Putnam Capital Manager Trust
Prospectus - MAY 1, 1995, as revised SEPTEMBER 22,
1995
Putnam Capital Manager Trust (the "Trust") offers shares of
beneficial interest in separate investment portfolios
(collectively, the "Funds") for purchase by separate accounts of
various insurance companies. The Funds, which have different
investment objectives and policies, offered by this Prospectus
are: PCM Growth and Income Fund, PCM New
Opportunities Fund and PCM Voyager Fund.
This Prospectus explains concisely information about the Trust
and should be read in conjunction with the prospectus for
the separate account of the variable annuity or variable life
insurance product that accompanies this Prospectus. Please read
it carefully and keep it for future reference. Investors can
find more detailed information about the Trust in the May 1, 1995
Statement of Additional Information, as amended from time to
time. For a free copy of the Statement, call Putnam Investor
Services at 1-800-521-0538. 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 FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
SHARES OF THE FUNDS ARE PRESENTLY AVAILABLE AND ARE BEING
MARKETED EXCLUSIVELY AS A POOLED FUNDING VEHICLE FOR VARIABLE
ANNUITY CONTRACT AND VARIABLE LIFE INSURANCE POLICY SEPARATE
ACCOUNTS OF VARIOUS INSURANCE COMPANIES.<PAGE>
What you need to know
ABOUT THE TRUST E3
Financial highlights E3
The Trust E7
Investment objectives and policies of the Funds E7
Common investment policies and techniques E13
How performance is shown E20
How the Trust is managed E21
Organization and history E22
ABOUT YOUR INVESTMENT E23
Sales and redemptions E24
How the Trust values its shares E25
How distributions are made; tax information E25
Financial information E26
ABOUT PUTNAM INVESTMENTS, INC. E26
<PAGE>
About the Trust
FINANCIAL HIGHLIGHTS
The tables on the following pages present per share financial
information for the life of each Fund. This information has been
audited and reported on by the Trust's independent accountants.
The Report of Independent Accountants and financial statements
included in the Trust's Annual Report to shareholders for the
1994 fiscal year are incorporated by reference into this
Prospectus. The Trust's Annual Report, which contains additional
unaudited performance information, is available without
charge upon request.
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
Investment Operations
Net Less
Realized and Distributions From:
Net Unrealized Total from Net Net Realized
Year (period)Net Asset Value Investment Gain (Loss) on Investment Investment
Gain on
ended Beginning of Period Income Investments Operations Income Investments
PCM Voyager Fund
December 31, 1994 $22.41 $.07 $ .14 $ .21 $(.05) $(.37)
December 31, 1993 19.21 .04 3.50 3.54 (.07) (.27)
December 31, 1992 17.94 .07 1.72 1.79 (.08) (.44)
December 31, 1991(a) 12.58 .11 5.61 5.72 (.12) (.24)
December 31, 1990 13.00 .18 (.45) (.27) (.06) (.09)
December 31, 1989 10.30 .12 3.20 3.32 (.16) (.46)
December 31, 1988*(a)10.00 .13 .17 .30 - -
PCM Growth and Income Fund
December 31, 1994 $17.38 $.50 $(.48) $ .02 $(.38) $(.58)
December 31, 1993 15.93 .38 1.83 2.21 (.39) (.37)
December 31, 1992 15.33 .39 1.04 1.43 (.42) (.41)
December 31, 1991 13.51 .43 2.09 2.52 (.53) (.17)
December 31, 1990 13.41 .55 (.29) .26 (.05) (.11)
December 31, 1989 12.00 .45 2.04 2.49 (.60) (.48)
December 31, 1988*(a) 10.00 .42 1.58 2.00 - -
PCM New Opportunities Fund
December 31, 1994** $10.00 $- $ .82 $ .82 $- $-
<PAGE>
Ratio of
Total Net Net
Net AssetInvestment Assets, Ratio of Investment
Value, Return at End of Expenses to Income to
Total End of Net Asset Period (in Average Net Average Net Portfolio
Distributions Period Value(%)(c) thousands) Assets(%) Assets(%) Turnover(%)
$(.42) $22.20 1.04 $1,026,972 .71 .40
62.44
(.34) 22.41 18.70675,198 .66 .33
55.85
(.52) 19.21 10.36317,225 .75 .56
48.17
(.36) 17.94 46.09156,741 .81 .78
55.04
(.15) 12.58 (2.03) 48,414 .88 1.58
93.65
(.62) 13.00 32.38 39,998 .82
1.93 91.82
- 10.30 2.98(d) 7,981 1.35(d) 1.44(d)
103.99(d)
$(.96) $16.44 0.35 $1,907,380 .62 3.64 46.43
(.76) 17.38 14.27 1,407,382 .64 3.49 62.63
(.83) 15.93 9.75641,508 .69 3.79 39.58
(.70) 15.33 19.05325,861 .72 4.37 37.94
(.16) 13.51 1.96155,942 .75 5.02 49.39
(1.08) 13.41 21.30 100,335 .74 5.73 73.40 - 12.00 19.89(d) 26,205.92(d)
4.08(d) 37.94(d)
$- $10.82 8.20(d) $68,592 .47(b)(d) .03(b)(d) 32.77(d)
* For the period February 1, 1988 (commencement of operations) to December
31, 1988.
