section 1402 included service
described in subsection (c)(6). Compensation shall not include
any amounts derived from or received as earnings or profits from
property (including, but not limited to, interest and dividends)
or amounts not includible in gross income. Compensation shall
not include any amount received as a pension or annuity or as
deferred compensation. Compensation shall include any amount
includible in the individual's gross income under Section 71 of
the Code with respect to a divorce or separation instrument
described in subparagraph (A) of Section 71(b)(2) of the Code.
2.6 "Designated Beneficiary" shall mean the Beneficiary who
is considered as such under Sections 401(a)(9) and 408 of the
Code and the regulations promulgated thereunder.
2.7 "Effective Date" shall mean the date on which the
Employer or Participant signs the Agreement.
2.8 "Employer" shall mean the employer or an association of
employees (within the meaning of Section 408(c) of the Code)
named in the Agreement, if any is so named.
2.9 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as it may be amended from time to time.
2.10 "Excess Contribution" shall mean the amount of any
contribution (other than a Rollover Contribution) made by or on
behalf of a Participant for any Plan Year which is in excess of
the contribution limitations under Sections 219 and 408(o) of the
Code.
2.11 "Investment Company Shares" shall mean shares issued
by any registered investment company for which Putnam Investment
Management, Inc., or its affiliate, serves as investment advisor,
or for which Putnam Mutual Funds Corp., or its affiliate, serves
as principal underwriter; provided, however, that in the case of
any open-end investment company, the then current prospectus of
such investment company offers its shares for purchase under the
Plan.
2.12 "IRA Account" shall mean the property held in trust by
the Trustee for the account of the Participant and his
Beneficiaries.
2.13 "Participant" shall mean each individual named as a
participant in the Agreement.
2.14 "Plan" shall mean The Putnam Individual Retirement
Account Plan set forth in this instrument, as it may be amended
from time to time.
2.15 "Plan Year" shall mean the calendar year.
2.16 "Required Beginning Date" shall mean April 1 following
the calendar year in which the Participant attains age 70 1/2.
2.17 "Rollover Contribution" shall mean, after December 31,
1992, a rollover contribution described in Section 402(c),
403(a)(4), 403(b)(8), or 408(d)(3). Prior to January 1, 1990 a
Rollover Contribution includes a rollover contribution described
in Section 402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8),
or 408(d)(3) of the Code.
2.18 "Simplified Employee Pension Program" shall mean an
arrangement as defined in Section 408(k) of the Code.
2.19 "Term Deposit" shall mean a deposit offered by a bank
and which is made available as a funding option by the Trustee to
an Employer or a particular class of Participants under the Plan.
2.20 "Trustee" shall mean Putnam Fiduciary Trust Company.
2.21 A pronoun in the masculine gender includes the
feminine gender unless the context indicates otherwise.
<PAGE>
ARTICLE III
CONTRIBUTIONS
3.1 For each Plan Year, contributions to the IRA Account of
each Participant may be made in accordance with the following
provisions:
(a) The contribution made by or on behalf of each
Participant may not exceed the less of $2,000 or
100% of the Participant's Compensation.
(b) If the Participant has no Compensation (or elects
to be treated as having no Compensation) and is
the spouse of another Participant in a similar
individual account retirement plan, the
contribution may not exceed the amount in (a);
provided, that the aggregate of (a) and (b) may
not exceed the lesser of $2,250 or 100% of the
spouse's Compensation.
(c) A contribution on behalf of a Participant by an
Employer pursuant to a Simplified Employee Pension
Program shall be made in accordance with the terms
of the Simplified Employee Pension Program and in
accordance with Section 408(k) of the Code.
(d) If the Participant has attained age 70 1/2 before the
close of a Plan Year, no contribution may be made
for the Plan Year except Rollover Contributions or
Employer contributions made pursuant to a
Simplified Employee Pension.
3.2 In addition to the current cash contributions
contemplated by Section 3.1, any Participant may cause a Rollover
Contribution to be contributed to his IRA Account at any time.
3.3 In no event shall a contribution, other than a Rollover
Contribution or an employer contribution to a Simplified Employee
Pension Program, by or on behalf of a Participant be made if (a)
the contribution, when added to other contributions (other than
Rollover Contributions) for the same Plan Year, exceeds the
applicable limits set forth in Section 3.1, or (b) the
contribution is not in cash.
A Rollover Contribution shall not be accepted under the Plan
unless it is in cash or is in a form of investment permitted
under Article V.
The Participant assumes sole responsibility for making sure
that all contributions made to his IRA Account satisfy the
applicable limits set forth in Section 3.1 and the Trustee shall
have no duty to determine whether such contributions are in
excess of such limits.
3.4 The Employer shall notify the Trustee in writing or
other medium acceptable to the Trustee of the amount of each
contribution made by it on behalf of each Participant (and such
Participant's spouse).
3.5 For purposes of Section 3.1, a contribution to a
Participant's IRA Account shall be deemed to have been made for
the Plan Year in which it is made unless the Participant directs
that it was made with respect to the preceding Plan Year. A
contribution shall be deemed to have been made on the last day of
the preceding Plan Year if the contribution is made on account of
such Plan Year, and it is made no later than the due date of the
Participant's Federal income tax return.
3.6 The deductibility or non-deductibility of contributions
made by or on behalf of the Participant (other than contributions
made under Section 3.1(c)) shall be determined under Sections 219
and 408(o) of the Code. The Participant, and not the Trustee,
determines whether contributions are deductible or non-
deductible.
ARTICLE IV
PARTICIPANT'S IRA ACCOUNTS
4.1 Each Participant's interest in his IRA Account shall be
fully vested and nonforfeitable at all times.
4.2 The Trustee shall keep records showing the amount of
each Participant's interest in his IRA Account. The Trustee
shall establish and maintain such other accounts and records as
it deems in its discretion to be reasonably required in order to
discharge its duties under the Plan.
4.3 The Trustee shall have no duty to account for
deductible contributions separately from nondeductible
contributions. In determining the taxable amount of a
distribution, the Participant shall only rely on his annual
Federal income tax returns and not on any reports of the Trustee.
The Trustee shall withhold Federal income tax from any
distribution from the Participant's IRA Account as if the total
amount of the distribution is includible in the Participant's
income, unless otherwise permitted by applicable law.
ARTICLE V
INVESTMENT OF THE IRA ACCOUNT
The Participant shall determine what proportion of each
contribution by or on behalf of the Participant to the IRA
Account shall be invested in Investment Company Shares, an
Annuity, a Term Deposit, and/or in such other securities that are
acceptable to the Trustee. The Participant shall from time to
time direct the Trustee with respect to the investment and
reinvestment of assets held in the IRA Account by means of
written instructions given to the Trustee in such manner required
by the Trustee. Notwithstanding the foregoing, the Employer may
limit on the Agreement the funding choices available to the
Participant.
The Trustee shall invest all contributions made to the IRA
Account and all income received thereon in the funding option(s)
in accordance with the Participant's directions and shall
reinvest in each such funding option all income, interest or
other distributions thereon (unless directed otherwise by the
Participant). If at any time investment instructions given by
the Participant to the Trustee are unclear in the opinion of the
Trustee, the Trustee may invest part or all of the assets in the
IRA Account in the Putnam Daily Dividend Trust or any other
similar fund. The Trustee reserves the right, however, when
prudent, to postpone the investment of initial contributions for
seven days from the date of adoption of the Agreement.
The Participant may change the choice of funding options as
often as desired but subject to any restrictions or penalties
imposed by the underlying investment. Any such change shall be
made in the manner required by the Trustee; except that the
Employer may place further restrictions on the change of funding
options by the Participant if the Employer so elects in the
Agreement.
The Trustee assumes no responsibility for rendering advice
with respect to the investment and reinvestment of the
Participant's IRA Account and shall not be liable for any loss
incurred with respect to any investment made or retained in
accordance with the Participant's instructions. The Participant
shall have and exercise exclusive responsibility and control over
the investment of the assets of his IRA Account in accordance
with the terms of this Plan and the Agreement, and the Trustee
shall have no duty to question his instructions in that regard or
to advise him regarding purchase, retention, or sale of such
assets.
No part of the IRA Account shall be invested in life
insurance contracts or in collectibles, as defined in Section
408(m) of the Code, except as otherwise permitted under Section
408(m)(3) which permits investment in certain gold and silver
coins and coins issued under the laws of any state. No part of
the IRA Account shall be commingled with any other property
except in a common trust fund or common investment fund (within
the meaning of Section 408(a)(5) of the Code and the regulations
thereunder), and no part of the IRA Account shall be commingled
with other property in any common trust fund or common investment
fund which includes assets other than the assets of individual
retirement accounts as described in Section 408(a) or (c) of the
Code and the assets of trusts exempt from taxation under Section
501(a) of the Code which are parts of plans described in Section
401(a) of the Code.
