As filed with the Securities and Exchange Commission on
April 30 , 1996
Registration No. 33-17486
811-5346
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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 / X
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Pre-Effective Amendment No. /
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Post-Effective Amendment No. 12 / X
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X
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ACT OF 1940 ----
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Amendment No. 13 / X
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(Check appropriate box or boxes) ----
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PUTNAM CAPITAL MANAGER TRUST
(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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/ / on May 1, 1996 pursuant to paragraph (b)
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/ / 60 days after filing pursuant to paragraph (a)(1)
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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 CAPITAL MANAGER TRUST
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
December
31, 1995 is not required because, in accordance with Instruction
B.5 to Form 24F -2, the Registrant sold no shares pursuant
to
Rule 24f-2 with respect to which fees are required to be paid in
such fiscal year.<PAGE>
PUTNAM CAPITAL MANAGER TRUST
CROSS REFERENCE SHEET
(as required by Rule 481(a))
Part A
N-1A Item No. Location
1. Cover Page . . . . . . . . . . Cover page
2. Synopsis . . . . . . . . . . . Omitted
3. Condensed Financial Information .
Financial highlights; How . . performance is shown
4. General Description of Registrant . The Trust;
Investment
objectives and policies;
Common investment
policies and techniques;
Organization and history
5. Management of the Fund . . . . . .
How the Trust is managed; . . Organization and
history; About
Putnam Investments, Inc.
5A. Management's Discussion. . . . (Contained in the annual
of Fund Performance report of the
Registrant)
6. Capital Stock and Other Securities. Cover page; Sales
and
redemptions; How the
Trust values its shares;
How distributions are
made; tax information;
Organization and history
7. Purchase of Securities Being .
Offered .The Trust; Sales and
redemptions; How the
Trust values its shares;
Organization and history
8. Redemption or Repurchase . . . Cover page; Sales and
redemptions; How the
Trust values its 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 Investment
objectives
and policies;
Investment
restrictions; Portfolio
turnover
14. Management of the Registrant . Management
15. Control Persons and Principal. Management
Holders of Securities
16. Investment Advisory and Other. Management; Custodian;
Services Independent accountants
and financial statements
17. Brokerage Allocation . . . . . Management
18. Capital Stock and Other Securities Management;
Determination of
net
asset value;
Suspension
of redemptions;
Shareholder
liability
19. Purchase, Redemption and Pricing of
Securities Being Offered . . . .
. Sales and redemptions
(Part A); Management;
Determination of net
asset value; Suspension
of redemptions
20. Tax Status . . . . . . . . . . How the Trust makes
distributions to
shareholders; tax
information (Part A);
Taxes
21. Underwriter. . . . . . . . . . Management
22. Calculation of Performance Data .
How performance is shown (Part . . A); Investment
performance of
the Trust (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 - MAY 1, 1996
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 Asia Pacific Growth Fund, PCM Diversified Income Fund,
PCM Global Asset Allocation Fund, PCM Global Growth Fund, PCM
Growth and Income Fund, PCM High Yield Fund, PCM Money Market
Fund, PCM New Opportunities Fund, PCM U.S. Government and High
Quality Bond Fund, PCM Utilities Growth and Income Fund
,
and PCM Voyager Fund.
An investment in PCM Money Market Fund is neither insured nor
guaranteed by the U.S. government. There can be no assurance
that PCM Money Market Fund will be able to maintain a stable net
asset value of $1.00 per share.
PCM High Yield Fund invests primarily in, and PCM Diversified
Income Fund may invest significantly in, lower-rated bonds,
commonly known as "junk bonds." Investments of this type are
subject to a greater risk of loss of principal and non-payment of
interest. Investors should carefully assess the risks associated
with an investment in either fund.
This prospectus explains concisely what you should know before
investing in 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, 1996 statement of additional information (the "SAI"),
as amended from time to time. For a free copy of the SAI, call
Putnam Investor Services at 1-800-521-0538. The SAI 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
Financial highlights
Study this table to see, among other things, how the funds
have performed since their inception.
The Trust
This section explains the Trust's relationship to various
variable annuity and variable life insurance
products and advises prospective investors to read the
prospectus issued by the relevant insurance company for
information about the annuity or insurance product .
Investment objectives and policies of the funds
Each of the funds is managed according to its own
specific investment objective or objectives. Read this section
to make sure a fund's objectives are consistent with your own.
Common investment policies and techniques
Certain investment policies and techniques apply to two or
more of the funds . This section defines, describes,
and explains these policies and techniques.
How performance is shown
This section describes and defines the measures used to assess
a fund's performance. All data are based on a
fund's past investment results and do not predict future
performance.
How the Trust is managed
Consult this section for information about the Trust's
management, allocation of the Trust's expenses, and how purchases
and sales of securities are made for the Trust.
Organization and history
In this section, you will learn when the Trust was introduced,
how it is organized, how it may offer shares, and who its
Trustees are.
<PAGE>
ABOUT YOUR INVESTMENT
Sales and redemptions
This section describes the terms under which shares may be
purchased and redeemed.
How a fund values its shares
This section explains how a fund determines the value of
its shares.
How the funds make distributions to shareholders; tax
information
This section describes the various options you have in choosing
how to receive dividends from the funds . It also
discusses the federal tax status of the payments and counsels
shareholders to seek specific advice about their own situation.
Financial information
This section informs you that each year you will receive
semiannual and annual reports of the Trust .
ABOUT PUTNAM INVESTMENTS, INC.
Read this section to learn more about the companies that provide
the marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.