** For the period May 2, 1994 (commencement of operations) to December
31, 1994.
(a) Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
(b) Reflects an expense limitation in effect during the period. As a result of
expense limitations, expenses of PCM New Opportunities Fund for the period
ended December 31, 1994 reflect a reduction of less than $0.02 per share.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(d) Not annualized.
<PAGE>
THE TRUST
The Trust is designed to serve as a funding vehicle for insurance
separate accounts associated with variable annuity contracts and
variable life insurance policies. The Trust presently serves as
the funding vehicle for variable annuity contracts and variable
life insurance policies offered by separate accounts of various
insurance companies. You should consult the prospectus issued by
the relevant insurance company for more information about a
separate account. Shares of the Trust are offered to these
separate accounts through Putnam Mutual Funds Corp. ("Putnam
Mutual Funds"), the principal underwriter for the Trust.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
Each Fund of the Trust has a different investment objective or
objectives which it pursues through separate investment policies
as described below. The differences in objectives and policies
among the Funds can be expected to affect the return of each Fund
and the degree of market and financial risk to which each Fund is
subject. For more information about the investment strategies
employed by the Funds, see "Common investment policies and
techniques." The investment objectives and policies of each Fund
may, unless otherwise specifically stated, be changed by the
Trustees of the Trust without a vote of the shareholders. As a
matter of policy, the Trustees would not materially change the
investment objective or objectives of a Fund without shareholder
approval. There is no assurance that any Fund will achieve its
objective or objectives.
Additional portfolios may be created from time to time with
different investment objectives and policies for use as funding
vehicles for insurance company separate accounts or for other
insurance products. In addition, the Trustees may, subject to
any necessary regulatory approvals, eliminate any Fund or divide
any Fund into two or more classes of shares with such special or
relative rights and privileges as the Trustees may determine.
Glossary
The following terms are frequently used in this Prospectus. Many
of these terms are explained in greater detail under "Common
investment policies and techniques."
"Putnam Management" -- Putnam Investment Management, Inc.,
the Trust's investment manager
"S&P" -- Standard & Poor's Corporation
"Moody's" -- Moody's Investors Service, Inc.
"U.S. Government Securities"-- 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 U.S. Government Securities,
including U.S. Treasury bills, notes
and bonds, mortgage participation
certificates guaranteed by 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 bonds.
PCM GROWTH AND INCOME FUND
PCM Growth and Income Fund seeks capital growth and current
income as its investment objectives. The Fund invests primarily
in common stocks that offer potential for capital growth, current
income, or both. The Fund may also purchase corporate bonds,
notes and debentures, preferred stocks or convertible securities
(both debt securities and preferred stocks) or U.S. government
securities, if Putnam Management determines that their purchase
would help further the Fund's investment objectives. The types
of securities held by the Fund may vary from time to time in
light of the Fund's investment objectives, changes in interest
rates and economic and other factors. The Fund may engage in
defensive strategies when Putnam Management judges that
conditions in the securities markets make pursuing the Fund's
basic investment strategy inconsistent with the best interest of
the Fund's shareholders. See "Common investment policies and
techniques" below for a discussion of these strategies.
The Fund may invest up to 20% of its assets in securities
principally traded in foreign markets. For a discussion of the
risks associated with foreign investments, see "Common investment
policies and techniques -- Foreign investments." The Fund may
also hold a portion of its assets in cash or money market
instruments. The Fund may invest in both higher-rated and
lower-rated fixed-income securities. The risks associated with
fixed income securities, including lower-rated fixed income
securities (commonly known as "junk bonds"), are discussed below
under "Common investment policies and techniques -- Lower-rated
and other fixed income securities."
The Fund may also hold a portion of its assets in cash and money
market instruments. The Fund may also engage in foreign currency
exchange transactions and transactions in futures and options,
enter into repurchase agreements, loan its portfolio securities
and purchase securities for future delivery. See "Common
investment policies and techniques" below for a discussion of
these securities and types of transactions and the risks
associated with them.
PCM Growth and Income Fund will generally be managed in a style
similar to that of The Putnam Fund for Growth and Income.
PCM NEW OPPORTUNITIES FUND
PCM New Opportunities Fund seeks long-term capital appreciation.