If the Participant authorizes the Employer to withhold
contributions from the Participant's pay and remit them to the
Trustee periodically, those contributions may be invested in a
group trust maintained by the Trustee, and commingled with
contributions made by other individual retirement plan
participants pending allocation of the Participant's
contributions to his IRA Account. The group trust assets shall
be invested, and its earnings shall be allocated, as described in
the Adoption Agreement signed by the Participant, and the
governing instrument of that group trust shall be deemed to be
adopted as a part of this Plan.
ARTICLE VI
POWERS AND DUTIES OF THE TRUSTEE
6.1 Each Participant may direct the manner in which any
Investment Company Shares and such other securities (including
fractional shares) held in his IRA Account shall be voted with
respect to any matters coming before any meeting of shareholders
of the investment company which issued such shares. The
Participant's directions must be in writing on a form approved by
the Trustee, signed by the Participant and delivered to the
Trustee within the time prescribed by it. Subject to any
requirements of applicable law, the Trustee shall deliver to each
Participant copies of any notices of shareholders' meetings,
proxies and proxy-soliciting materials, prospectuses and the
annual and other reports to shareholders which have been received
by the Trustee with respect to Investment Company Shares and any
other securities held for that Participant. The Trustee shall
not vote any Investment Company Shares or any other securities
except upon receipt by the Trustee of adequate written
instructions from the Participant.
6.2 In addition to and not in limitation of such powers as
the Trustee has by law or under any other provisions of the Plan,
the Trustee shall, subject to the limitations set forth in
Article V hereof, have the following powers:
(a) to deal with all or any part of the IRA Account;
(b) to retain uninvested such cash as it may deem
necessary or advisable, without liability for
interest thereon;
(c) to enforce by suit or otherwise, or to waive, its
rights on behalf of the IRA Account, and to defend
claims asserted against it or the IRA Account,
provided that the Trustee is indemnified by the
Participant to its satisfaction against liability
and expenses;
(d) to compromise, adjust and settle any and all
claims against or in favor of it or the IRA
Account;
(e) to register securities in its own name (with or
without indication of its fiduciary capacity
hereunder), including commingling with other
securities held by the Trustee as provided in
Article V;
(f) to enter into contracts or participating interests
for investments permitted under the Plan;
(g) to make, execute, acknowledge and deliver any and
all instruments that it deems necessary or
appropriate to carry out the powers herein
granted; and
(h) except as otherwise provided herein, generally to
exercise any of the powers of an owner with
respect to all or any part of the IRA Account.
6.3 Within a reasonable period after (a) the end of each
Plan Year and (b) the termination of the Plan, the Trustee shall
render to each Participant, and to other persons as required by
law, accounts for its administration under the Plan during the
preceding Plan Year or interim period. The Trustee shall make
reports regarding such accounts to the Commissioner of Internal
Revenue or his delegate and individuals for whom the IRA Account
is maintained with respect to contributions, distributions and
such other matters as the Commissioner or his delegate may be
required by regulation. The Participant or, in the case of a
Plan adopted by an Employer, the Employer shall furnish such
information as is necessary to prepare such reports. Such
reports shall be filed at such time and in such manner and
furnished to such individuals at such time and in such manner as
may be required by regulation. The Trustee shall also give
access to its records with respect to the Plan at reasonable
times and upon reasonable notice to any person designated by a
Participant or to any person required by law to have access to
such records. Should no person or persons to whom an account is
rendered, as required by law, file with the Trustee written
objection to specific items in such account within a period of 60
days after its mailing, and commence legal proceedings within a
further 60 days after the filing of written objection, the
account shall be considered approved to the extent permitted by
applicable law, with the same effect as though it had been
judicially allowed. If any Participant, or any other person
required by law to receive such accounts, files any exceptions or
objections within such 60-day period with respect to any matters
or transactions stated or shown in the account and questions
raised in such exception or objections cannot be amicably
settled, the Trustee or any person required by law to receive
such accounts shall have the right to have such questions settled
by judicial proceedings although the Participant or any person
required by law to receive such accounts shall have, to the
extent permitted by applicable law, only 60 days from the filing
of written objection to the account to commence legal
proceedings. Nothing herein contained shall be construed as
depriving the Trustee of the right to have a judicial settlement
of accounts. In any proceeding for a judicial settlement, the
only necessary parties, except as required by law, shall be the
Trustee and all persons to whom the accounting was rendered; and
any judgment or decree entered in any such proceeding shall, to
the extent permitted by applicable law, be binding and conclusive
on all persons claiming to have any interest in the IRA Account.
6.4 The Trustee shall be entitled to reasonable
compensation for services, determined from time to time on such
basis as shall be specified in the last preceding account
rendered by the Trustee. Unless otherwise provided, the
Trustee's compensation and all reasonable expenses incurred by it
in the administration of the Plan shall be paid from the
Participant's IRA Account. The Trustee is expressly authorized
to cause IRA Account assets to be redeemed for the purpose of
paying such amounts.
6.5 Any corporation into which the Trustee may merge or
with which it may consolidate or any corporation resulting from
any such merger or consolidation shall be the successor of the
Trustee, as the case may be, without the execution or filing of
any additional instrument or the performance of any further act.
6.6 Except as may otherwise be required by law and other
provisions of this Plan,
(a) the Trustee shall be responsible only for the
management and disbursement of amounts actually
contributed to the IRA Account;
(b) the Trustee shall not have any responsibility for
determining the correctness of the amount of any
contributions, the propriety of any contribution
as a Rollover Contribution, the failure of a
Participant or an Employer to make the
contributions provided for in the Agreement, the
correctness of any disbursement made pursuant to
the written directions of a Participant or an
Employer, the taxable amount of a distribution or
whether any Participant is an individual by or on
behalf of whom deductible contributions within the
meaning of Section 219 of the Code may be made;
(c) the Trustee shall not be liable for any acts or
omissions except its own negligence or bad faith
in failing to carry out the terms contained in the
Plan and the Agreement; and
(d) the Trustee shall not be liable for any loss or
breach caused by any Participant's exercise of
control over assets in his IRA Account.
ARTICLE VII
PAYMENTS TO PARTICIPANT AND BENEFICIARY
7.1 Subject to the further provisions of this Article VII,
the Trustee shall make distributions to a Participant and/or his
Beneficiary from the Participant's IRA Account in accordance with
instructions in writing from the Participant (or his Beneficiary
if the Participant is deceased). It shall be the responsibility
of the Participant (or his Beneficiary if the Participant is
deceased) to determine that any such distribution is in
accordance with Sections 408(a)(6) and 408(b)(3) of the Code and
the regulations promulgated thereunder. The Trustee shall not
assume any responsibility to make any distributions to the
Participant (or his Beneficiary if the Participant is deceased)
unless and until such written instructions specify the occasion
for such distribution, the amount of such distribution, the
elected manner of distribution, and any written statement
required by this Article VII. Prior to making any such
distributions from the IRA Account, the Trustee shall be
furnished with any and all applications, certificates, tax
waivers, signature guarantees, and other documents (including
power of any legal representative's authority) deemed necessary
or desirable by the Trustee, but the Trustee shall not be liable
for complying with written instructions which appear on their
face to be genuine, or for refusing to comply if not satisfied
that such instructions are genuine, and assumes no duty of
further inquiry. Upon receipt of proper written instructions as
required above, the Trustee shall cause the assets of the IRA
Account to be distributed in cash and/or in Investment Company
Shares or other securities, as specified in such written
instructions, to the Participant (or his Beneficiary if the
Participant is deceased).
7.2 (a) Distributions to a Participant may be paid in any
one or more of the following ways as the Participant may direct
the Trustee in writing, on a form acceptable to the Trustee:
(i) in a lump sum in cash and/or in Investment
Company Shares or other securities;
(ii) in systematic monthly, quarterly, semiannual or
annual installments in cash and/or in Investment
Company Shares or other securities over a period
not to exceed the life expectancy of the
Participant or the joint life and last survivor
expectancy of the Participant and his Designated
Beneficiary;
(iii) in systematic monthly, quarterly, semiannual or
annual installments in cash and/or in Investment
Company Shares or other securities over a period
designated by the Participant;
(iv) in a dollar amount designated by the Participant
in cash and/or in Investment Company Shares or
other securities;
(v) in installments in cash consisting of current
dividends and capital gains earned by the IRA
Account;
(vi) in installments in cash consisting only of
current dividends earned by the IRA Account; or
(vii) if the IRA Account is invested in an Annuity, in
periodic payments under any form of annuity
payment then available under the Annuity.
Payments under the Annuity must be made in
periodic payments at intervals of no longer than
one year and must be either nonincreasing or
increase only as provided in Q & A F-3 of section
1.401(a)(9)-1 of the Proposed Income Tax
Regulations.
(b) With respect to any distributions made under this
Article VII to or on behalf of a Participant who has not attained
the age of 59 1/2 (unless the distribution is made after the
Participant's death or the Participant has become disabled), the
Trustee prior to making a distribution must receive a written
statement, on a form acceptable to it, addressed to the Trustee
from that Participant declaring his intention as to the
disposition of the amount distributed.