APPENDIX
Securities ratings
<PAGE>
About the Trust
FINANCIAL HIGHLIGHTS
The following tables 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 1995 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>
<TABLE>
<CAPTION>
Financial Highlights
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
<S> <C> <C> <C>
<C> <C> <C>
PCM Asia Pacific Growth Fund
December 31, 1995* $10.00 $.06(a)(b) $.17
.23 $ - $ -
PCM Diversified Income Fund
December 31, 1995 $9.74 $.71 $1.09
$1.80 $(.51) $ -
December 31, 1994 10.23 .61 (1.04)
(.43) (.06) -
December 31, 1993** 10.00 .06 .17
.23 - -
PCM Global Asset Allocation Fund
December 31, 1995 $13.19 $.47 $2.74
$3.21 $(.25) $ -
December 31, 1994 14.29 .35 (.71)
(.36) (.29) (.43)
December 31, 1993 12.92 .30 1.87
2.17 (.55) (.25)
December 31, 1992 12.77 .35 .41
.76 (.42) (.19)
December 31, 1991 11.28 .45 1.64
2.09 (.54) (.06)
December 31, 1990 11.26 .54 (.52)
.02 - -
December 31, 1989 10.68 .56 1.10
1.66 (.88) (.15)
December 31, 1988***(a) 10.00 .53(a) .15
.68 - -
PCM Global Growth Fund
December 31, 1995 $13.48 $.20 $1.85
$2.05 $(.11) $(.24)
December 31, 1994 13.68 .13 (.26)
(.13) (.05) (.02)
December 31, 1993 10.48 .08 3.28
3.36 (.16) -
December 31, 1992 10.61 .10 (.14)
(.04) (.09) -
December 31, 1991 9.32 .11 1.28
1.39 (.10) -
December 31, 1990**** 10.00 .11 (.79)
(.68) - -
<PAGE>
PCM Growth and Income Fund
December 31, 1995 $16.44 $.53 $5.31
$5.84 $(.51) (.30)
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*** 10.00 .42(a) 1.58
2.00 - -
PCM High Yield Fund
December 31, 1995 $11.46 $.91 $1.05
$1.96 $(1.05) $ -
December 31, 1994 12.53 1.05 (1.17)
(.12) (.79) (.14)
December 31, 1993 11.17 .73 1.37
2.10 (.74) -
December 31, 1992 10.12 1.26 .59
1.85 (.80) -
December 31, 1991 7.91 .85 2.47
3.32 (1.11) -
December 31, 1990 9.15 1.30 (2.20)
(.90) (.34) -
December 31, 1989 10.76 1.12 (1.37)
(.25) (1.36) -
December 31, 1988*** 10.00 1.04(a)(b) (.28)
.76 - -
PCM Money Market Fund
December 31, 1995 $1.00 $.0533 $ -
$.0533 $(.0533) $ -
December 31, 1994 1.00 .0377 -
.0377 (.0377) -
December 31, 1993 1.00 .0276 -
.0276 (.0276) -
December 31, 1992 1.00 .0352 -
.0352 (.0352) -
December 31, 1991 1.00 .0575 .0001
.0576 (.0575) (.0001)
December 31, 1990 1.00 .0770 -
.0770 (.0770) -
December 31, 1989 1.00 .0859 -
.0859 (.0859) -
December 31, 1988*** 1.00 .0575 -
.0575 (.0575) -
PCM New Opportunities Fund
December 31, 1995 $10.82 $ - $4.84
$4.84 $ - $(.02)
December 31, 1994***** 10.00 -(b) .82
.82 - -
<PAGE>
PCM U.S. Government and
High Quality Bond Fund
December 31, 1995 $12.22 $.81 $1.56
$2.37 $(.85) $ -
December 31, 1994 13.53 .81 (1.24)
(.43) (.66) (.22)
December 31, 1993 12.85 .63 .78
1.41 (.61) (.12)
December 31, 1992 12.57 .60 .28
.88 (.54) (.06)
December 31, 1991 11.36 .56 1.31
1.87 (.66) -
December 31, 1990 10.82 .71 .08
.79 (.22) (.03)
December 31, 1989 10.28 .62 .78
1.40 (.79) (.07)
December 31, 1988*** 10.00 .66(a) (.38)
.28 - -
PCM Utilities Growth
and Income Fund
December 31, 1995 $10.68 $.53 $2.65
$3.18 $(.58) $ -
December 31, 1994 12.00 .60 (1.44)
(.84) (.35) (.12)
December 31, 1993 10.71 .30 1.13
1.43 (.12) (.02)
December 31, 1992****** 10.00 .15(b) .56
.71 - -
PCM Voyager Fund
December 31, 1995 $22.20 $.10 $8.76
$8.86 $(.07) $(.49)
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 12.58 .11(a) 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*** 10.00 .13(a) .17
.30 - -
<PAGE>
Less
Ratio of
Distributions from: Total
Net
In Excess of Investment
Ratio of Investment
Net Realized Net Asset Return at
Net Assets Expenses to Income to
Gain on Return of Total Value, End Net Asset
End of Period Average Net Average Net Portfolio
Investments Capital Distributions of Period Value(%)(c)
(in thousands) Assets(%)(c) Assets(%) Turnover(%)
<C> <C> <C> <C> <C>
<C> <C> <C> <C>
$- $- $ - $10.23 2.30(d)
$25,045 .81(b)(d) .72(b)(d) 67.72(d)
$- $- $(.51) $11.03 19.13
$303,721 .85 7.85 297.17
- - (.06) 9.74 (4.23)
215,935 .80 7.60 165.17
- - - 10.23 2.30(d)
80,449 .28(d) 1.45(d) 40.83(d)
$- $- $(.25) $16.15 24.71
$535,666 .84 3.31 150.88
(.02) - (.74) 13.19 (2.50)
414,223 .76 3.19 150.21
- - (.80) 14.29 17.48
297,307 .72 3.28 192.48
- - (.61) 12.92 6.29
134,667 .79 3.84 141.87
- - (.60) 12.77 19.02
82,071 .87 4.55 77.31
- - - 11.28 .18
51,792 .88 5.31 52.97
- (.05) (1.08) 11.26 16.08
40,200 .88 6.16 95.97
- - - 10.68 6.76(d)
26,202 1.17(d) 5.55(d) 183.11(d)
$- $- $(.35) $15.18 15.67
$831,593 .75 1.49 82.53
- - (.07) 13.48 (0.96)
669,821 .77 1.21 41.55
- - (.16) 13.68 32.40
352,786 .75 1.38 47.00
- - (.09) 10.48 (.36)
86,854 .85 1.82 59.68
- - (.10) 10.61 15.01
40,183 .99 2.01 48.67
- - - 9.32 (6.80)(d)
13,203 .99(d) 2.35(d) 18.07(d)
$- $- $(.81) $21.47 36.71
$3,312,306 .57 3.34 50.87
- - (.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 9.75
641,508 .69 3.79 39.58
- - (.70) 15.33 19.05
325,861 .72 4.37 37.94
- - (.16) 13.51 1.96
155,942 .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)
<PAGE>
$- $- $(1.05) $12.37 18.32
$498,467 .79 9.42 69.78
(.02) - (.95) 11.46 (.94)
327,119 .74 9.79 62.09
- - (.74) 12.53 19.57
291,737 .67 9.88 85.59
- - (.80) 11.17 18.98
118,804 .71 11.53 84.24
- - (1.11) 10.12 44.83
42,823 .92 12.64 104.62
- - (.34) 7.91 (9.98)
18,915 .93 13.81 86.05
- - (1.36) 9.15 (2.65)
27,511 .84 12.59 65.44
- - - 10.76 7.56(d)
19,506 .94(b)(d) 10.99(b)(d) 64.25(d)
$- $- $(.0533) $1.00 5.46
$263,213 .57 5.43 -
- - (.0377) 1.00 3.82
244,064 .55 3.90 -
- - (.0276) 1.00 2.79
129,329 .42 2.77 -
- - (.0352) 1.00 3.57
105,694 .48 3.49 -
- - (.0576) 1.00 5.92
78,568 .50 5.74 -
- - (.0770) 1.00 7.98
77,892 .53 7.67 -
- - (.0859) 1.00 8.88
24,975 .63 8.62 -
- - (.0575) 1.00 5.84(d)
14,001 .71(d) 6.70(d) -
$- $- $(.03) $15.63 44.87
$515,109 .84 (.03) 30.87
- - - 10.82 8.20(d)
68,592 .47(b)(d) .03(b)(d) 32.77(d)
$- $- $(.85) $13.74 20.44
$747,024 .70 6.22 149.18
- - (.88) 12.22 (3.23)
$640,458 .67 6.24 118.34
- - (.73) 13.53 11.28
735,386 .64 6.16 94.01
- - (.60) 12.85 7.49
435,906 .70 6.98 45.82
- - (.66) 12.57 17.28
229,306 .74 7.57 59.29
- - (.25) 11.36 7.51
98,549 .76 8.24 32.70
- - (.86) 10.82 14.06
61,765 .76 8.32 27.81
- - - 10.28 2.78(d)
28,406 .87(d) 7.04(d) 41.41(d)
$- $- $(.58) $13.28 31.08
$530,461 .68 4.72 60.33
(.01) - (.48) 10.68 (7.02)
384,169 .68 5.23 84.88
- - (.14) 12.00 13.42
443,281 .69 5.02 50.79
- - - 10.71 7.10(d)
83,522 .64(b)(d) 3.43(b)(d) 19.29(d)
$- $- $(.56) $30.50 40.67
$2,000,232 .68 .49 57.51
- - (.42) 22.20 1.04
1,026,972 .71 .40 62.44
- - (.34) 22.41 18.70
675,198 .66 .33 55.85
- - (.52) 19.21 10.36
317,225 .75 .56 48.17
- - (.36) 17.94 46.09
156,741 .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)
<FN>
(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
Asia Pacific Growth Fund for the period edned December 31,
1995 reflect a reduction of approximately $0.03 per
share, expenses of PCM High Yield Fund for the period ended
December 31, 1988 reflect a reduction of less than
$0.01 per share, expenses of PCM New Opportunities Fund for
the period ended December 31, 1994 reflect a
reduction of approximately $0.02 per share, and expenses of
PCM Utilities Growth and Income Fund for the period
ended December 31, 1992 reflect a reduction of
approximately $0.01 per share.
