PROXY VOTE ON MANAGEMENT FEE INCREASES
Q & A
On March 1, a proxy statement was sent to shareholders in the
Putnam Convertible Income-Growth Trust, Putnam Tax-Free High
Yield Fund, and Putnam High Yield Advantage Fund. Among other
issues, the proxies propose increased management fees. Listed
below are common questions and concerns of shareholders, followed
by answers and information regarding each issue.
What are the main issues to be voted on by the shareholders?
There are three main issues in the proxy you recently received:
1. Election of Trustees
2. Ratifying the Trustees' selection of independent auditors
of the Fund for its current fiscal year.
3. Consideration of a new management contract that would
increase the management fee payable by the Fund to Putnam
Investment Management, Inc.
Note: The proxy statement for Putnam High Yield Advantage Fund
included three additional proposals; these are listed as follows:
a proposal to eliminate the Fund's fundamental investment
restriction with respect to investments in investment companies,
a proposal to amend the Fund's fundamental investment restriction
with respect to investments in restricted securities; and a
proposal to amend the Fund's charter to permit the issuance of
additional classes of shares.
What is the proposed annual increase of management fees?
For Putnam Convertible Income-Growth Trust:
Based upon net assets of the Fund as of January 14, 1994 of
$723,370,814, the effective annual management fee rate under
the proposed fee schedule would be
0.62% as compared to 0.53% under the existing schedule.
For Putnam High Yield Advantage Fund:
Based upon net assets of the Fund as of January 14, 1994 of
$777,018,178, the effective annual management fee rate under
the proposed schedule would be .66% as compared to .52% under
the existing schedule.
For Putnam Tax-Free High Yield:
Based upon net assets of Putnam Tax-Free High Yield Fund as of
January 14, 1994 of $1,839,524,282, the effective annual
management fee under the proposed fee schedule would be $.545
as compared to .468% under the existing schedule.
Is this an isolated fee increase or is Putnam raising fees on all
or many of their funds?
The proposed higher fees for your Fund are the result of a
comprehensive review by the Trustees of the management fees for
all Putnam funds. Based upon this review, over the past several
years, new Management contracts have been implemented for most
Putnam Funds. These new contracts provided for fee increases for
some funds and for decreases for others. Overall, the fee
changes have resulted in a net increase in the total management
fees paid to Putnam Management by the Putnam funds. Consistent
with these fee changes for other Putnam funds, the Trustees have
recommended a fee increase for your Fund.
Are Putnam's fees higher than other fund groups?
The Trustees considered, among other factors, the nature and
quality of the services being provided to each fund and the
relative complexity of managing each fund. In addition, the
Trustees compared investment performance, management fees, and
other expenses with those of comparable funds managed by other
mutual fund companies. The Trustees believe that the proposed
increased fees are generally competitive with those of similar
funds in other fund groups.
How does Putnam decide whether to raise fees on funds?
Fee increases are not undertaken lightly. Before a fund's
management fee can be raised, Putnam's Trustees, including the
Trustees who are not affiliated with Putnam Management, voting
separately, must agree to the increase. Then the proposed
increase is put to a shareholder vote. In this particular
instance, after considering a wide range of information relating
to the fund, including comparative expense and performance
information, the Trustees determined that the proposed new
Management contract is fair both to shareholders and to Putnam
Management and will help to assure for the future the high
quality of management services which the Fund has received in the
past. As a result, the Trustees concluded that the Contract is
in the best interests of shareholders and recommended that you
vote for its approval.
What does a management fee pay for?
Mutual fund investors do face expenses beyond the purchase price
of their shares. Included in these fees are the management fees
which are paid to the fund's investment manager. In the case of
all Putnam funds, fees are paid to Putnam Management as
compensation and reimbursement for its services in managing the
Funds' portfolios and performing various administrative
functions. The specific items which management fees pay for
include the following:
1. Compensation of Putnam's highly talented investment
advisory staff, including portfolio managers, analysts, and
supporting personnel.
2. Maintaining and obtaining critical investment-related
technology, most notably the sophisticated computer system
employed by Putnam Management's portfolio managers and analysts.
3. Obtaining other important investment-related information
including economic and market overviews, industry and company
reviews, evaluations of investments, recommendations on specific
investments, specialized publications, and pricing and quotation
services.
How can it be in my best interest for the fund's management
expenses to go up?
After considering a wide range of information relating to the
Fund, including comparative expense and performance information,
the Trustees determined that the proposed new Management Contract
is fair both to shareholders and to Putnam Management and will
help to assure for the future the high quality of management
services which the Fund has received in the past. As a result,
the Trustees concluded that the Contract is in the best interests
of shareholders and recommended that you vote for its approval.
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