A Participant shall be considered to be disabled only if he
is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which
can be expected to result in death or to be of long continued and
indefinite duration. All other distributions may be subject to
any penalties imposed by the Code. Any distributions from the
Term Deposit or Annuity may be subject to penalties and other
conditions.
7.3 Unless distribution of the entire balance standing in
the credit of a Participant's IRA Account has commenced in
accordance with Section 7.1 by the Participant's Required
Beginning Date, the Participant shall direct the Trustee to begin
the distribution of his remaining balance in his IRA Account
beginning no later than his Required Beginning Date pursuant to
the distribution method specified in either Section 7.2(a)(i) or
(ii) as the Participant may select in writing on a form
acceptable to the Trustee.
If distribution is to be made over a period under Section
7.2(a)(ii) above, the minimum amount to be distributed for each
year, beginning with the Participant's Required Beginning Date
and each December 31 thereafter, shall be made in accordance with
the requirements of Section 408(a)(6), Proposed Regulation
Section 1.408-8, and the incidental death benefit rules described
in Proposed Regulation Section 1.401(a)(9)-2. Such minimum
amount shall be at least an amount equal to the lesser of the
balance standing to the credit of the Participant's IRA Account
or the quotient obtained by dividing the Participant's entire
interest in his IRA Account as of the close of business on
December 31 of the preceding year by the life expectancy of the
Participant or the joint life and last survivor expectancy of the
Participant and his Designated Beneficiary, whichever is
applicable. Life expectancy and joint and last survivor
expectancy shall be computed by use of the return multiples
contained in Section 1.72-9 of the Income Tax Regulation. The
initial life expectancy or joint life and last survivor
expectancy shall be computed using the attained ages of the
Participant and his designated Beneficiary as of their birthdays
in the year the Participant attains age 70 1/2. The life expectancy
of the Participant (and the life expectancy of his spouse, if
applicable) shall be recalculated annually using their attained
ages as of their birthdays in the year for which the minimum
annual payment is being determined. The life expectancy of any
other Designated Beneficiary shall not be recalculated. If the
Designated Beneficiary of a Participant is not his spouse, the
method of distribution selected must assure that at least 50% of
the present value of the amount available for distribution is
paid within the life expectancy of the Participant. Therefore,
the period over which annual distributions shall be made to the
Participant and his Beneficiary shall not exceed the applicable
period determined by use of the table contained in Section
1.401(a)(9)-2 of the Proposed Income Tax Regulations.
7.4 If a Participant dies after his Required Beginning Date
but before his entire interest in his IRA Account has been
distributed or if the Participant dies before his Required
Beginning Date and payments have irrevocably commenced under an
Annuity, the Participant's remaining interest in his IRA Account
shall continue to be distributed to his Beneficiary at least as
rapidly as under the method of distribution being used prior to
the Participant's death. The Beneficiary shall be the person
whom the Participant shall have designated in a writing prior to
this death, which writing shall have been deposited with the
Trustee in a form acceptable to it. Such designation may be
changed by the Participant during his lifetime, except as
otherwise provided by the terms of the Annuity, if applicable.
If no Beneficiary has been properly designated, or if no
Beneficiary survives the Participant, distribution shall be made
to the Participant's surviving spouse, or if no spouse, to his
issue per stirpes, or if none, to his estate.
7.5 If the Participant dies prior to his Required Beginning
Date (except where the IRA Account has been invested in an
Annuity and payments have irrevocably commenced), the following
provisions shall apply:
(a) Distribution to his Beneficiary may be made by one of
the following methods as the Beneficiary shall request
in writing on a form acceptable to the Trustee:
(i) lump sum in cash and/or in Investment Company
Shares or other securities distributed no later
than December 31 of the year containing the fifth
anniversary of the Participant's death;
(ii) in systematic monthly, quarterly, semiannual or
annual installments in cash and/or in Investment
Company Shares or other securities over a period
of time ending no later than December 31 of the
year containing the fifth anniversary of the
Participant's death; provided, however, that the
Trustee shall not be required to pay installments
amounting to less than fifty dollars per month;
(iii) in substantial equal monthly, quarterly,
semiannual or annual installments in cash and/or
in Investment Company Shares or other securities
over a period of years not exceeding the life
expectancy of the Designated Beneficiary;
provided, however, that the Trustee shall not be
required to pay installments amounting to less
than fifty dollars per month; or
(iv) if the IRA Account is invested in an Annuity, in
periodic payments under any form of annuity
payment then available under the Annuity.
(b) The Beneficiary who is other than a surviving spouse
shall elect one of the distribution methods described
in (a) above no later than December 31 of the year
following the year of the Participant's death and shall
so inform the Trustee in writing. The Beneficiary who
is a surviving spouse shall elect one of the
distribution methods described in (a) above no later
than December 31 of the year containing the fifth (5th)
anniversary of the Participant's death and shall so
inform the Trustee in writing. If the Beneficiary or
Beneficiaries do not make such election, the Trustee
shall make a distribution in cash in accordance with
Section 7.5(a)(i) if the Beneficiary is other than the
surviving spouse, and in accordance with Section
7.5(a)(iii) if the Beneficiary is the Participant's
surviving spouse.
(c) If distribution is to be made in accordance with either
Section 7.5(a)(iii) or (iv), it must commence by
December 31 of the year following the year of the
Participant's death; provided, however, that if the
Participant's spouse is the Designated Beneficiary,
distribution may be delayed until December 31 of the
year the Participant would have attained age 70 1/2, if
later. The minimum amount to be distributed each year
shall be at least an amount equal to the lesser of the
balance standing to the credit of the Participant's IRA
Account or the quotient obtained by dividing the
Participant's entire interest in his IRA Account as of
the close of business on December 31 of the preceding
year by the life expectancy of the Designated
Beneficiary. The Beneficiary may elect at any time to
receive a greater amount of distribution or to
accelerate the method of distribution.
Life expectancy shall be calculated by use of the return
multiples specified in Section 1.72-9 of the Income Tax
Regulations. The initial life expectancy shall be computed using
the attained age of the Designated Beneficiary as of his birthday
in the year distributions are required to commence. Life
expectancy of a surviving spouse shall be recalculated annually
using the spouse's attained age as of the spouse's birthday in
the year for which the minimum annual payment is being
determined. In the case of any other Designated Beneficiary,
payments for any calendar year after the year in which
distributions are required to commence shall be based on the
initial life expectancy minus the number of whole years passed
since distribution first commenced.
7.6 Notwithstanding the foregoing, if the Designated
Beneficiary is the Participant's surviving spouse, such spouse
may treat the IRA Account as the spouse's own individual
retirement account (IRA). This election will be deemed to have
been made if such surviving spouse makes a regular IRA
contribution to the account, makes a rollover to or from such
account, or fails to receive distribution pursuant to Section 7.4
or 7.5 above.
7.7 In making distributions to a Participant, the Trustee
shall, to the extent allowed by applicable law, be entitled to
rely on the written certification by a Participant as to the
Participant's and Designated Beneficiary's age or as to the
Participant's having become disabled within the meaning of
Section 7.2(b).
7.8 Whenever the consent of the Participant or a direction
by the Participant is required under this Article VII, action by
the Trustee may be taken without such consent or direction by
reason of death, illness or absence of the Participant.
7.9 Notwithstanding any of the foregoing, any Employer
contribution to the IRA Account pursuant to a Simplified Employee
Pension Program may be withdrawn by the Participant at any time.
ARTICLE VIII
RETURN OF EXCESS CONTRIBUTIONS; LIABILITY OF TAXES
8.1 If a Participant, an Employer on behalf of the Participant
if the Agreement so provides, or the Commissioner of Internal
Revenue notifies the Trustee in writing that there has been made
by or on behalf of the Participant a contribution which has been
determined by the Participant, the Employer or the Commissioner
to be an Excess Contribution, or nondeductible contribution, the
Trustee shall, as soon as practicable, pay to such Participant in
cash (if permitted by the terms of the investment in his IRA
Account) an amount equal to the amount of the Excess Contribution
or nondeductible contribution made by him or on his behalf and,
if the payment is made on or prior to the due date of the
Participant's tax return (including extensions) for the year in
which the Excess Contribution or nondeductible contribution was
made, the net income attributable thereto (reduced by any
administrative charge or penalty applicable thereto).
Alternatively, the Participant may, by written instructions on a
form acceptable to the Trustee, elect to treat the Excess
Contribution and the net income attributable thereto (reduced by
any administrative charge applicable thereto), to the extent it
does not exceed the limitations under Section 219 and 408(o) of
the Code, as a contribution for the Plan Year in which notice is
received (and reducing, as is appropriate, the contributions that
can be made under Section 3.1 for such Plan Year).