(c) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(d) Not annualized.
(e) The ratio of expenses to average net assets for the period
ended December 31, 1995 includes amounts paid through
brokerage service and expense offset arrangements. Prior
period ratios exclude these amounts.
* For the period May 1, 1995 (commencemnet of operations) to
December 31, 1995.
** For the period September 15, 1993 (commencement of
operations) to December 31, 1993.
*** For the period February 1, 1988 (commencement of
operations) to December 31, 1988.
**** For the period May 1, 1990 (commencement of operations) to
December 31, 1990.
***** For the period May 2, 1994 (commencement of operations) to
December 31, 1994.
****** For the period May 4, 1992 (commencement of
operations) to December 31, 1992.
/TABLE
<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 its own investment objective or
objectives which it pursues through its own investment policies
as described below. The particular objectives and policies of
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 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.
Each fund is not intended to be a complete investment
program, and there is no assurance that any fund will achieve its
objective or objectives.
Additional portfolios with differing investment objectives and
policies may be created from time to time 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
"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 Fannie Mae
bonds.
"CMOs" -- collateralized mortgage obligations
"Ginnie Mae" -- Government National Mortgage Association
"Fannie Mae" -- Federal National Mortgage Association
"Freddie Mac" -- Federal Home Loan Mortgage Corporation
PCM ASIA PACIFIC GROWTH FUND
PCM Asia Pacific Growth Fund's investment objective is to seek
capital appreciation. In seeking capital appreciation, the fund
will invest primarily in securities of companies located in Asia
and in the Pacific Basin. The fund's investments will normally
include common stocks, preferred stocks, securities convertible
into common stocks or preferred stocks, and warrants to purchase
common stocks or preferred stocks. The fund may also invest to a
lesser extent in debt securities and other types of investments
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.
The fund may invest in securities of issuers located in any
country in Asia or the Pacific Basin where Putnam Management
believes there is potential for above-average capital
appreciation. Such countries may include, for example,
Australia, Hong Kong, India, Indonesia, Japan, Korea, Malaysia,
New Zealand, the People's Republic of China, the Philippines,
Singapore, Taiwan and Thailand.
It is anticipated that under normal market conditions the fund
will invest at least 85% of its assets in securities of companies
located in Asia and in the Pacific Basin which Putnam Management
believes have potential for capital appreciation. The fund will
consider an issuer of securities to be located in Asia or in the
Pacific Basin if it is organized under the laws of a country in
Asia or the Pacific Basin and has a principal office in a country
in Asia or the Pacific Basin, if it derives 50% or more of its
total revenues from business in Asia or the Pacific Basin, or if
its equity securities are traded principally on a securities
exchange in Asia or the Pacific Basin. It is anticipated that
under normal circumstances the fund will invest at least 65% of
its assets in securities of issuers meeting at least one of the
first two criteria described in the preceding sentence. For a
discussion of the risks associated with foreign investing, see
"Common investment policies and techniques -- Foreign
investments."
The fund will not limit its investments to any particular type of
company. The fund may invest in companies, large or small, whose
earnings are believed to be in a relatively strong growth trend,
or in companies in which significant further growth is not
anticipated but whose securities are thought to be undervalued.
It may invest in small and relatively less well-known companies.
These companies, which typically have equity market
capitalizations below $1 billion, may present greater
opportunities for capital appreciation, 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,
and only in the over-the-counter market or on a regional
securities exchange. As a result, these securities may fluctuate
in value more than securities of larger, more established
companies.
Debt securities in which the fund may invest will generally be
rated at the time of purchase at least Baa by Moody's or BBB by
S&P, or, if unrated, determined by Putnam Management to be of
comparable quality and in any event the fund will not invest in
debt securities rated below Baa by Moody's or BBB by S&P
(commonly known as "junk bonds"), or, if unrated, determined by
Putnam Management to be of comparable quality if, as a result,
more than 5% of the fund's assets would be invested in such
securities. Debt securities rated Baa or BBB have speculative
characteristics and adverse economic conditions may lead to a
weakened capacity to pay interest and repay principal.
The fund will not necessarily dispose of a security if its rating
is reduced below its rating at the time of purchase, although
Putnam Management will monitor the investment to determine
whether continued investment in the security will assist in
meeting the fund's investment objective.
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. When pursuing
such defensive strategies, the fund may invest without limit in
securities primarily traded in U.S. markets or in other
markets outside Asia or the Pacific Basin . See "Common
investment policies and techniques" below for a discussion of
these strategies. The fund may also engage in foreign currency
exchange transactions and in 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 is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets the fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government securities). The remaining 25% of the fund's total
assets is not subject to this restriction. To the extent the
fund invests a significant portion of its assets in the
securities of a particular issuer, such fund will be subject to
an increased risk of loss if the market value of such issuer's
securities declines.
PCM Asia Pacific Growth Fund will generally be managed in a style
similar to that of Putnam Asia Pacific Growth Fund.
PCM DIVERSIFIED INCOME FUND
PCM Diversified Income Fund seeks high current income consistent
with capital preservation. The fund pursues its investment
objective by allocating its investments among the following three
sectors of the fixed-income securities markets:
* a U.S. Government Sector, consisting primarily of debt
obligations of the U.S. government, its agencies and
instrumentalities;
* a High Yield Sector, consisting of high-yielding, lower-rated,
higher risk U.S. and foreign fixed-income securities (commonly
known as "junk bonds"); and
* an International Sector, consisting of obligations of foreign
governments, their agencies and instrumentalities, and other
fixed-income securities denominated in foreign currencies.
Putnam Management believes that diversifying the fund's
investments among these sectors, as opposed to investing
exclusively in any one sector, will better enable the fund to
preserve capital while pursuing its objective of high current
income. Historically, the markets for U.S. government
securities, high yielding corporate fixed-income securities, and
debt securities of foreign issuers have tended to behave
independently and have at times moved in opposite directions.
For example, U.S. government securities have generally been
affected negatively by inflationary concerns resulting from
increased economic activity. High-yield corporate fixed-income
securities, on the other hand, have generally benefitted from
increased economic activity due to improvement in the credit
quality of corporate issuers. The reverse has generally been
true during periods of economic decline. Similarly, U.S.
government securities have often been negatively affected by a
decline in the value of the dollar against foreign currencies,
while the bonds of foreign issuers held by U.S. investors have
generally benefitted from such decline. Putnam Management
believes that, when financial markets exhibit such a lack of
correlation, a pooling of investments among these markets may
produce greater preservation of capital over the long term than
would be obtained by investing exclusively in any one of the
markets.
Putnam Management will determine the amount of assets to be
allocated to each of the three market sectors in which the fund
will invest based on its assessment of the returns that can be
achieved from a portfolio which is invested in all three sectors.