The Fund seeks its investment objective by investing principally
in common stocks of companies in sectors of the economy which
Putnam Management believes possess above-average long-term growth
potential. The Fund will generally invest in companies which
Putnam Management identifies as offering the best prospects for
long-term growth within a particular sector. Current dividend
income is only an incidental consideration. The Fund invests
primarily in common stocks, but may also purchase convertible
bonds, convertible preferred stocks, warrants, preferred stocks
and debt securities if Putnam Management believes they would help
achieve the Fund's objective of capital appreciation. The Fund
may invest up to 20% of its assets in foreign securities. For a
discussion of the risks associated with foreign investing, see
"Common investment policies and techniques -- Foreign
investments." The Fund may also engage in foreign currency
exchange transactions and transactions in futures and options,
enter into repurchase agreements, loan its portfolio securities
and purchase securities for future delivery. See "Common
investment policies and techniques" below for a discussion of
these securities and types of transactions and the risks
associated with them. The Fund may hold a portion of its
assets in cash and money market instruments. The Fund may engage
in defensive strategies when Putnam Management judges that
conditions in the securities markets make pursuing the Fund's
basic investment strategy inconsistent with the best interests of
the Fund's shareholders. See "Common investment policies and
techniques" below for a discussion of these strategies.
The sectors of the economy which offer above-average growth
potential will change over time. At present, Putnam Management
has identified the following sectors of the economy as having an
above-average growth potential over the next three to five years:
Personal Communications - cellular telephone, paging, personal
communication networks;
Media/Entertainment - cable television system operators, cable
television network programmers, film entertainment providers,
theme park operators, casino operators;
Medical Technology/Cost-Containment - home and outpatient care,
medical device companies, biotechnology, health care
information services;
Environmental Services - solid waste disposal, hazardous waste
disposal, remediation services, environmental testing;
Applied/Advanced Technology - database software, application
software, networking software, computer systems integrators,
information services companies;
Personal Financial Services - specialty insurance companies,
credit card issuers, and other consumer-oriented financial
services companies; and
Value-oriented Consuming - retailers, restaurants, hotel chains
and travel companies able to provide quality products or
services at lower prices or offering greater perceived value
than competitors.
In addition, the Fund may also invest a portion of its assets in
securities of companies that, although not in any of the sectors
described above, are expected to experience above-average growth.
The sectors described above represent Putnam Management's current
judgment of the sectors of the economy which offer the most
attractive growth opportunities. The Fund will not necessarily
be invested in each of the seven market sectors at all times.
Such sectors are likely to change over time and may include a
variety of industries. Subject to the Fund's investment
restrictions, the Fund may invest up to one-half of its assets in
any one particular sector.
The Fund will invest in securities which Putnam Management
believes offer above-average long-term growth opportunities. As
a result of the Fund's long-term investment strategy, it is
possible that the Fund's total return over certain periods may be
less than that of other equity investment vehicles.
The Fund seeks to invest in companies that offer above-average
growth prospects in their particular sector of the economy,
without regard to the company's size. Companies in the Fund's
portfolio will range from small, rapidly growing companies to
larger, well-established firms. The securities of small to
medium-sized companies often trade less frequently and in more
limited volume, and may be subject to more abrupt or erratic
price movements, than securities of larger, more established
companies. Such companies may have limited product lines,
markets, or financial resources, or may depend on a limited
management group.
The Fund will normally emphasize investments in particular
economic sectors. Although the Fund will not invest more than 25%
of its assets in any one industry, the Fund's emphasis on
particular sectors of the economy may make the value of the
Fund's shares more susceptible to any single economic, political
or regulatory development than the shares of an investment
company which is more widely diversified. As a result, the value
of the Fund's shares may fluctuate more than the value of shares
of such an investment company.
PCM New Opportunities Fund will generally be managed in a style
similar to that of Putnam New Opportunities Fund.
PCM VOYAGER FUND
PCM Voyager Fund seeks capital appreciation as its investment
objective . It is designed for investors willing to assume
above-average risk in return for above-average capital growth
potential. The Fund invests primarily in common stocks which
Putnam Management believes have potential for capital
appreciation that is significantly greater than that of
the market averages. The Fund does not choose investments
for dividend and interest income. It may also purchase
convertible bonds, convertible preferred stocks, warrants,
preferred stocks and debt securities if Putnam Management
believes they would help achieve the Fund's objective. The Fund
may also hold a portion of its assets in cash and money market
instruments and may invest up to 20% of its assets in foreign
securities. For a discussion of the risks associated with
foreign investments, see "Common investment policies and
techniques -- Foreign investments." The Fund may also engage in
foreign currency exchange transactions and transactions in
futures and options, enter into repurchase agreements, loan its
portfolio securities and purchase securities for future delivery.
See "Common investment policies and techniques" below for a
discussion of these securities and types of transactions and the
risks associated with them. The Fund may engage in defensive
strategies when Putnam Management judges that conditions in the
securities markets make pursuing the Fund's basic investment
strategy inconsistent with the best interest of the Fund's
shareholders. See "Common investment policies and techniques"
below for a discussion of these strategies.