8.2 If a Participant or an Employer on behalf of the
Participant in the case of an IRA Account established under a
Simplified Employee Pension Program, notifies the Trustee in
writing that there has been an employer contribution to the IRA
Account which is in excess of the limitation under Section 402(h)
or 408(k)(6)(A)(iii) of the Code, the Trustee shall, as soon as
practicable, pay to such Participant in cash (if permitted by the
terms of the investment in his IRA Account) an amount equal to
the amount of such excess employer contribution made on his
behalf, as adjusted for income or loss, and reduced by any
administrative charge or penalty applicable thereto.
8.3 In the event the Trustee shall be required to pay any
tax with respect to an IRA Account, the amount of such tax
(including interest) shall be paid from such IRA Account.
ARTICLE IX
AMENDMENT AND TERMINATION
9.1 A Participant may at any time terminate the Plan adopted by
the Participant, and an Employer may at any time terminate a Plan
adopted by the Employer. Termination may be effected by
delivering to the Trustee a written notice of termination
addressed to the Trustee and signed by the Participant or the
Employer. On termination, if permitted by the terms of the
investment, distribution of the IRA Account (reduced by any
penalty applicable thereto) shall be made by payment of a lump
sum in cash and/or in Investment Company Shares or other
securities to the Participant as the Participant elects. Upon
complete distribution of the assets in the IRA Account, this Plan
shall terminate and shall have no further force and effect and
the Trustee shall be relieved from all further liability with
respect to the Plan, the IRA Account, and all assets thereof so
established.
9.2 Putnam Fiduciary Trust Company may at any time and from
time to time modify or amend this Plan as is necessary or
appropriate to qualify this Plan as an Individual Retirement
Account under Section 408(a) of the Code, or as is necessary or
appropriate under any applicable law by delivering to the Trustee
and mailing to the Employer, or, in the case of a Plan where
there is no Employer, the Participant at his last known address
shown on the books of the Trustee, a copy of such amendment.
Each Participant and each Employer shall be deemed to have
consented to any modification or amendment so made. No amendment
of this Plan shall cause any part of the IRA Account to be used
for a purpose other than for the exclusive benefit of the
Participant and his Beneficiary. No amendment shall change the
rights, duties or responsibilities of the Trustee without the
written consent of either of them.
ARTICLE X
TRANSFER TO OTHER QUALIFIED PLANS
A Participant or an Employer, subject to the provisions of
the Agreement and to the extent allowed by applicable law, may
request the Trustee to transfer assets held in the IRA Account of
the Participant or Participants to another bank or banks as
custodian or trustee or to any other plan or plans maintained by
the Participant or the Employer or the Employers of a Participant
for the benefit of the Participant, provided the Trustee, before
transfer, may at its discretion require an opinion of counsel
satisfactory to it that the requirements of Section 401(a) or
Section 408, whichever is applicable, of the Code or any
successor provision of law are satisfied by such other plan or
plans; and provided, further, that the Trustee shall have the
right to reduce from the amount to be transferred (a) any amounts
referred to in Section 6.4, and (b) any amounts required to be
distributed in the calendar year of the transfer to the
Participant under Section 408(a)(6) or 408(b)(3) of the Code.
Upon such transfer, the provisions of the plan to which such
transfer is made shall govern and the provisions of this Plan
shall have no further effect.
ARTICLE XI
RESIGNATION OF THE TRUSTEE
11.1 Either the Trustee may resign at any time upon thirty (30)
days' notice, in writing, to the Participant or the Employer in
the case of a Plan established by the Employer.
11.2 Within thirty (30) days of the effective date of a
successor trustee's appointment, the Trustee shall perform all
acts necessary to transfer and deliver the assets and records of
the IRA Account to its successor. However, the Trustee may
reserve such portion of the IRA Account as it may reasonably
determine to be necessary for payment of its fees and any taxes
and expenses and any balance of such reserve remaining after
payment of such fees, taxes and expenses shall be paid over to
the successor.
11.3 Resignation of the Trustee will not terminate the Plan
adopted by an Employer or a Participant. In the event of any
vacancy due to the resignation of the Trustee, the Trustee shall
appoint a successor unless the Agreement is sooner terminated.
Any successor Trustee shall be a "bank" within the meaning of
Section 581 of the Code or another person found qualified to act
as a trustee or custodian under an individual retirement account
plan by the Secretary of the Treasury, or his delegate. The
appointment of a successor Trustee shall be effective upon
receipt by the Trustee of such written acceptance which shall be
submitted to the Participant, the Employer in the case of a Plan
established by the Employer and the Trustee. In the event no
successor Trustee is appointed within thirty (30) days after
resignation becomes effective, each Participant or Employer may
request the Trustee to transfer the assets held in the
Participant's IRA Account as is provided in Article X.
ARTICLE XII
NOTICES
12.1 All notices required to be given by the Trustee to a
Participant or an Employer shall be deemed to have been given
when sent by mail to the address of the Participant or the
Employer indicated by the Trustee's records.
12.2 All notices required to be given by a Participant or
an Employer to the Trustee shall be deemed to have been given
when received by the Trustee.
12.3 Whenever the Trustee is required or authorized to take
any action under the Plan on the direction of a Participant, such
action shall be taken on the direction of the duly appointed
representative of the Participant or his estate, in the event of
his incompetency or death.
ARTICLE XIII
SPENDTHRIFT PROVISION
To the extent permitted by applicable law, a Participant's
beneficial interest in the Plan shall not be assignable, subject
to hypothecation, pledge, or lien, nor subject to attachment or
receivership, nor shall it pass to any trustee in bankruptcy or
be reached or applied by the legal process for the payment of any
obligation of the Participant or any Beneficiary hereunder;
provided, however, that in the case of the Participant's death
the value of his IRA Account shall be paid, as provided in
Article VII; and provided, further, that the Participant (or the
Trustee) shall have the right to direct the transfer or
distribution of the value of his IRA Account, or any part thereof
as provided in Article VII, VIII, X or XI.
ARTICLE XIV
GOVERNING LAW
The terms of this Plan and the Agreement shall be construed,
administered and enforced according to the laws of the
Commonwealth of Massachusetts except to the extent such laws are
preempted by the provisions of ERISA.
<PAGE>
PUTNAM INDIVIDUAL RETIREMENT ACCOUNT PLAN
ARTICLE I
INTRODUCTION
By executing the related Adoption Agreement, the
Participant, or the Employer on behalf of the Participants, has
established an Individual Retirement Account Plan for the
exclusive benefit of the Participant(s) and his or their
Beneficiaries intended to qualify under Section 408(a) or 408(c),
in the case of a Plan established by the Employer on behalf of
the Participants, of the Code.
ARTICLE II
DEFINITIONS
As used in this Plan the following terms shall have the
following meanings, unless a different meaning is plainly
required by the context:
2.1 "Agreement" shall mean the Adoption Agreement pursuant
to which the Participant or the Employer has adopted the Plan.
2.2 "Annuity" shall mean an annuity contract or
participating in any annuity contract which is made available as
a funding option by the Trustee to an Employer or a particular
class of Participants under the Plan. Each such contract or
participating interest, when it is issued in the name of any
person other than the Trustee, shall provide that it is non-
transferable, that the owner shall have no right or power to
sell, assign, discount or pledge as collateral or security for
the performance of any obligation or for any other purpose, any
interest in such annuity contract other than to the issuer.
2.3 "Beneficiary" shall mean the person or persons
designated by a Participant pursuant to Section 7.4.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as
it may be amended from time to time.
2.5 "Compensation" shall mean wages, salaries, professional
fees, or other amounts derived from or received for personal
service actually rendered (including, but not limited to,
commissions paid salesmen, compensation for services on the basis
of a percentage of profits, commissions on insurance premiums,
tips, and bonuses) and includes earned income, as defined in
Section 401(c)(2) of the Code (reduced by the deduction the self-
employed individual takes for contributions to a plan qualified
under Section 401(a) of the Code). For purposes of this
definition, section 401(c)(2) shall be applied as if the term
trade or business for purposes of section 1402 included service
described in subsection (c)(6). Compensation shall not include
any amounts derived from or received as earnings or profits from
property (including, but not limited to, interest and dividends)
or amounts not includible in gross income. Compensation shall
not include any amount received as a pension or annuity or as
deferred compensation. Compensation shall include any amount
includible in the individual's gross income under Section 71 of
the Code with respect to a divorce or separation instrument
described in subparagraph (A) of Section 71(b)(2) of the Code.
2.6 "Designated Beneficiary" shall mean the Beneficiary who
is considered as such under Sections 401(a)(9) and 408 of the
Code and the regulations promulgated thereunder.
2.7 "Effective Date" shall mean the date on which the
Employer or Participant signs the Agreement.
2.8 "Employer" shall mean the employer or an association of
employees (within the meaning of Section 408(c) of the Code)
named in the Agreement, if any is so named.
2.9 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as it may be amended from time to time.
2.10 "Excess Contribution" shall mean the amount of any
contribution (other than a Rollover Contribution) made by or on
behalf of a Participant for any Plan Year which is in excess of
the contribution limitations under Sections 219 and 408(o) of the
Code.