In making this determination, Putnam Management will rely in part
on quantitative analytical techniques that measure relative risks
and opportunities of each market sector based on current and
historical market data for each sector, as well as on its own
assessment of economic and market conditions. Putnam Management
will continuously review this allocation of assets and make such
adjustments as it deems appropriate, although there are no fixed
limits on allocations among sectors, including investments in the
High Yield Sector. Because of the importance of sector
diversification to the fund's investment policies, Putnam
Management expects that a substantial portion of the fund's
assets will normally be invested in each of the three market
sectors. The fund's assets allocated to each of these market
sectors will be managed in accordance with particular investment
policies, which are summarized below. 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. When pursuing such defensive
strategies, the fund may invest without limit in securities
primarily traded in U.S. markets. See "Common investment
policies and techniques" below for a discussion of these
strategies.
The fund may invest in premium securities, engage in foreign
currency exchange transactions, 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 also hold a portion of
its assets in cash and money market instruments.
PCM Diversified Income Fund will generally be managed in a style
similar to that of Putnam Diversified Income Trust.
U.S. Government Sector
The fund will invest assets allocated to the U.S. Government
Sector primarily in U.S. government securities. In purchasing
securities for the U.S. Government Sector, Putnam Management may
take full advantage of the entire range of maturities of U.S.
government securities and may adjust the average maturity of the
investments held in the portfolio from time to time, depending on
its assessment of relative yields of securities of different
maturities and its expectations of future changes in interest
rates. Under normal market conditions, the fund will invest at
least 20% of its net assets in U.S. government securities and at
least 65% of the assets allocated to the U.S. Government Sector
will be invested in U.S. government securities.
The fund may invest assets allocated to the U.S. Government
Sector in a variety of debt securities, including asset-backed
and mortgage-backed securities, such as CMOs and certain stripped
mortgage-backed securities, that are issued by private U.S.
issuers. For a description of these securities, and the risks
associated with them, see "Common investment policies and
techniques -- Mortgage-backed and asset-backed securities."
With respect to assets allocated to the U.S. Government Sector,
the fund will only invest in privately issued debt securities
that are rated at the time of purchase at least A by Moody's or
S&P, or in unrated securities that Putnam Management determines
are of comparable quality. The fund will not necessarily dispose
of a security if its rating is reduced below these levels,
although Putnam Management will monitor the investment to
determine whether continued investment in the security will
assist in meeting the fund's investment objective.
Risk factors. U.S. government securities are considered among
the safest of fixed-income investments. Because of this added
safety, the yields available from U.S. government securities are
generally lower than the yields available from corporate 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
investment income from those securities, but will affect the
fund's net asset value. Thus, a decrease in interest rates will
generally result in an increase in the value of such securities.
Conversely, during periods of rising interest rates, the value of
such securities will generally decline. The magnitude of these
fluctuations will generally be greater for securities with longer
maturities. Because of their added safety, the yields
available from U.S. government securities are generally lower
than the yields available from comparable securities of private
issuers.
While 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 things, the
ability of the borrower, or, in the case of mortgage-backed
securities, the mortgagor, to meet its obligations.
High Yield Sector
The fund will invest assets allocated to the High Yield Sector
primarily in high yielding, lower-rated, higher risk U.S. and
foreign corporate fixed-income securities, including debt
securities, convertible securities and preferred stocks. As
discussed below, however, under certain circumstances the fund
may invest all or any part of the High Yield Sector portfolio in
higher-rated and unrated fixed-income securities. The fund will
not necessarily invest in the highest yielding securities
available if in Putnam Management's opinion the differences in
yield are not sufficient to justify the higher risks involved.
The High Yield Sector may invest in any security which is rated,
at the time of purchase, at least Caa as determined by Moody's or
CCC as determined by S&P or in any unrated security which Putnam
Management determines is at least of comparable quality, although
up to 5% of the net assets of the fund may be invested in
securities rated below such quality, or in unrated securities
which Putnam Management determines are of comparable quality.
Securities rated below Caa by Moody's or CCC by S&P are of poor
standing and may be in default. The fund will not necessarily
dispose of a security if its rating is reduced below its rating
at the time of purchase, although Putnam Management will monitor
the investment to determine whether continued investment in the
security will assist in meeting the fund's investment objective.
The rating services' descriptions of these rating categories,
including the speculative characteristics of the lower
categories, are included in the Appendix to this prospectus.
The table below shows the percentages of fund assets invested
during fiscal 1995 in securities assigned to the various rating
categories by S&P, or, if unrated by S&P, assigned to comparable
rating categories by Moody's, and in unrated securities
determined by Putnam Management to be of comparable quality.
Rated securities, Unrated securities of
as percentage of comparable quality, as
Rating net assets percentage of net assets
- ------ ------------- --------
"AAA" 42.51% --
"AA" 15.92% --
"A" 0.38% --
"BBB" 0.21% --
"BB" 9.45% 1.19%
"B" 20.22% 0.94%
"CCC" 3.31% 0.04 %
"D" -- 0.01 %
------ -----
92.00% 2.18%
====== =====
For a description of the risks associated with investments in
fixed-income securities, including lower-rated fixed-income
securities, see "Common investment policies and techniques --
Lower-rated and other fixed-income securities."
The fund may invest assets allocated to the High Yield Sector in
participations and assignments of fixed and floating rate loans
made by financial institutions to governmental or corporate
borrowers. In addition to the more general investment
considerations applicable to fixed-income investments,
participations and assignments involve the risk that the
institution's insolvency could delay or prevent the flow of
payments on the underlying loan to the fund. The fund may have
limited rights to enforce the terms of the underlying loan, and
the liquidity of loan participations and assignments may be
limited.
The fund may also invest assets allocated to the High Yield
Sector in lower-rated securities of foreign corporate and
governmental issuers denominated either in U.S. dollars or in
foreign currencies. For a discussion of the risks associated
with foreign investing, see "Common investment policies and
techniques -- Foreign investments."
International Sector
The fund will invest the assets allocated to the International
Sector in debt obligations and other fixed-income securities
denominated in non-U.S. currencies. These securities include:
<PAGE>
* debt obligations issued or guaranteed by foreign national,
provincial, state, or other governments with taxing
authority, or by their agencies or instrumentalities;
* debt obligations of supranational entities (described below);
and
* debt obligations and other fixed-income securities of foreign
and U.S. corporate issuers.
When investing in the International Sector, the fund will
purchase only debt securities of issuers whose long-term debt
obligations are rated A or better at the time of purchase by
Moody's or S&P or that are unrated securities that Putnam
Management determines are of comparable quality. The fund will
not necessarily dispose of a security if its rating is reduced
below its rating at the time of purchase, although Putnam
Management will monitor the investment to determine whether
continued investment in the security will assist in meeting the
fund's investment objective. The fund may, however, make
investments in international debt securities rated below A with
respect to assets allocated to the High Yield Sector.
In the past, yields available from securities denominated in
foreign currencies have often been higher than those of
securities denominated in U.S. dollars. Although the fund has
the flexibility to invest in any country where Putnam Management
sees potential for high income, it presently expects to invest
primarily in securities of issuers in industrialized Western
European countries (including Scandinavian countries) and in
Canada, Japan, Australia, and New Zealand. Putnam Management
will consider expected changes in foreign currency exchange rates
in determining the anticipated returns of securities denominated
in foreign currencies.
The obligations of foreign governmental entities, including
supranational issuers, have various kinds of government support.