The Fund generally invests a significant portion of its assets in
the securities of smaller and newer issuers. These small- to
medium-sized companies have a proprietary product or profitable
market niche and the potential to grow very rapidly. Such
companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but may
also involve greater risk. They may have limited product lines,
markets or financial resources, or may depend on a limited
management group. Their securities may trade less frequently and
in limited volume. As a result, these securities may fluctuate
in value more than securities of larger, more established
companies.
The Fund will also invest a portion of its assets in larger
companies where opportunities for above-average capital
appreciation appear favorable.
In seeking its objective, the Fund may borrow money to invest in
additional portfolio securities. This technique, known as
"leverage," increases the Fund's market exposure and risk. When
the Fund has borrowed money for leverage and its investments
increase or decrease in value, the Fund's net asset value will
increase or decrease more than if it had not borrowed money for
this purpose. The interest that the Fund must pay on borrowed
money will reduce its net investment income, and may also either
offset any potential capital gains or increase any losses.
The Fund will not always borrow money for investment. The extent
to which the Fund will borrow money, and the amount it may
borrow, depend on market conditions and interest rates.
Successful use of leverage depends on Putnam Management's ability
to predict market movements correctly.
PCM Voyager Fund will generally be managed in a style similar to
that of Putnam Voyager Fund.
GENERAL
The Funds are generally managed in styles similar to other
open-end investment companies which are managed by Putnam
Management and whose shares are generally offered to the public.
These other Putnam funds may, however, employ different
investment practices and may invest in securities different from
those in which their counterpart Funds invest, and consequently
will not have identical portfolios or experience identical
investment results.
COMMON INVESTMENT POLICIES AND TECHNIQUES
Defensive strategies
At times, Putnam Management may judge that conditions in the
securities markets make pursuing a Fund's basic investment
strategy inconsistent with the best interests of the Fund's
shareholders. At such times, Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of a Fund's assets. In implementing
these "defensive" strategies, a Fund may invest without limit in
cash or cash equivalents, money-market instruments, short-term
bank obligations, high-rated fixed income securities or preferred
stocks or invest in any other securities Putnam Management
considers consistent with such defensive strategies. It is
impossible to predict when, or for how long, a Fund will use such
alternative strategies.
Portfolio turnover
The length of time a Fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by a Fund is known as "portfolio turnover."
As a result of a 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 a 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 each Fund are
shown in "Financial highlights."
Foreign investments
Each Fund may invest to the extent described above in securities
principally traded in foreign markets. Each Fund may also
purchase Eurodollar certificates of deposit without limitation.
Since foreign securities are normally denominated and traded in
foreign currencies, the values of a Fund's assets may be affected
favorably or unfavorably by currency exchange rates and exchange
control regulations. There may be less information publicly
available about a foreign company than about a U.S. company, and
foreign companies are not generally subject to accounting,
auditing and financial reporting standards and practices
comparable to those in the United States. The securities of some
foreign companies are less liquid and at times more volatile than
securities of comparable U.S. companies. Foreign brokerage
commissions and other fees are also generally higher than in the
United States. Foreign settlement procedures and trade
regulations may involve certain risks (such as delay in payment
or delivery of securities or in the recovery of a Fund's assets
held abroad) and expenses not present in the settlement of
domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial
instability and diplomatic developments which could affect the
value of a Fund's investments in certain foreign countries.
Legal remedies available to investors in certain foreign
countries may be more limited than those available with respect
to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit a Fund's
ability to invest in securities of certain issuers located in
those foreign countries. Special tax considerations apply to
foreign securities.
The risks described above are typically increased to the extent
that a Fund invests in securities traded in lesser-developed and
developing nations, which are sometimes referred to as "emerging
markets."
A more detailed explanation of foreign investments, and the risks
and special tax considerations associated with them, is included
in the Statement of Additional Information.
Foreign currency exchange transactions
To the extent described above, certain of the Funds may engage in
currency exchange transactions to protect against uncertainty in
the level of future exchange rates. Putnam Management may engage
in currency exchange transactions in connection with the purchase
and sale of portfolio securities ("transaction hedging"), and to
protect the value of specific portfolio positions ("position
hedging").
A Fund may engage in transaction hedging to protect against a
change in currency exchange rates between the date on which a
Fund contracts to purchase or sell the security and the
settlement date, or to "lock in" the value of a dividend or
interest payment in a particular currency. For that purpose, a
Fund may purchase or sell a currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign
currency.
If conditions warrant, a 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 as a hedge against changes in foreign currency exchange
rates between the trade and settlement dates on particular
transactions and not for speculation. A foreign currency forward
contract is a negotiated agreement to exchange currency at a
future time at a rate or rates that may be higher or lower than
the spot rate. Foreign currency futures contracts are
standardized exchange-traded contracts and have margin
requirements. For transaction hedging purposes, a Fund may also
purchase and sell call and put options on foreign currency
futures contracts and on currencies.