2.11 "Investment Company Shares" shall mean shares issued
by any registered investment company for which Putnam Investment
Management, Inc., or its affiliate, serves as investment advisor,
or for which Putnam Mutual Funds Corp., or its affiliate, serves
as principal underwriter; provided, however, that in the case of
any open-end investment company, the then current prospectus of
such investment company offers its shares for purchase under the
Plan.
2.12 "IRA Account" shall mean the property held in trust by
the Trustee for the account of the Participant and his
Beneficiaries.
2.13 "Participant" shall mean each individual named as a
participant in the Agreement.
2.14 "Plan" shall mean The Putnam Individual Retirement
Account Plan set forth in this instrument, as it may be amended
from time to time.
2.15 "Plan Year" shall mean the calendar year.
2.16 "Required Beginning Date" shall mean April 1 following
the calendar year in which the Participant attains age 70 1/2.
2.17 "Rollover Contribution" shall mean, after December 31,
1992, a rollover contribution described in Section 402(c),
403(a)(4), 403(b)(8), or 408(d)(3). Prior to January 1, 1990 a
Rollover Contribution includes a rollover contribution described
in Section 402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8),
or 408(d)(3) of the Code.
2.18 "Simplified Employee Pension Program" shall mean an
arrangement as defined in Section 408(k) of the Code.
2.19 "Term Deposit" shall mean a deposit offered by a bank
and which is made available as a funding option by the Trustee to
an Employer or a particular class of Participants under the Plan.
2.20 "Trustee" shall mean Putnam Fiduciary Trust Company.
2.21 A pronoun in the masculine gender includes the
feminine gender unless the context indicates otherwise.
<PAGE>
ARTICLE III
CONTRIBUTIONS
3.1 For each Plan Year, contributions to the IRA Account of
each Participant may be made in accordance with the following
provisions:
(a) The contribution made by or on behalf of each
Participant may not exceed the less of $2,000 or
100% of the Participant's Compensation.
(b) If the Participant has no Compensation (or elects
to be treated as having no Compensation) and is
the spouse of another Participant in a similar
individual account retirement plan, the
contribution may not exceed the amount in (a);
provided, that the aggregate of (a) and (b) may
not exceed the lesser of $2,250 or 100% of the
spouse's Compensation.
(c) A contribution on behalf of a Participant by an
Employer pursuant to a Simplified Employee Pension
Program shall be made in accordance with the terms
of the Simplified Employee Pension Program and in
accordance with Section 408(k) of the Code.
(d) If the Participant has attained age 70 1/2 before the
close of a Plan Year, no contribution may be made
for the Plan Year except Rollover Contributions or
Employer contributions made pursuant to a
Simplified Employee Pension.
3.2 In addition to the current cash contributions
contemplated by Section 3.1, any Participant may cause a Rollover
Contribution to be contributed to his IRA Account at any time.
3.3 In no event shall a contribution, other than a Rollover
Contribution or an employer contribution to a Simplified Employee
Pension Program, by or on behalf of a Participant be made if (a)
the contribution, when added to other contributions (other than
Rollover Contributions) for the same Plan Year, exceeds the
applicable limits set forth in Section 3.1, or (b) the
contribution is not in cash.
A Rollover Contribution shall not be accepted under the Plan
unless it is in cash or is in a form of investment permitted
under Article V.
The Participant assumes sole responsibility for making sure
that all contributions made to his IRA Account satisfy the
applicable limits set forth in Section 3.1 and the Trustee shall
have no duty to determine whether such contributions are in
excess of such limits.
3.4 The Employer shall notify the Trustee in writing or
other medium acceptable to the Trustee of the amount of each
contribution made by it on behalf of each Participant (and such
Participant's spouse).
3.5 For purposes of Section 3.1, a contribution to a
Participant's IRA Account shall be deemed to have been made for
the Plan Year in which it is made unless the Participant directs
that it was made with respect to the preceding Plan Year. A
contribution shall be deemed to have been made on the last day of
the preceding Plan Year if the contribution is made on account of
such Plan Year, and it is made no later than the due date of the
Participant's Federal income tax return.
3.6 The deductibility or non-deductibility of contributions
made by or on behalf of the Participant (other than contributions
made under Section 3.1(c)) shall be determined under Sections 219
and 408(o) of the Code. The Participant, and not the Trustee,
determines whether contributions are deductible or non-
deductible.
ARTICLE IV
PARTICIPANT'S IRA ACCOUNTS
4.1 Each Participant's interest in his IRA Account shall be
fully vested and nonforfeitable at all times.
4.2 The Trustee shall keep records showing the amount of
each Participant's interest in his IRA Account. The Trustee
shall establish and maintain such other accounts and records as
it deems in its discretion to be reasonably required in order to
discharge its duties under the Plan.
4.3 The Trustee shall have no duty to account for
deductible contributions separately from nondeductible
contributions. In determining the taxable amount of a
distribution, the Participant shall only rely on his annual
Federal income tax returns and not on any reports of the Trustee.
The Trustee shall withhold Federal income tax from any
distribution from the Participant's IRA Account as if the total
amount of the distribution is includible in the Participant's
income, unless otherwise permitted by applicable law.
ARTICLE V
INVESTMENT OF THE IRA ACCOUNT
The Participant shall determine what proportion of each
contribution by or on behalf of the Participant to the IRA
Account shall be invested in Investment Company Shares, an
Annuity, a Term Deposit, and/or in such other securities that are
acceptable to the Trustee. The Participant shall from time to
time direct the Trustee with respect to the investment and
reinvestment of assets held in the IRA Account by means of
written instructions given to the Trustee in such manner required
by the Trustee. Notwithstanding the foregoing, the Employer may
limit on the Agreement the funding choices available to the
Participant.
The Trustee shall invest all contributions made to the IRA
Account and all income received thereon in the funding option(s)
in accordance with the Participant's directions and shall
reinvest in each such funding option all income, interest or
other distributions thereon (unless directed otherwise by the
Participant). If at any time investment instructions given by
the Participant to the Trustee are unclear in the opinion of the
Trustee, the Trustee may invest part or all of the assets in the
IRA Account in the Putnam Daily Dividend Trust or any other
similar fund. The Trustee reserves the right, however, when
prudent, to postpone the investment of initial contributions for
seven days from the date of adoption of the Agreement.
The Participant may change the choice of funding options as
often as desired but subject to any restrictions or penalties
imposed by the underlying investment. Any such change shall be
made in the manner required by the Trustee; except that the
Employer may place further restrictions on the change of funding
options by the Participant if the Employer so elects in the
Agreement.
The Trustee assumes no responsibility for rendering advice
with respect to the investment and reinvestment of the
Participant's IRA Account and shall not be liable for any loss
incurred with respect to any investment made or retained in
accordance with the Participant's instructions. The Participant
shall have and exercise exclusive responsibility and control over
the investment of the assets of his IRA Account in accordance
with the terms of this Plan and the Agreement, and the Trustee
shall have no duty to question his instructions in that regard or
to advise him regarding purchase, retention, or sale of such
assets.
No part of the IRA Account shall be invested in life
insurance contracts or in collectibles, as defined in Section
408(m) of the Code, except as otherwise permitted under Section
408(m)(3) which permits investment in certain gold and silver
coins and coins issued under the laws of any state. No part of
the IRA Account shall be commingled with any other property
except in a common trust fund or common investment fund (within
the meaning of Section 408(a)(5) of the Code and the regulations
thereunder), and no part of the IRA Account shall be commingled
with other property in any common trust fund or common investment
fund which includes assets other than the assets of individual
retirement accounts as described in Section 408(a) or (c) of the
Code and the assets of trusts exempt from taxation under Section
501(a) of the Code which are parts of plans described in Section
401(a) of the Code.
If the Participant authorizes the Employer to withhold
contributions from the Participant's pay and remit them to the
Trustee periodically, those contributions may be invested in a
group trust maintained by the Trustee, and commingled with
contributions made by other individual retirement plan
participants pending allocation of the Participant's
contributions to his IRA Account. The group trust assets shall
be invested, and its earnings shall be allocated, as described in
the Adoption Agreement signed by the Participant, and the
governing instrument of that group trust shall be deemed to be
adopted as a part of this Plan.
ARTICLE VI
POWERS AND DUTIES OF THE TRUSTEE
6.1 Each Participant may direct the manner in which any
Investment Company Shares and such other securities (including
fractional shares) held in his IRA Account shall be voted with
respect to any matters coming before any meeting of shareholders
of the investment company which issued such shares. The
Participant's directions must be in writing on a form approved by
the Trustee, signed by the Participant and delivered to the
Trustee within the time prescribed by it. Subject to any
requirements of applicable law, the Trustee shall deliver to each
Participant copies of any notices of shareholders' meetings,
proxies and proxy-soliciting materials, prospectuses and the
annual and other reports to shareholders which have been received
by the Trustee with respect to Investment Company Shares and any
other securities held for that Participant. The Trustee shall
not vote any Investment Company Shares or any other securities
except upon receipt by the Trustee of adequate written
instructions from the Participant.