Obligations of foreign governmental entities include obligations
issued or guaranteed by national, provincial, state or other
governments with taxing power or by their agencies. These
obligations may or may not be supported by the full faith and
credit of a foreign government.
Supranational entities include international organizations
designated or supported by governmental entities to promote
economic reconstruction or development and international banking
institutions and related government agencies. Examples include
the International Bank for Reconstruction and Development (the
World Bank), the European Steel and Coal Community, the Asian
Development Bank, and the Inter-American Development Bank. The
governmental members or "stockholders" usually make initial
capital contributions to the supranational entity and in many
cases are committed to make additional capital contributions if
the supranational entity is unable to repay its borrowing. Each
supranational entity's lending activities are limited to a
percentage of its total capital (including "callable capital"
contributed by members at the entity's call), reserves, and net
income.
For a discussion of the risks associated with foreign
investments, see "Common investment policies and techniques --
Foreign investments."
PCM GLOBAL ASSET ALLOCATION FUND
The investment objective of PCM Global Asset Allocation Fund is
to seek a high level of long-term total return consistent with
preservation of capital. By seeking total return, the fund seeks
to increase the value of the shareholder's investment through
both capital appreciation and investment income. "Total return"
includes interest and dividend income, net of expenses, and
realized and unrealized capital gains and losses on securities.
The fund invests in a wide variety of equity and fixed-income
securities both of U.S. and foreign issuers. The fund's
portfolio may include securities in the following four investment
categories, which in the judgment of Putnam Management represent
large, well-differentiated classes of securities with distinctive
investment characteristics:
U.S. Equities
International Equities
U.S. Fixed Income
International Fixed Income
The amount of fund assets assigned to each investment category
will be reevaluated by Putnam Management at least quarterly based
on Putnam Management's assessment of the relative market
opportunities and risks of each investment category taking into
account various economic and market 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 interests of the fund's shareholders. When pursuing
such defensive strategies, the fund may invest without limit in
securities primarily traded in U.S. markets. See "Common
investment policies and techniques" below for a discussion of
these strategies. The fund may invest in premium securities,
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 also hold a
portion of its assets in cash and money market instruments.
The portion of the fund's assets invested in each investment
category will be managed as a separate investment portfolio in
accordance with that category's particular investment objectives
and policies, independently of the fund's overall objective. The
following is a description of the investment objectives and
policies of each investment category:
U.S. Equities. The objective of the U.S. Equities category is to
seek both capital growth and, to a lesser extent, current income
through equity securities. This category's portfolio will
include equity securities selected primarily to provide one or
more of the following factors: growth in value, capital
protection and dependable income. Investments will be made in
companies, large or small, whose earnings are believed to be in a
relatively strong growth trend or whose securities are thought to
be undervalued. The fund may invest in small and
relatively less well-known companies. Investing in these
companies may present greater opportunities for capital
appreciation, but also may 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, and only in the over-the-
counter market or on a regional securities exchange. As a
result, these securities may fluctuate in value more than
securities of larger, more established companies.
International Equities. The objective of the International
Equities category is to seek capital appreciation. This
category's portfolio will be invested in securities principally
traded in foreign securities markets. These securities will
primarily be common stocks or securities convertible into common
stocks. Investments will be made in companies, large or small,
whose earnings are believed to be in a relatively strong growth
trend or whose securities are thought to be undervalued. The
fund may invest in small and relatively less well-known
companies. Investing in these companies may present greater
opportunities for capital appreciation, but also may
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. For a discussion of the risks associated with foreign
investments, see "Common investment policies and techniques --
Foreign investments."
U.S. Fixed Income. The objective of the U.S. Fixed Income
category is to seek high current income through a portfolio of
fixed-income securities which in the judgment of Putnam
Management does not involve undue risk to principal or income.
The U.S. Fixed Income category may invest in any fixed-income
securities Putnam Management considers appropriate, including
U.S. government securities, debt securities, mortgage-backed and
asset-backed securities, convertible securities and preferred
stocks of non-governmental issuers.
Whereas certain U.S. government securities in which the fund may
invest, such as U.S. Treasury obligations and Ginnie Mae
certificates, are supported by the full faith and credit of the
United States, other fixed-income 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 the ability of the borrower, or, in the case of
mortgage-backed securities the mortgagor, to meet its
obligations. While the credit risks presented by differing types
of fixed-income securities vary, the values of all fixed-income
securities change as interest rates fluctuate.
For a description of the risks associated with investments in
mortgage-backed and asset-backed securities, see "Common
investment policies and techniques -- Mortgage-backed and asset-
backed securities."
International Fixed Income. The investment objective of the
International Fixed Income category is to seek high current
income by investing principally in debt securities denominated in
foreign currencies which are issued by foreign governments and
governmental or supranational agencies. This category may also
invest in other privately issued debt securities, convertible
securities and preferred stocks principally traded in foreign
securities markets. For a discussion of the risks associated
with foreign investments, see "Common investment policies and
techniques -- Foreign investments."
General. Putnam Management will adjust the percentage of the
fund's assets in each investment category from time to time based
upon its market outlook and its analysis of longer-term trends.
The fund may from time to time invest in all or any one of the
investment categories as Putnam Management may consider
appropriate in response to changing market conditions.
The fund will not purchase fixed-income securities rated at the
time of purchase below Caa by Moody's or CCC by S&P, or,
if unrated, determined by Putnam Management to be of comparable
quality, if, as a result more than 5% of the fund's total assets
would be invested in securities of that quality. In addition,
the fund will not purchase fixed-income securities rated at the
time of purchase below Baa by Moody's or BBB by S&P, or, if
unrated, determined to be of comparable quality by Putnam
Management , if, as a result, more than 35% of the fund's
total assets would be invested in securities of that
quality. The fund will not necessarily dispose of a security if
its rating is reduced below its rating at the time of purchase,
although Putnam Management will monitor the investment to
determine whether continued investment in the security will
assist in meeting the fund's investment objective.
For a description of the risks of investing in fixed-income
securities, including lower-rated fixed-income securities
(commonly known as "junk bonds"), see "Common investment policies
and techniques -- Lower-rated and other fixed-income securities."
PCM GLOBAL GROWTH FUND
PCM Global Growth Fund seeks capital appreciation. The fund is
designed for investors seeking above-average capital growth
potential through a globally diversified portfolio of common
stocks. Dividend and interest income is only an incidental
consideration. In seeking capital appreciation, the fund follows
a global investment strategy of investing primarily in common
stocks traded in securities markets located in a number of
foreign countries and in the United States. The fund may at
times invest up to 100% of its assets in securities principally
traded in securities markets outside the United States, and will
under normal market conditions invest at least 65% of its assets
in at least three different countries, one of which may be the
United States. The fund may hold a portion of its assets in cash
and money market instruments.
The fund will not limit its investments to any particular type of
company. It may invest in companies, large or small, whose
earnings are believed to be in a relatively strong growth trend,
or in companies in which significant further growth is not
anticipated but the securities of which are thought to be
undervalued. It may invest in small and relatively less well-
known companies. Investing in these companies may present
greater opportunities for capital appreciation, 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, and only in the over-the-counter market or on
a regional securities exchange. As a result, these securities
may fluctuate in value more than securities of larger, more
established companies.
Putnam Management believes that the securities markets of many
nations move relatively independently of one another, because
business cycles and other economic or political events that
influence one country's securities markets may have little effect
on securities markets in other countries. By investing in a
globally diversified portfolio, Putnam Management attempts to
reduce the risks associated with investing in the economy of only
one country. The countries which Putnam Management believes
offer attractive opportunities for investment may change from
time to time.