A Fund may engage in position hedging to protect against a
decline in value relative to the U.S. dollar of the currencies in
which its portfolio securities are denominated or quoted (or an
increase in the value of a currency in which securities the Fund
intends to buy are denominated, when the Fund holds cash reserves
and short-term investments). For position hedging purposes, a
Fund may purchase or sell foreign currency futures contracts,
foreign currency forward contracts, and options on foreign
currency futures contracts and on foreign currencies. In
connection with position hedging, a Fund may also purchase or
sell foreign currency on a spot basis.
A 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 a
Fund. Cross hedging transactions by a 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.
For a discussion of the risks associated with options and futures
strategies in connection with a Fund's foreign currency exchange
transactions, see "Risks related to options and futures
strategies."
Options and futures
Futures and options on futures. Each Fund that may invest in
futures and options, as described above, may, to the extent
consistent with their investment objectives and policies, buy and
sell index futures contracts ("index futures") for hedging
purposes. An "index future" is a contract to buy or sell units
of a particular bond or stock index at an agreed price on a
specified future date. Depending on the change in value of the
index between the time when a Fund enters into and terminates an
index futures transaction, the Fund realizes a gain or loss. A
Fund may also, to the extent consistent with its investment
objectives and policies, buy and sell call and put options on
index futures or on stock or bond indices in addition to or as an
alternative to buying or selling index futures or, to the extent
permitted by applicable law, to earn additional income. In
addition, if a Fund's investment policies permit it to invest in
foreign securities, such Fund may invest in futures and options
on foreign securities, to the extent permitted by applicable law,
as a substitute for direct investment in foreign securities.
Options. As described above, certain of the Funds may, to the
extent consistent with their investment objectives and policies,
seek to increase current return by writing covered call and put
options on securities such Funds own or in which they may invest.
A Fund receives a premium from writing a call or put option,
which increases the Fund's return if the option expires
unexercised or is closed out at a net profit. When a Fund writes
a call option, it gives up the opportunity to profit from any
increase in the price of a security above the exercise price of
the option; when it writes a put option, the Fund takes the risk
that it will be required to purchase a security from the option
holder at a price above the current market price of the security.
Each 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. Each Fund may also, to the extent consistent with its
investment objectives and policies, buy and sell put and call
options for hedging purposes and from time to time buy and sell
combinations of put and call options on the same underlying
security to earn additional income. The aggregate value of the
securities underlying the options may not exceed 25% of the
relevant Fund's assets.
Risks related to options and futures strategies
The use of futures and options involves certain special risks.
Futures and options transactions involve costs and may result in
losses. Certain risks arise because of the possibility of
imperfect correlations between movements in the prices of futures
and options and movements in the prices of the underlying bond or
stock index, securities or currencies or of the securities or
currencies that are the subject of a hedge. The successful use
of the strategies described above further depends on Putnam
Management's ability to forecast market movements correctly.
Other risks arise from a Fund's potential inability to close out
its futures or options positions, and there can be no assurance
that a liquid secondary market will exist for any future or
option at any particular time. Certain provisions of the
Internal Revenue Code and certain regulatory requirements may
limit a Fund's ability to engage in futures and options
transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the
Statement of Additional Information.
Lower-rated and other fixed income securities
As described above, PCM Growth and Income Fund may invest
in lower-rated fixed income securities (commonly known as "junk
bonds"). Differing yields on fixed income securities of the same
maturity are a function of several factors, including the
relative financial strength of the issuers. Higher yields are
generally available from securities in the lower categories of
recognized rating agencies (Baa or lower by Moody's and
BBB or lower by S&P) or from unrated securities of
comparable quality. Securities in the rating categories below
Baa as determined by Moody's and BBB as determined by S&P are
considered to be of poor standing and predominantly speculative.
The rating services' descriptions of securities in the lower
rating categories, including their speculative characteristics,
are set forth in the Appendix to this Prospectus.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' investment analysis
at the time of rating. Consequently, the rating assigned to any
particular security is not necessarily a reflection of the
issuer's current financial condition, which may be better or
worse than the rating would indicate. Although Putnam Management
considers security ratings when making investment decisions, it
performs its own investment analysis and does not rely
principally on the ratings assigned by the rating services.
Putnam Management's analysis may include consideration of the
issuer's experience and managerial strength, changing financial
condition, borrowing requirements or debt maturity schedules, and
its responsiveness to changes in business conditions and interest
rates. It also considers relative values based on anticipated
cash flow, interest or dividend coverage, asset coverage and
earning prospects. Because of the greater number of investment
considerations involved in investing in lower-rated securities,
the achievement of a Fund's objectives depends more on Putnam
Management's analytical abilities than would be the case if it
were investing primarily in securities in the higher rating
categories.