6.2 In addition to and not in limitation of such powers as
the Trustee has by law or under any other provisions of the Plan,
the Trustee shall, subject to the limitations set forth in
Article V hereof, have the following powers:
(a) to deal with all or any part of the IRA Account;
(b) to retain uninvested such cash as it may deem
necessary or advisable, without liability for
interest thereon;
(c) to enforce by suit or otherwise, or to waive, its
rights on behalf of the IRA Account, and to defend
claims asserted against it or the IRA Account,
provided that the Trustee is indemnified by the
Participant to its satisfaction against liability
and expenses;
(d) to compromise, adjust and settle any and all
claims against or in favor of it or the IRA
Account;
(e) to register securities in its own name (with or
without indication of its fiduciary capacity
hereunder), including commingling with other
securities held by the Trustee as provided in
Article V;
(f) to enter into contracts or participating interests
for investments permitted under the Plan;
(g) to make, execute, acknowledge and deliver any and
all instruments that it deems necessary or
appropriate to carry out the powers herein
granted; and
(h) except as otherwise provided herein, generally to
exercise any of the powers of an owner with
respect to all or any part of the IRA Account.
6.3 Within a reasonable period after (a) the end of each
Plan Year and (b) the termination of the Plan, the Trustee shall
render to each Participant, and to other persons as required by
law, accounts for its administration under the Plan during the
preceding Plan Year or interim period. The Trustee shall make
reports regarding such accounts to the Commissioner of Internal
Revenue or his delegate and individuals for whom the IRA Account
is maintained with respect to contributions, distributions and
such other matters as the Commissioner or his delegate may be
required by regulation. The Participant or, in the case of a
Plan adopted by an Employer, the Employer shall furnish such
information as is necessary to prepare such reports. Such
reports shall be filed at such time and in such manner and
furnished to such individuals at such time and in such manner as
may be required by regulation. The Trustee shall also give
access to its records with respect to the Plan at reasonable
times and upon reasonable notice to any person designated by a
Participant or to any person required by law to have access to
such records. Should no person or persons to whom an account is
rendered, as required by law, file with the Trustee written
objection to specific items in such account within a period of 60
days after its mailing, and commence legal proceedings within a
further 60 days after the filing of written objection, the
account shall be considered approved to the extent permitted by
applicable law, with the same effect as though it had been
judicially allowed. If any Participant, or any other person
required by law to receive such accounts, files any exceptions or
objections within such 60-day period with respect to any matters
or transactions stated or shown in the account and questions
raised in such exception or objections cannot be amicably
settled, the Trustee or any person required by law to receive
such accounts shall have the right to have such questions settled
by judicial proceedings although the Participant or any person
required by law to receive such accounts shall have, to the
extent permitted by applicable law, only 60 days from the filing
of written objection to the account to commence legal
proceedings. Nothing herein contained shall be construed as
depriving the Trustee of the right to have a judicial settlement
of accounts. In any proceeding for a judicial settlement, the
only necessary parties, except as required by law, shall be the
Trustee and all persons to whom the accounting was rendered; and
any judgment or decree entered in any such proceeding shall, to
the extent permitted by applicable law, be binding and conclusive
on all persons claiming to have any interest in the IRA Account.
6.4 The Trustee shall be entitled to reasonable
compensation for services, determined from time to time on such
basis as shall be specified in the last preceding account
rendered by the Trustee. Unless otherwise provided, the
Trustee's compensation and all reasonable expenses incurred by it
in the administration of the Plan shall be paid from the
Participant's IRA Account. The Trustee is expressly authorized
to cause IRA Account assets to be redeemed for the purpose of
paying such amounts.
6.5 Any corporation into which the Trustee may merge or
with which it may consolidate or any corporation resulting from
any such merger or consolidation shall be the successor of the
Trustee, as the case may be, without the execution or filing of
any additional instrument or the performance of any further act.
6.6 Except as may otherwise be required by law and other
provisions of this Plan,
(a) the Trustee shall be responsible only for the
management and disbursement of amounts actually
contributed to the IRA Account;
(b) the Trustee shall not have any responsibility for
determining the correctness of the amount of any
contributions, the propriety of any contribution
as a Rollover Contribution, the failure of a
Participant or an Employer to make the
contributions provided for in the Agreement, the
correctness of any disbursement made pursuant to
the written directions of a Participant or an
Employer, the taxable amount of a distribution or
whether any Participant is an individual by or on
behalf of whom deductible contributions within the
meaning of Section 219 of the Code may be made;
(c) the Trustee shall not be liable for any acts or
omissions except its own negligence or bad faith
in failing to carry out the terms contained in the
Plan and the Agreement; and
(d) the Trustee shall not be liable for any loss or
breach caused by any Participant's exercise of
control over assets in his IRA Account.
ARTICLE VII
PAYMENTS TO PARTICIPANT AND BENEFICIARY
7.1 Subject to the further provisions of this Article VII,
the Trustee shall make distributions to a Participant and/or his
Beneficiary from the Participant's IRA Account in accordance with
instructions in writing from the Participant (or his Beneficiary
if the Participant is deceased). It shall be the responsibility
of the Participant (or his Beneficiary if the Participant is
deceased) to determine that any such distribution is in
accordance with Sections 408(a)(6) and 408(b)(3) of the Code and
the regulations promulgated thereunder. The Trustee shall not
assume any responsibility to make any distributions to the
Participant (or his Beneficiary if the Participant is deceased)
unless and until such written instructions specify the occasion
for such distribution, the amount of such distribution, the
elected manner of distribution, and any written statement
required by this Article VII. Prior to making any such
distributions from the IRA Account, the Trustee shall be
furnished with any and all applications, certificates, tax
waivers, signature guarantees, and other documents (including
power of any legal representative's authority) deemed necessary
or desirable by the Trustee, but the Trustee shall not be liable
for complying with written instructions which appear on their
face to be genuine, or for refusing to comply if not satisfied
that such instructions are genuine, and assumes no duty of
further inquiry. Upon receipt of proper written instructions as
required above, the Trustee shall cause the assets of the IRA
Account to be distributed in cash and/or in Investment Company
Shares or other securities, as specified in such written
instructions, to the Participant (or his Beneficiary if the
Participant is deceased).
7.2 (a) Distributions to a Participant may be paid in any
one or more of the following ways as the Participant may direct
the Trustee in writing, on a form acceptable to the Trustee:
(i) in a lump sum in cash and/or in Investment
Company Shares or other securities;
(ii) in systematic monthly, quarterly, semiannual or
annual installments in cash and/or in Investment
Company Shares or other securities over a period
not to exceed the life expectancy of the
Participant or the joint life and last survivor
expectancy of the Participant and his Designated
Beneficiary;
(iii) in systematic monthly, quarterly, semiannual or
annual installments in cash and/or in Investment
Company Shares or other securities over a period
designated by the Participant;
(iv) in a dollar amount designated by the Participant
in cash and/or in Investment Company Shares or
other securities;
(v) in installments in cash consisting of current
dividends and capital gains earned by the IRA
Account;
(vi) in installments in cash consisting only of
current dividends earned by the IRA Account; or
(vii) if the IRA Account is invested in an Annuity, in
periodic payments under any form of annuity
payment then available under the Annuity.
Payments under the Annuity must be made in
periodic payments at intervals of no longer than
one year and must be either nonincreasing or
increase only as provided in Q & A F-3 of section
1.401(a)(9)-1 of the Proposed Income Tax
Regulations.
(b) With respect to any distributions made under this
Article VII to or on behalf of a Participant who has not attained
the age of 59 1/2 (unless the distribution is made after the
Participant's death or the Participant has become disabled), the
Trustee prior to making a distribution must receive a written
statement, on a form acceptable to it, addressed to the Trustee
from that Participant declaring his intention as to the
disposition of the amount distributed.
A Participant shall be considered to be disabled only if he
is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which
can be expected to result in death or to be of long continued and
indefinite duration. All other distributions may be subject to
any penalties imposed by the Code. Any distributions from the
Term Deposit or Annuity may be subject to penalties and other
conditions.
7.3 Unless distribution of the entire balance standing in
the credit of a Participant's IRA Account has commenced in
accordance with Section 7.1 by the Participant's Required
Beginning Date, the Participant shall direct the Trustee to begin
the distribution of his remaining balance in his IRA Account
beginning no later than his Required Beginning Date pursuant to
the distribution method specified in either Section 7.2(a)(i) or
(ii) as the Participant may select in writing on a form
acceptable to the Trustee.