Foreign investments can involve risks, however, that may not be
present in domestic 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
interests of the fund's shareholders. When pursuing such
defensive strategies, the fund may invest without limit in
securities primarily traded in U.S. markets. See "Common
investment policies and techniques" below for a discussion of
these strategies.
PCM Global Growth Fund will generally be managed in a style
similar to that of Putnam Global Growth Fund.
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 interests 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
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 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 HIGH YIELD FUND
The primary investment objective of PCM High Yield Fund is to
seek high current income. Capital growth is a secondary
objective when consistent with high current income.
The fund seeks high current income by investing primarily in
high-yielding, lower-rated fixed-income securities (commonly
known as "junk bonds"), constituting a portfolio which Putnam
Management believes does not involve undue risk to income or
principal. Normally, at least 80% of the fund's assets will be
invested in debt securities, convertible securities or preferred
stocks that are consistent with its primary investment objective
of high current income. The fund's remaining assets may be held
in cash or money market instruments, or invested in common stocks
and other equity securities. The fund 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 invest in premium securities, engage in foreign currency
exchange transactions, 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 interests of the fund's
shareholders. See "Common investment policies and techniques"
below for a discussion of these strategies.
The fund seeks its secondary objective of capital growth, when
consistent with its primary objective of high current income, by
investing in securities which may be expected to appreciate in
value as a result of declines in long-term interest rates or to
favorable developments affecting the business or prospects of the
issuer which may improve the issuer's financial condition and
credit rating. Putnam Management believes that such
opportunities for capital appreciation often exist in the
securities of smaller capitalization companies which have the
potential for significant growth.
The fund may generally invest in any security which is rated, at
the time of purchase, at least Caa by Moody's or CCC by S&P, or
in any unrated security which Putnam Management determines is of
comparable quality. 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 continued investment in the
security will assist in meeting the fund's investment objectives.
Securities rated below Baa by Moody's and BBB by S&P are
considered to be of poor standing and predominantly speculative.
The fund may invest up to 15% of its assets in securities rated
below Caa by Moody's or CCC by S&P, including securities in the
lowest rating category of each rating agency, or in unrated
securities Putnam Management determines are of comparable
quality. Such securities may be in default and are generally
regarded by the rating agencies as having extremely poor
prospects of ever attaining any real investment standing. For a
discussion of the risks associated with investments in fixed-
income securities, including lower-rated fixed-income securities,
see "Common investment policies and techniques -- Lower-rated and
other fixed-income securities."
The table below shows the percentages of fund assets invested
during fiscal 1995 in securities assigned to the various rating
categories by S&P, or, if unrated by S&P, assigned to comparable
rating categories by Moody's, and in unrated securities
determined by Putnam Management to be of comparable quality.
<PAGE>
Rated securities, Unrated securities of
as percentage of comparable quality, as
Rating net assets percentage of net assets
- ------ ----------------- ------------------------
"AAA" -- --
"AA" -- --
"A" -- 0.03%
"BBB" 3.97% --
"BB" 22.79% 7.50%
"B" 47.13% 2.35%
"CCC" 6.66% 1.22%
"CC" -- --
"C" -- --
"D" 0.29% --
----- -----
80.84% 11.10%
===== =====
The fund may invest in participations and assignments of fixed
and floating rate loans made by financial institutions to
governmental or corporate borrowers. In addition to the more
general investment considerations applicable to fixed-income
investments, participations and assignments involve the risk that
the institution's insolvency could delay or prevent the flow of
payments on the underlying loan to the fund. The fund may have
limited rights to enforce the terms of the underlying loan, and
the liquidity of loan participations and assignments may be
limited.
PCM High Yield Fund will generally be managed in a style similar
to that of Putnam High Yield Advantage Fund.
PCM MONEY MARKET FUND
PCM Money Market Fund seeks as high a rate of current income as
Putnam Management believes is consistent with preservation of
capital and maintenance of liquidity. It is designed for
investors seeking current income with stability of principal.
The fund invests in a portfolio of high-quality money market
instruments. Examples of these instruments include:
* bank certificates of deposit (CDs): negotiable certificates
issued against funds deposited in a commercial bank for a
definite period of time and earning a specified return.
* bankers' acceptances: negotiable drafts or bills of
exchange, which have been "accepted" by a bank, meaning, in
effect, that the bank has unconditionally agreed to pay the
face value of the instrument on maturity.
* prime commercial paper: high-grade, short-term obligations
issued by banks, corporations and other issuers.
* corporate obligations: high-grade, short-term corporate
obligations other than prime commercial paper.
<PAGE>
* municipal obligations: high-grade, short-term municipal
obligations.
* U.S. government securities: marketable securities issued or
guaranteed as to principal and interest by the U.S.
government or by its agencies or instrumentalities.
* repurchase agreements: with respect to U.S. Treasury or U.S.
government agency obligations.
The fund will invest only in high-quality securities that Putnam
Management believes present minimal credit risk. High-quality
securities are securities rated at the time of acquisition in one
of the two highest categories by at least two nationally
recognized rating services (or, if only one rating service has
rated the security, by that service) or if the security is
unrated, judged to be of equivalent quality by Putnam Management.
The fund will maintain a dollar-weighted average maturity of 90
days or less and will not invest in securities with remaining
maturities of more than 397 days. The fund may invest in
variable or floating rate securities which bear interest at rates
subject to periodic adjustment or which provide for periodic
recovery of principal on demand. Under certain conditions, these
securities may be deemed to have remaining maturities equal to
the time remaining until the next interest adjustment date or the
date on which principal can be recovered on demand.
The fund may invest in bank certificates of deposit and bankers'
acceptances issued by banks having deposits in excess of $2
billion (or the foreign currency equivalent) at the close of the
last calendar year. Should the Trustees decide to reduce this
minimum deposit requirement, shareholders will be notified and
this prospectus supplemented.
Considerations of liquidity and preservation of capital mean that
the fund may not necessarily invest in money market instruments
paying the highest available yield at a particular time.
Consistent with its investment objective, the fund will attempt
to maximize yields by portfolio trading and by buying and selling
portfolio investments in anticipation of or in response to
changing economic and money market conditions and trends. The
fund will also invest to take advantage of what Putnam Management
believes to be temporary disparities in yields of different
segments of the high-grade money market or among particular
instruments within the same segment of the market. These
policies, as well as the relatively short maturity of obligations
purchased by the fund, may result in frequent changes in the
fund's portfolio. The fund does not usually pay brokerage
commissions in connection with the purchase or sale of portfolio
securities. See "Management -- Portfolio Transactions --
Brokerage and research services" in the SAI for a discussion of
underwriters' commissions and dealers' spreads involved in the
purchase and sale of portfolio securities.
The portfolio of the fund will be affected by general changes in
interest rates resulting in increases or decreases in the value
of the obligations held by the fund. The value of the securities
in the fund's portfolio can be expected to vary inversely to
changes in prevailing interest rates. Although the fund's
investment policies are designed to minimize these changes and
maintain a net asset value of $1.00 per share, there is no
assurance that these policies will be successful.
Withdrawals by shareholders could require the sale of portfolio
investments at a time when such a sale might not otherwise be
desirable.
The fund may invest without limit in the banking industry when,
in the opinion of Putnam Management, the yield, marketability and
availability of investments meeting the fund's quality standards
in that industry justify any additional risks associated with the
concentration of the fund's assets in that industry. The fund,
however, will invest more than 25% of its assets in the personal
credit institution or business credit institution industries only
when, to Putnam Management's knowledge, the yields then available
on securities issued by companies in such industries and
otherwise suitable for investment by the fund exceed the yields
then available on securities issued by companies in the banking
industry and otherwise suitable for investment by the fund.