At times, a substantial portion of a Fund's assets may be
invested in securities as to which the Fund, by itself or with
other funds and accounts managed by Putnam Management and its
affiliates, holds a major portion or all of such securities.
Under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, a 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 a Fund's net asset value. In order to
enforce its rights in the event of a default under such
securities, a 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.
Like those of other fixed - income securities, the values of
such 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 a Fund's
assets. Conversely, during periods of rising interest rates, the
value of a Fund's assets will generally decline. The magnitude
of these fluctuations is generally greater for securities with
longer maturities. However, the yields on such securities are
also generally higher. 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 a Fund's net asset value.
Investors should carefully consider their ability to assume the
risks of investing in a mutual fund which invests in lower-rated
securities before allocating a portion of their insurance
investment to a Fund that invests in such securities. The lower
ratings of certain securities held by a Fund reflect a greater
possibility that adverse changes in the financial condition of
the issuer, or in general economic conditions, or both, or an
unanticipated rise in interest rates, may impair the ability of
the issuer to make payments of interest and principal. The
inability (or perceived inability) of issuers to make timely
payments of interest and principal would likely make the values
of securities held by a 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, a Fund may be
unable at times to establish the fair value of such securities.
The rating assigned to a security by Moody's or S&P does not
reflect an assessment of the volatility of the security's market
value or of the liquidity of an investment in the security.
<PAGE>
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis. When
the Fund invests in securities in the lower rating categories,
the achievement of the Fund's goals is more dependent on Putnam
Management's ability than would be the case if the Fund were
investing in securities in the higher rating categories.
Certain securities held by a Fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by a 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.
A Fund may at times invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount and pay interest
only at maturity rather than at intervals during the life of the
security. Payment-in-kind bonds allow the issuer, at its option,
to make current interest payments on the bonds either in cash or
in additional bonds. The values of zero-coupon bonds and
payment-in-kind bonds are subject to greater fluctuation in
response to changes in market interest rates than bonds which pay
interest in cash currently. Both zero-coupon bonds and payment-
in-kind bonds allow an issuer to avoid the need to generate cash
to meet current interest payments. Accordingly, such bonds may
involve greater credit risks than bonds paying interest
currently. Even though such bonds do not pay current interest in
cash, a Fund is nonetheless required to accrue interest income on
such investments and to distribute such amounts at least annually
to shareholders. Thus, a Fund could be required at times to
liquidate other investments in order to satisfy its dividend
requirements.
Certain investment-grade securities in which a Fund may invest
share some of the risk factors discussed above with respect to
lower-rated securities.
Securities loans, repurchase agreements and forward commitments
Each Fund may lend portfolio securities amounting to not more
than 25% of its assets to broker-dealers and may enter into
repurchase agreements on up to 25% of its assets. These
transactions must be fully collateralized at all times. Each
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 a Fund is delayed or prevented from
recovering the collateral or completing the transaction.
HOW PERFORMANCE IS SHOWN
Each Fund's investment performance may from time to time be
included in advertisements about that Fund "Yield "
is calculated by dividing a Fund's annualized net investment
income per share during a recent 30-day period by the net asset
value per share on the last day of that period. For this
purpose, net investment income is calculated in accordance with
SEC regulations and may differ from a Fund's 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. A Fund's current dividend rate is based on its net
investment income as determined for tax purposes, which may not
reflect amortization in the same manner. See "Common investment
policies and techniques -- Investments in premium securities."
"Total return" for the one-, five- and ten-year periods (or for
the life of a Fund, if shorter) through the most recent calendar
quarter represents the average annual compounded rate of return
on an investment of $1,000 in such Fund. Total return may also
be presented for other periods.
All data is based on a 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 a Fund's portfolio, and a Fund's operating
expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective or objectives and
policies. These factors should be considered when comparing a
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 limit had not been in effect.
Performance information presented for the Funds should not be
compared directly with performance information of other insurance
products without taking into account insurance-related charges
and expenses payable with respect to these insurance products.
Insurance related charges and expenses are not reflected in the
Funds' performance information and would reduce an investor's
return under the insurance product.
For performance information through the Funds' most recent fiscal
year, see "Investment Performance of the Trust" in the Statement
of Additional Information.
<PAGE>
HOW THE TRUST IS MANAGED
The Trustees of the Trust are responsible for generally
overseeing the conduct of the Trust's business. Subject to such
policies as the Trustees may determine, Putnam Management
furnishes a continuing investment program for the Trust and makes
investment decisions on its behalf. Subject to the control of
the Trustees, Putnam Management also manages the Trust's other
affairs and business.