If distribution is to be made over a period under Section
7.2(a)(ii) above, the minimum amount to be distributed for each
year, beginning with the Participant's Required Beginning Date
and each December 31 thereafter, shall be made in accordance with
the requirements of Section 408(a)(6), Proposed Regulation
Section 1.408-8, and the incidental death benefit rules described
in Proposed Regulation Section 1.401(a)(9)-2. Such minimum
amount shall be at least an amount equal to the lesser of the
balance standing to the credit of the Participant's IRA Account
or the quotient obtained by dividing the Participant's entire
interest in his IRA Account as of the close of business on
December 31 of the preceding year by the life expectancy of the
Participant or the joint life and last survivor expectancy of the
Participant and his Designated Beneficiary, whichever is
applicable. Life expectancy and joint and last survivor
expectancy shall be computed by use of the return multiples
contained in Section 1.72-9 of the Income Tax Regulation. The
initial life expectancy or joint life and last survivor
expectancy shall be computed using the attained ages of the
Participant and his designated Beneficiary as of their birthdays
in the year the Participant attains age 70 1/2. The life expectancy
of the Participant (and the life expectancy of his spouse, if
applicable) shall be recalculated annually using their attained
ages as of their birthdays in the year for which the minimum
annual payment is being determined. The life expectancy of any
other Designated Beneficiary shall not be recalculated. If the
Designated Beneficiary of a Participant is not his spouse, the
method of distribution selected must assure that at least 50% of
the present value of the amount available for distribution is
paid within the life expectancy of the Participant. Therefore,
the period over which annual distributions shall be made to the
Participant and his Beneficiary shall not exceed the applicable
period determined by use of the table contained in Section
1.401(a)(9)-2 of the Proposed Income Tax Regulations.
7.4 If a Participant dies after his Required Beginning Date
but before his entire interest in his IRA Account has been
distributed or if the Participant dies before his Required
Beginning Date and payments have irrevocably commenced under an
Annuity, the Participant's remaining interest in his IRA Account
shall continue to be distributed to his Beneficiary at least as
rapidly as under the method of distribution being used prior to
the Participant's death. The Beneficiary shall be the person
whom the Participant shall have designated in a writing prior to
this death, which writing shall have been deposited with the
Trustee in a form acceptable to it. Such designation may be
changed by the Participant during his lifetime, except as
otherwise provided by the terms of the Annuity, if applicable.
If no Beneficiary has been properly designated, or if no
Beneficiary survives the Participant, distribution shall be made
to the Participant's surviving spouse, or if no spouse, to his
issue per stirpes, or if none, to his estate.
7.5 If the Participant dies prior to his Required Beginning
Date (except where the IRA Account has been invested in an
Annuity and payments have irrevocably commenced), the following
provisions shall apply:
(a) Distribution to his Beneficiary may be made by one of
the following methods as the Beneficiary shall request
in writing on a form acceptable to the Trustee:
(i) lump sum in cash and/or in Investment Company
Shares or other securities distributed no later
than December 31 of the year containing the fifth
anniversary of the Participant's death;
(ii) in systematic monthly, quarterly, semiannual or
annual installments in cash and/or in Investment
Company Shares or other securities over a period
of time ending no later than December 31 of the
year containing the fifth anniversary of the
Participant's death; provided, however, that the
Trustee shall not be required to pay installments
amounting to less than fifty dollars per month;
(iii) in substantial equal monthly, quarterly,
semiannual or annual installments in cash and/or
in Investment Company Shares or other securities
over a period of years not exceeding the life
expectancy of the Designated Beneficiary;
provided, however, that the Trustee shall not be
required to pay installments amounting to less
than fifty dollars per month; or
(iv) if the IRA Account is invested in an Annuity, in
periodic payments under any form of annuity
payment then available under the Annuity.
(b) The Beneficiary who is other than a surviving spouse
shall elect one of the distribution methods described
in (a) above no later than December 31 of the year
following the year of the Participant's death and shall
so inform the Trustee in writing. The Beneficiary who
is a surviving spouse shall elect one of the
distribution methods described in (a) above no later
than December 31 of the year containing the fifth (5th)
anniversary of the Participant's death and shall so
inform the Trustee in writing. If the Beneficiary or
Beneficiaries do not make such election, the Trustee
shall make a distribution in cash in accordance with
Section 7.5(a)(i) if the Beneficiary is other than the
surviving spouse, and in accordance with Section
7.5(a)(iii) if the Beneficiary is the Participant's
surviving spouse.
(c) If distribution is to be made in accordance with either
Section 7.5(a)(iii) or (iv), it must commence by
December 31 of the year following the year of the
Participant's death; provided, however, that if the
Participant's spouse is the Designated Beneficiary,
distribution may be delayed until December 31 of the
year the Participant would have attained age 70 1/2, if
later. The minimum amount to be distributed each year
shall be at least an amount equal to the lesser of the
balance standing to the credit of the Participant's IRA
Account or the quotient obtained by dividing the
Participant's entire interest in his IRA Account as of
the close of business on December 31 of the preceding
year by the life expectancy of the Designated
Beneficiary. The Beneficiary may elect at any time to
receive a greater amount of distribution or to
accelerate the method of distribution.
Life expectancy shall be calculated by use of the return
multiples specified in Section 1.72-9 of the Income Tax
Regulations. The initial life expectancy shall be computed using
the attained age of the Designated Beneficiary as of his birthday
in the year distributions are required to commence. Life
expectancy of a surviving spouse shall be recalculated annually
using the spouse's attained age as of the spouse's birthday in
the year for which the minimum annual payment is being
determined. In the case of any other Designated Beneficiary,
payments for any calendar year after the year in which
distributions are required to commence shall be based on the
initial life expectancy minus the number of whole years passed
since distribution first commenced.
7.6 Notwithstanding the foregoing, if the Designated
Beneficiary is the Participant's surviving spouse, such spouse
may treat the IRA Account as the spouse's own individual
retirement account (IRA). This election will be deemed to have
been made if such surviving spouse makes a regular IRA
contribution to the account, makes a rollover to or from such
account, or fails to receive distribution pursuant to Section 7.4
or 7.5 above.
7.7 In making distributions to a Participant, the Trustee
shall, to the extent allowed by applicable law, be entitled to
rely on the written certification by a Participant as to the
Participant's and Designated Beneficiary's age or as to the
Participant's having become disabled within the meaning of
Section 7.2(b).
7.8 Whenever the consent of the Participant or a direction
by the Participant is required under this Article VII, action by
the Trustee may be taken without such consent or direction by
reason of death, illness or absence of the Participant.
7.9 Notwithstanding any of the foregoing, any Employer
contribution to the IRA Account pursuant to a Simplified Employee
Pension Program may be withdrawn by the Participant at any time.
ARTICLE VIII
RETURN OF EXCESS CONTRIBUTIONS; LIABILITY OF TAXES
8.1 If a Participant, an Employer on behalf of the Participant
if the Agreement so provides, or the Commissioner of Internal
Revenue notifies the Trustee in writing that there has been made
by or on behalf of the Participant a contribution which has been
determined by the Participant, the Employer or the Commissioner
to be an Excess Contribution, or nondeductible contribution, the
Trustee shall, as soon as practicable, pay to such Participant in
cash (if permitted by the terms of the investment in his IRA
Account) an amount equal to the amount of the Excess Contribution
or nondeductible contribution made by him or on his behalf and,
if the payment is made on or prior to the due date of the
Participant's tax return (including extensions) for the year in
which the Excess Contribution or nondeductible contribution was
made, the net income attributable thereto (reduced by any
administrative charge or penalty applicable thereto).
Alternatively, the Participant may, by written instructions on a
form acceptable to the Trustee, elect to treat the Excess
Contribution and the net income attributable thereto (reduced by
any administrative charge applicable thereto), to the extent it
does not exceed the limitations under Section 219 and 408(o) of
the Code, as a contribution for the Plan Year in which notice is
received (and reducing, as is appropriate, the contributions that
can be made under Section 3.1 for such Plan Year).
8.2 If a Participant or an Employer on behalf of the
Participant in the case of an IRA Account established under a
Simplified Employee Pension Program, notifies the Trustee in
writing that there has been an employer contribution to the IRA
Account which is in excess of the limitation under Section 402(h)
or 408(k)(6)(A)(iii) of the Code, the Trustee shall, as soon as
practicable, pay to such Participant in cash (if permitted by the
terms of the investment in his IRA Account) an amount equal to
the amount of such excess employer contribution made on his
behalf, as adjusted for income or loss, and reduced by any
administrative charge or penalty applicable thereto.
8.3 In the event the Trustee shall be required to pay any
tax with respect to an IRA Account, the amount of such tax
(including interest) shall be paid from such IRA Account.
ARTICLE IX
AMENDMENT AND TERMINATION
9.1 A Participant may at any time terminate the Plan adopted by
the Participant, and an Employer may at any time terminate a Plan
adopted by the Employer. Termination may be effected by
delivering to the Trustee a written notice of termination
addressed to the Trustee and signed by the Participant or the
Employer. On termination, if permitted by the terms of the
investment, distribution of the IRA Account (reduced by any
penalty applicable thereto) shall be made by payment of a lump
sum in cash and/or in Investment Company Shares or other
securities to the Participant as the Participant elects. Upon
complete distribution of the assets in the IRA Account, this Plan
shall terminate and shall have no further force and effect and
the Trustee shall be relieved from all further liability with
respect to the Plan, the IRA Account, and all assets thereof so
established.