The fund may invest without limit in U.S. dollar-denominated
commercial paper of foreign issuers and in bank certificates of
deposits and bankers' acceptances payable in U.S. dollars and
issued by foreign banks (including U.S. branches of foreign
banks) or by foreign branches of U.S. banks. These investments
subject the fund to investment risks different from those
associated with domestic investments. For a discussion of the
risks associated with foreign investments, See "Common
investment policies and techniques -- Foreign investments."
The fund may also lend its portfolio securities. For a
discussion of this strategy and the risks associated with it, see
"Common investment policies and techniques" below.
PCM Money Market Fund will generally be managed in a style
similar to that of Putnam Money Market Fund.
PCM NEW OPPORTUNITIES FUND
PCM New Opportunities Fund seeks long-term capital appreciation.
The fund seeks its 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 also 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 - long distance telephone, cellular
telephone, paging, personal communication networks;
Media/Entertainment - cable television system operators,
cable
television network programmers, film entertainment providers,
theme park operators, casino operators, radio and television
stations;
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, entertainment software, networking software,
computer
systems integrators, information services companies,
semiconductors;
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.
<PAGE>
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 a company's size. Companies in the
fund's portfolio will range from small, rapidly growing companies
to larger, well-established firms. It may invest in small and
relatively less well-known companies. Investing in these
companies may present greater opportunities for capital
appreciation, but also may 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, and only in the over-the-
counter market or on a regional securities exchange. As a
result, these securities may fluctuate in value more than
securities of larger, more established companies.
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
fund's shares may fluctuate in value more than the shares of such
an investment company.
The fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets the fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government securities). The remaining 25% of the fund's total
assets is not subject to this restriction. To the extent the
fund invests a significant portion of its assets in the
securities of a particular issuer, such fund will be subject to
an increased risk of loss if the market value of such issuer's
securities declines.
PCM New Opportunities Fund will generally be managed in a style
similar to that of Putnam New Opportunities Fund.
PCM U.S. GOVERNMENT AND HIGH QUALITY BOND FUND
PCM U.S. Government and High Quality Bond Fund seeks current
income consistent with preservation of capital. The fund invests
primarily in U.S. government securities and in other debt
obligations rated at least A by Moody's or S&P at the time of
investment, or, if not rated, determined by Putnam Management to
be of comparable quality. For a more detailed description of
security ratings, see the Appendix to this prospectus. The fund
will not necessarily dispose of a security if its rating is
reduced below its rating at the time of purchase, although Putnam
Management will monitor the investment to determine whether
continued investment in the security will assist in meeting the
fund's investment objective.
Putnam Management will allocate the fund's assets between U.S.
government securities and other high quality bonds, depending on
its assessment of market conditions and the relative investment
returns available from such securities. The fund will not,
however, make any investment, if, as a result, less than 25% of
the value of its assets would be invested in U.S. government
securities. The fund may also invest up to 10% 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 invest in
premium securities, 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 strategies and
the risks associated with them. The fund may also 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.
Putnam Management may take full advantage of the entire range of
maturities of U.S. government securities and other high quality
bonds and may adjust the average maturity of the fund's portfolio
from time to time, depending on its assessment of relative yields
on securities of different maturities and expectations of future
changes in interest rates. Thus, at certain times the average
maturity of the portfolio may be relatively short (less than one
year to five years, for example) and at other times may be
relatively long (more than 10 years, for example).
The fund may also invest in high quality mortgage-backed and
asset-backed securities. For a description of these securities,
and the risks associated with them, see "Common investment
policies and techniques -- Mortgage-backed and asset-backed
securities."
U.S. government securities and other high quality bonds do not
involve the degree of credit risk associated with investments in
lower quality fixed-income securities, although, as a result, the
yields available from U.S. government securities and other high
quality bonds are generally lower than the yields available from
many other fixed-income securities. Like other fixed-income
securities, however, the values of U.S. government securities and
other high quality bonds change as interest rates fluctuate.
Fluctuations in the value of the fund's securities will not
affect interest income on securities already held by the fund,
but will be reflected in the fund's net asset value. Since the
magnitude of these fluctuations generally will be greater at
times when the fund's average maturity is longer, under certain
market conditions the fund may invest in short-term investments
yielding lower current income rather than investing in higher
yielding longer-term securities.
PCM UTILITIES GROWTH AND INCOME FUND
The investment objective of PCM Utilities Growth and Income Fund
is to seek capital growth and current income. The fund
concentrates its investments in securities issued by companies in
the public utilities industries.
The fund will seek its objective by investing under normal
circumstances at least 65% of its total assets in equity and debt
securities of companies in the public utilities industries.
Equity securities in which the fund may invest include common
stocks, preferred stocks, securities convertible into common
stocks or preferred stocks, and warrants to purchase common or
preferred stocks. Debt securities in which the fund may invest
will be rated at the time of purchase at least Baa by Moody's or
BBB by S&P or will be of comparable quality as determined by
Putnam Management. The fund may invest in debt and equity
securities of issuers in other industries if Putnam Management
believes they will help achieve the fund's objective. Companies
in the public utilities industries include companies engaged in
the manufacture, production, generation, transmission, sale or
distribution of electric or gas energy or other types of energy
and companies engaged in telecommunications, including telephone,
telegraph, satellite, microwave and other communications media
(but not companies engaged in public broadcasting or cable
television). Putnam Management deems a particular company to be
in the public utilities industries if at the time of investment
Putnam Management determines that at least 50% of the company's
assets, revenues or profits are derived from one or more of those
industries.
The portion of the fund's assets invested in equity securities
and in debt securities will vary from time to time in light of
the fund's investment objective, changes in interest rates, and
economic and other factors. Although the fund expects that in
the near term it will invest substantial portions of its assets
in both equity securities and in debt securities, the fund may
invest all of its assets in either equity or debt securities.
The fund may hold a portion of its assets in cash and money
market instruments.
The fund may invest up to 25% 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 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 interests of
the fund's shareholders. See "Common investment policies and
techniques" below for a discussion of these strategies.
Since the fund's investments are concentrated in the utilities
industries, the value of its shares can be expected to change in
light of factors affecting those industries, and may fluctuate
more widely than the value of shares of a portfolio that invests
in a broader range of industries. Many utility companies,
especially electric, gas and other energy-related utility
companies, have historically been subject to risks of increase in
fuel and other operating costs, changes in interest rates on
borrowings for capital improvement programs, changes in
applicable laws and regulations, changes in technology which may
render existing plants, equipment or products obsolete, the
effects of energy conservation and operating constraints, and
increased costs and delays associated with compliance with
environmental regulations. In particular, regulatory changes
with respect to nuclear and conventionally-fueled power
generating facilities could increase costs or impair the ability
of utility companies to operate such facilities or obtain
adequate return on invested capital. Generally, prices charged
by utilities are regulated in the United States and in foreign
countries with the intention of protecting the public while
ensuring that utility companies earn a return sufficient to allow
them to attract capital in order to grow and continue to provide
appropriate services. There can be no assurance that such
pricing policies or rates of return will continue in the future.
In recent years, regulatory changes in the United States have
increasingly allowed utility companies to provide services and
products outside their traditional geographic areas and lines of
business, creating new areas of competition within the utilities
industries. This trend toward deregulation and the emergence of
new entrants have caused non-regulated providers of utility
services to become a significant part of the utilities
industries. Putnam Management believes that the emergence of
competition and deregulation will result in certain utility
companies being able to earn more than their traditional
regulated rates of return, while others may be forced to defend
their core business from increased competition and may be less
profitable. Although Putnam Management seeks to take advantage
of favorable investment opportunities that may arise from these
structural changes, there can be no assurance that the fund will
benefit from any such changes.