David L. King, Senior Vice President of Putnam Management and
Vice President of the Trust, and Anthony I. Kreisel, Managing
Director of Putnam Management and Vice President of the Trust,
have had primary responsibility for the day-to-day management of
PCM Growth and Income Fund's portfolio since 1993. Messrs. King
and Kreisel have been employed by Putnam Management since 1983
and 1986, respectively.
Daniel L. Miller, Managing Director of Putnam Management and Vice
President of the Trust, has had primary responsibility for the
day-to-day management of PCM New Opportunities Fund's portfolio
since 1994. Mr. Miller has been employed by Putnam Management
since 1983.
Roland W. Gillis, Robert R. Beck and Charles H. Swanberg, each a
Senior Vice President of Putnam Management and Vice President of
the Trust, have had primary responsibility for the day-to-day
management of PCM Voyager Fund's portfolio since 1995, 1995 and
1994, respectively. Mr. Gillis has been employed by Putnam
Management since March, 1995. Prior to March, 1995, Mr. Gillis
was Vice President of Keystone Custodian Funds, Inc. Messrs.
Beck and Swanberg have been employed by Putnam Management since
1989 and 1984, respectively.
The Trust, on behalf of the Funds, pays all expenses not assumed
by Putnam Management, including Trustees' fees and auditing,
legal, custodial, investor servicing and shareholder reporting
expenses. The Trust also reimburses Putnam Management for the
compensation and related expenses of certain officers of the
Trust and their staff who provide administrative services to the
Trust. The total reimbursement is determined annually by the
Trustees.
General expenses of the Trust will be allocated among and charged
to the assets of each Fund on a basis that the Trustees deem fair
and equitable, which may be based on the relative assets of each
Fund or the nature of the services performed and relative
applicability to each Fund. Expenses directly charged or
attributable to a Fund will be paid from the assets of that Fund.
Total expenses, including management fees, for the fiscal
year ended December 31, 1994, based on each Fund's average net
assets, were:
Total Management
Expenses Fees
PCM Growth and Income Fund 0.62% 0.57%
PCM New Opportunities Fund* 0.47% 0.45%
(commenced operations on May 1, 1994)
PCM Voyager Fund 0.71% 0.63%
On June 2, 1994, the shareholders of PCM Growth and Income
Fund and PCM Voyager Fund approved new management fees
payable to Putnam Management. If the new rates had been in
effect for the entire year, management fees would have been the
following: PCM Growth and Income Fund, 0.55%;
and PCM Voyager Fund, 0.66%.
* The total expenses and
management fees shown
above for PCM New
Opportunities Fund
reflect an expense
limitation in effect
for the period and are
not annualized. In
the absence of the
expense limitation in
effect for the period,
annualized total
expenses and
management fees would
have been 1.00% and
0.70%, respectively.
Putnam Management places all orders for purchases and sales of
the securities of each Fund. 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, if
permitted by law, sales of shares of the other Putnam funds as a
factor in the selection of broker-dealers.
ORGANIZATION AND HISTORY
Putnam Capital Manager Trust is a Massachusetts business trust
organized on September 24, 1987. A copy of the Agreement and
Declaration of Trust, which is governed by Massachusetts law, is
on file with the Secretary of State of The Commonwealth of
Massachusetts.
The Trust is an open-end, management investment company with an
unlimited number of authorized shares of beneficial interest.
Shares of the Trust may, without shareholder approval, be divided
into two or more series of shares representing separate
investment portfolios, and are currently divided into eleven
series of shares, each representing a separate investment
portfolio which is being offered through separate accounts of
various insurance companies. Each portfolio is managed as a
diversified investment company offered by this prospectus .
Shares vote by individual portfolio on all matters except (i)
when required by the Investment Company Act of 1940, shares of
all portfolios shall be voted in the aggregate, and (ii) when the
Trustees have determined that the matter affects only the
interests of one or more portfolios, only the shareholders of
such portfolio or portfolios shall be entitled to vote.
Each share has one vote, with fractional shares voting
proportionately. Shares of each of the portfolios are freely
transferable, are entitled to dividends as declared by the
Trustees, and, if the portfolio were liquidated, would receive
the net assets of the portfolio. The Trust may suspend the sale
of shares of any portfolio at any time and may refuse any order
to purchase shares. Although the Trust is not required to hold
annual meetings of its shareholders, shareholders holding at
least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Agreement and Declaration of
Trust.
Shares of the Funds may only be purchased by an insurance
company's separate account. For matters requiring shareholder
approval, you may be able to instruct the insurance company's
separate account how to vote the Fund shares attributable to your
contract or policy. See the Voting Rights section of your
insurance product prospectus.
The Funds' Trustees: George Putnam,* Chairman. President of the
Putnam funds. Chairman and Director of Putnam Management and
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.; Eli Shapiro,
Alfred P. Sloan Professor of Management, Emeritus, Alfred P.