9.2 Putnam Fiduciary Trust Company may at any time and from
time to time modify or amend this Plan as is necessary or
appropriate to qualify this Plan as an Individual Retirement
Account under Section 408(a) of the Code, or as is necessary or
appropriate under any applicable law by delivering to the Trustee
and mailing to the Employer, or, in the case of a Plan where
there is no Employer, the Participant at his last known address
shown on the books of the Trustee, a copy of such amendment.
Each Participant and each Employer shall be deemed to have
consented to any modification or amendment so made. No amendment
of this Plan shall cause any part of the IRA Account to be used
for a purpose other than for the exclusive benefit of the
Participant and his Beneficiary. No amendment shall change the
rights, duties or responsibilities of the Trustee without the
written consent of either of them.
ARTICLE X
TRANSFER TO OTHER QUALIFIED PLANS
A Participant or an Employer, subject to the provisions of
the Agreement and to the extent allowed by applicable law, may
request the Trustee to transfer assets held in the IRA Account of
the Participant or Participants to another bank or banks as
custodian or trustee or to any other plan or plans maintained by
the Participant or the Employer or the Employers of a Participant
for the benefit of the Participant, provided the Trustee, before
transfer, may at its discretion require an opinion of counsel
satisfactory to it that the requirements of Section 401(a) or
Section 408, whichever is applicable, of the Code or any
successor provision of law are satisfied by such other plan or
plans; and provided, further, that the Trustee shall have the
right to reduce from the amount to be transferred (a) any amounts
referred to in Section 6.4, and (b) any amounts required to be
distributed in the calendar year of the transfer to the
Participant under Section 408(a)(6) or 408(b)(3) of the Code.
Upon such transfer, the provisions of the plan to which such
transfer is made shall govern and the provisions of this Plan
shall have no further effect.
ARTICLE XI
RESIGNATION OF THE TRUSTEE
11.1 Either the Trustee may resign at any time upon thirty (30)
days' notice, in writing, to the Participant or the Employer in
the case of a Plan established by the Employer.
11.2 Within thirty (30) days of the effective date of a
successor trustee's appointment, the Trustee shall perform all
acts necessary to transfer and deliver the assets and records of
the IRA Account to its successor. However, the Trustee may
reserve such portion of the IRA Account as it may reasonably
determine to be necessary for payment of its fees and any taxes
and expenses and any balance of such reserve remaining after
payment of such fees, taxes and expenses shall be paid over to
the successor.
11.3 Resignation of the Trustee will not terminate the Plan
adopted by an Employer or a Participant. In the event of any
vacancy due to the resignation of the Trustee, the Trustee shall
appoint a successor unless the Agreement is sooner terminated.
Any successor Trustee shall be a "bank" within the meaning of
Section 581 of the Code or another person found qualified to act
as a trustee or custodian under an individual retirement account
plan by the Secretary of the Treasury, or his delegate. The
appointment of a successor Trustee shall be effective upon
receipt by the Trustee of such written acceptance which shall be
submitted to the Participant, the Employer in the case of a Plan
established by the Employer and the Trustee. In the event no
successor Trustee is appointed within thirty (30) days after
resignation becomes effective, each Participant or Employer may
request the Trustee to transfer the assets held in the
Participant's IRA Account as is provided in Article X.
ARTICLE XII
NOTICES
12.1 All notices required to be given by the Trustee to a
Participant or an Employer shall be deemed to have been given
when sent by mail to the address of the Participant or the
Employer indicated by the Trustee's records.
12.2 All notices required to be given by a Participant or
an Employer to the Trustee shall be deemed to have been given
when received by the Trustee.
12.3 Whenever the Trustee is required or authorized to take
any action under the Plan on the direction of a Participant, such
action shall be taken on the direction of the duly appointed
representative of the Participant or his estate, in the event of
his incompetency or death.
ARTICLE XIII
SPENDTHRIFT PROVISION
To the extent permitted by applicable law, a Participant's
beneficial interest in the Plan shall not be assignable, subject
to hypothecation, pledge, or lien, nor subject to attachment or
receivership, nor shall it pass to any trustee in bankruptcy or
be reached or applied by the legal process for the payment of any
obligation of the Participant or any Beneficiary hereunder;
provided, however, that in the case of the Participant's death
the value of his IRA Account shall be paid, as provided in
Article VII; and provided, further, that the Participant (or the
Trustee) shall have the right to direct the transfer or
distribution of the value of his IRA Account, or any part thereof
as provided in Article VII, VIII, X or XI.
ARTICLE XIV
GOVERNING LAW
The terms of this Plan and the Agreement shall be construed,
administered and enforced according to the laws of the
Commonwealth of Massachusetts except to the extent such laws are
preempted by the provisions of ERISA.
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Adjustable Rate U.S. Government Fund --
Class A Shares
Fiscal period ending: October 31, 1994
Inception date (if less than 10 years of performance):
January 5, 1988
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 $1,000 $1,000
ERV = Ending Redeemable Value $970.74 $1,185.59 $1,338.63
T = Average Annual
Total Return -2.93% +3.46% +4.37%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $568,907
Expenses $101,061
Reimbursement $0
Average shares 11,090,276
NAV $10.17
Sales Charge 3.25%
POP $10.51
Yield at POP 4.49%
CLASS B SHARES
Fiscal period ending: October 31, 1994
Inception date (if less than 10 years of performance):
May 11, 1992
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 n/a $1,000
ERV = Ending Redeemable Value $967.94 n/a $991.06
T = Average Annual
Total Return -3.21% n/a -0.36%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $195,441
Expenses $53,901
Reimbursement 0
Average shares 3,815,923
NAV $10.16
Maximum Contingent Deferred
Sales Charge 3.0%
Yield at NAV 4.03%
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM PUTNAM
ADJUSTABLE RATE U.S. GOVERNMENT CLASS A AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 149,809,059
<INVESTMENTS-AT-VALUE> 147,081,155
<RECEIVABLES> 2,094,266
<ASSETS-OTHER> 748
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 149,176,169
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 944,114
<TOTAL-LIABILITIES> 944,114
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 177,324,637
<SHARES-COMMON-STOCK> 10,836,713
<SHARES-COMMON-PRIOR> 18,341,208
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (26,364,678)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,727,904)
<NET-ASSETS> 148,232,055
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,047,489
<OTHER-INCOME> 0
<EXPENSES-NET> 2,218,651
<NET-INVESTMENT-INCOME> 8,828,838
<REALIZED-GAINS-CURRENT> (19,138,140)
<APPREC-INCREASE-CURRENT> 10,083,482
<NET-CHANGE-FROM-OPS> (225,820)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,871,952)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (353,894)
<NUMBER-OF-SHARES-SOLD> 81,174,921
<NUMBER-OF-SHARES-REDEEMED> (16,129,035)
<SHARES-REINVESTED> 449,619
<NET-CHANGE-IN-ASSETS> (89,128,066)
<ACCUMULATED-NII-PRIOR> 1,881,456
<ACCUMULATED-GAINS-PRIOR> (13,562,925)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,189,184
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,218,651
<AVERAGE-NET-ASSETS> 155,335,173
<PER-SHARE-NAV-BEGIN> 10.55
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> (.52)
<PER-SHARE-DIVIDEND> (.39)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.02)
<PER-SHARE-NAV-END> 10.17
<EXPENSE-RATIO> .99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM PUTNAM
ADJUSTABLE RATE U.S. GOVERNMENT CLASS B AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 149,809,059
<INVESTMENTS-AT-VALUE> 147,081,155
<RECEIVABLES> 2,094,266
<ASSETS-OTHER> 748
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 149,176,169
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 944,114
<TOTAL-LIABILITIES> 944,114
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 177,324,637
<SHARES-COMMON-STOCK> 3,745,525
<SHARES-COMMON-PRIOR> 4,163,131
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (26,364,678)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,727,904)
<NET-ASSETS> 148,232,055
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,047,489
<OTHER-INCOME> 0
<EXPENSES-NET> 2,218,651
<NET-INVESTMENT-INCOME> 8,828,838
<REALIZED-GAINS-CURRENT> (19,138,140)
<APPREC-INCREASE-CURRENT> 10,083,482
<NET-CHANGE-FROM-OPS> (225,820)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,349,595)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (81,338)
<NUMBER-OF-SHARES-SOLD> 3,092,770
<NUMBER-OF-SHARES-REDEEMED> (3,616,750)
<SHARES-REINVESTED> 106,374
<NET-CHANGE-IN-ASSETS> (89,128,066)
<ACCUMULATED-NII-PRIOR> 1,881,456
<ACCUMULATED-GAINS-PRIOR> (13,562,925)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,189,184
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,218,651
<AVERAGE-NET-ASSETS> 42,676,465
<PER-SHARE-NAV-BEGIN> 10.53
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> (.46)
<PER-SHARE-DIVIDEND> (.33)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.02)
<PER-SHARE-NAV-END> 10.15
<EXPENSE-RATIO> 1.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