Sloan School of Management, M.I.T.; 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 Corporation,
Bradley Real Estate, Inc. and Providence Journal Co. Also,
Trustee of Massachusetts General Hospital and Eastern Utilities
Associates. The Funds' Trustees are also Trustees of the other
Putnam funds. Those marked with an asterisk (*) are or may be
deemed to be "interested persons" of the Trust, Putnam Management
or Putnam Mutual Funds.
About Your Investment
SALES AND REDEMPTIONS
The Trust has an underwriting agreement relating to the Funds
with Putnam Mutual Funds, One Post Office Square, Boston,
Massachusetts 02109. Putnam Mutual Funds presently offers shares
of each Fund of the Trust continuously to separate accounts of
various insurers. The underwriting agreement presently provides
that Putnam Mutual Funds accepts orders for shares at net asset
value and no sales commission or load is charged. Putnam Mutual
Funds may, at its expense, provide promotional incentives to
dealers that sell variable insurance products.
Shares are sold or redeemed at the net asset value per share next
determined after receipt of an order . Orders for
purchases or sales of shares of a Fund must be received by
your insurance company before the close of regular trading
on the New York Stock Exchange and transmitted promptly the
next day in order to receive that day's net asset value. No
fee is charged to a separate account when it redeems Fund shares.
Please check with your insurance company for Funds available
under your variable annuity contract or variable life insurance
policy. Certain Funds may not be available in your state due to
various insurance regulations. Inclusion of a Fund in this
Prospectus that is not available in your state is not to be
considered a solicitation. This Prospectus should be read in
conjunction with the prospectus of the separate account of the
specific insurance product which accompanies this Prospectus.
Each Fund currently does not foresee any disadvantages to
policyowners arising out of the fact that each Fund offers its
shares to separate accounts of various insurance companies to
serve as the investment medium for their variable products.
Nevertheless, the Board of Trustees intends to monitor events in
order to identify any material irreconcilable conflicts which may
possibly arise, and to determine what action, if any, should be
taken in response to such conflicts. If such a conflict were to
occur, one or more insurance companies' separate accounts might
be required to withdraw their investments in one or more Funds
and shares of another Fund may be substituted. This might force
a Fund to sell portfolio securities at disadvantageous prices.
In addition, the Trustees may refuse to sell shares of any Fund
to any separate account or may suspend or terminate the offering
of shares of any Fund if such action is required by law or
regulatory authority or is in the best interests of the
shareholders of the Fund.
Under unusual circumstances, the Trust may suspend repurchases or
postpone payment for up to seven days or longer, as permitted by
federal securities law.
EXCHANGE PRIVILEGE
A shareholder may exchange shares of any Fund in the Trust for
shares of any other Fund in the Trust on the basis of their
respective net asset values. Exchanges may not be made into
portfolios of the Trust not offered by your variable annuity
contract or variable life policy.
HOW THE TRUST VALUES ITS SHARES
The Trust calculates the net asset value of a share of each Fund
by dividing the total value of the assets of the Fund, less
liabilities, by the number of shares of the Fund outstanding.
Shares are valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open. Fund
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 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.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
Each Fund will distribute any net
investment income and net realized capital gains at least
annually. Both types of distributions will be made in shares of
such Funds unless an election is made on behalf of a separate
account to receive some or all of the distributions in cash.
Distributions are reinvested without a sales charge, using the
net asset value determined on the ex-dividend date .
Each Fund intends to qualify each year 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
income taxes on income and gains it distributes to the separate
accounts. For information concerning federal income tax
consequences for the holders of variable annuity contracts and
variable life insurance policies, contract holders should consult
the prospectus of the applicable separate account.
<PAGE>
Internal Revenue Service regulations applicable to portfolios
that serve as the funding vehicles for variable annuity and
variable life insurance separate accounts generally require that
those portfolios invest no more than 55% of the value of their
assets in one investment, 70% in two investments, 80% in three
investments and 90% in four investments. Each of the Funds
intends to comply with these requirements.
FINANCIAL INFORMATION
It is expected that owners of the variable annuity contracts and
variable life insurance policies who have contract or policy
values allocated to the Funds will receive an unaudited semi-
annual financial statement and an audited annual financial
statement for such Funds. These reports show the investments
owned by each Fund and provide other relevant information about
the Fund.
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of the Trust and
of other Putnam funds. Putnam Fiduciary Trust Company is the
Trust's custodian. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the Trust'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>
APPENDIX
SECURITIES RATINGS
The following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Bonds
Aaa--Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger
than in Aaa securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking, or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba--Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca--Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever earning any real investment standing.
<PAGE>
Standard & Poor's Corporation
Bonds
AAA--Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher-rated issues only in
small degree.
A--Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC and C is regarded,
on balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such debt
will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
D--Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period. The D rating also will be used on the
filing of a bankruptcy petition if debt service payments are
jeopardized.<PAGE>
Putnam Capital Manager Trust
One Post Office Square
Boston, MA 02109
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