Investments in securities rated BBB or Baa have speculative
characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of
the issuer to make principal and interest payments than would
likely be the case with investments in securities with higher
credit ratings. 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 continued investment in the
security would serve the fund's investment objective.
The fund is "non-diversified." This means that it may invest its
assets in a limited number of issuers. In order to qualify as a
"regulated investment company" under the Internal Revenue Code
(see "How the Trust makes distributions to
shareholders; tax information" below), the fund generally may not
invest more than 25% of its total assets in obligations of any
one issuer other than U.S. government securities and, with
respect to 50% of its total assets, the fund may not invest more
than 5% of its total assets in the securities of any one issuer
(except U.S. government securities). Thus the fund may invest up
to 25% of its total assets in the securities of each of any two
issuers. Because of the limited number of issuers in the public
utilities industries, the fund is more likely to invest a higher
percentage of its assets in the securities of a single issuer
than an investment company which invests in a broad range of
industries. This practice involves an increased risk of loss to
the fund if the issuer is unable to make interest or principal
payments or if the market value of such securities were to
decline.
PCM Utilities Growth and Income Fund will generally be managed in
a style similar to that of Putnam Utilities Growth and Income
Fund. Because that fund is "diversified," however, PCM Utilities
Growth and Income Fund's portfolio may consist of
securities of a smaller number of issuers than the portfolio of
that fund.
PCM VOYAGER FUND
PCM Voyager Fund seeks capital appreciation. 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 of companies that Putnam Management
believes have potential for capital appreciation which is
significantly greater than that of market averages. The fund 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 interests of the fund's
shareholders. See "Common investment policies and techniques"
below for a discussion of these strategies.
The fund's investments may include widely-traded common stocks of
larger companies as well as common stocks of smaller, less well-
known issuers. The fund generally invests a portion of its
assets in the securities of small- to medium-sized companies with
equity market capitalizations of less than $3 billion. Investing
in these companies may present greater opportunities for capital
appreciation, 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 and only in the over-the-
counter market or on a regional securities exchange. As a
result, these securities may fluctuate in value more than
securities of larger, more established companies.
PCM Voyager Fund will generally be managed in a style similar to
Putnam Voyager Fund.
<PAGE>
GENERAL
As indicated above, certain of 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 these 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 markups and other
transaction costs on the sale of securities and reinvestment in
other securities. These transactions may result in realization
of taxable capital gains. Portfolio turnover rates for the life
of each fund are shown in the section "Financial highlights."
Investments in premium securities
To the extent described above, certain of the funds may invest in
securities bearing coupon rates higher than prevailing market
rates. Such "premium" securities are typically purchased at
prices greater than the principal amounts payable on maturity.
A fund does not amortize the premium paid for these securities in
calculating its net investment income. As a result, the purchase
of premium securities provides a fund a higher level of
investment income distributable to shareholders on a current
basis than if the fund purchased securities bearing current
market rates of interest. Because the value of premium securities
tends to approach the principal amount as they approach maturity
(or call price in the case of securities approaching their first
call date), the purchase of such securities may increase the
fund's risk of capital loss if such securities are held to
maturity (or first call date).
During a period of declining interest rates, many of a fund's
portfolio investments will likely bear coupon rates that are
higher than current market rates, regardless of whether such
securities were originally purchased at a premium. These
securities would generally carry premium market values that would
be reflected in the net asset value of the fund's shares. As a
result, an investor who purchases shares of a fund during such
periods would initially receive higher taxable monthly
distributions (derived from the higher coupon rates payable on
the fund's investments) than might be available from alternative
investments bearing current market interest rates, but the
investor may face an increased risk of capital loss as these
higher coupon securities approach maturity (or first call date).
In evaluating the potential performance of an investment in a
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."
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 fund assets may be affected
favorably or unfavorably by currency exchange rates and exchange
control regulations. There may be less information publicly
available about a 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 with 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 those 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 fund assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial
instability and diplomatic developments that could affect the
value of 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 investments in securities of
certain issuers located in those foreign countries. Special tax
considerations apply to foreign securities.
The risks described above , including the risks of
nationalization and expropriation of assets, are typically
increased to the extent that a fund invests in issuers
located in less developed and developing nations, whose
securities markets are sometimes referred to as "emerging
markets." Investments in securities located in such countries
are speculative and subject to certain special risks. Political
and economic structures in many of these countries may be in
their infancy and developing rapidly, and such countries may lack
the social, political and economic stability characteristics of
more developed countries. Certain of these countries have in the
past failed to recognize private property rights and have at
times nationalized and expropriated the assets of private
companies.
The currencies of certain emerging market countries have
experienced a steady devaluation relative to the U.S. dollar, and
continued devaluations may adversely affect the value of a fund's
assets denominated in such currencies. Many emerging market
companies have experienced substantial, and in some periods
extremely high, rates of inflation for many years, and continued
inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may
affect the values of a fund's investments in these countries and
the availability to the fund of additional investments in these
countries. The small size, limited trading volume and relative
inexperienced of the markets in these countries may make a fund's
investments in such countries, and the fund may be required to
establish special custodial or other arrangements before making
investments in these countries. There may be little financial or
accounting information available with respect to issuers located
in these countries, and it may be more difficult as a result to
assess the value or prospects of an investment in such
issuers.
A more detailed explanation of foreign investments, and the risks
and special tax considerations associated with them, is included
in the SAI.
Foreign currency exchange transactions
To the extent described above, certain of the funds may engage in
foreign currency exchange transactions to protect against
uncertainty in the level of future exchange rates. Putnam
Management expects to engage in foreign currency exchange
transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect
against changes in the value of specific portfolio positions
("position hedging").
A fund may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on
which the fund contracts to purchase or sell a security and the
settlement date, or to "lock in" the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. A fund may
also 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 may 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 foreign 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 or
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. To the extent described
above, each fund may, buy and sell index futures
contracts ("index futures") . 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. Each of these funds 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 . Each of these funds may
engage in index futures and options transactions for hedging
purposes and for nonhedging purposes, such as adjusting exposure
to relevant markets . 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, for
hedging purposes and for nonhedging purposes, such as to adjust
exposure to relevant markets or , as a substitute for direct
investment in foreign securities.
To the extent described above, each fund may also buy and sell
futures contracts and related options with respect to U.S.
government securities and options directly on U.S. government
securities. Putnam Management believes that, under certain market
conditions, price movements in U.S. government securities futures
and related options may correlate closely with securities in
which such funds may invest and may, as a result, provide
hedging opportunities for the funds. U.S. government securities
futures and related options would be used in a way similar to a
fund's use of index futures and options.
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 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. From time to time, a fund may also 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. The use of these strategies may be
limited by applicable law.
Risks related to options and futures strategies
Options and futures transactions involve costs and may result in
losses. The effective use of options and futures strategies
depends on a fund's ability to terminate its options and
futures positions at times when Putnam Management deems it
desirable to do so. Although a 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 a fund may purchase or sell are
traded in the "over-the-counter" market rather than on an
exchange. This means that a fund will enter into such option
contracts with particular securities dealers who make markets in
these options. A 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 , currencies or indexes underlying the futures
and options purchased and sold by a fund, of the option and
futures contract itself, and of the securities or
currencies which are the subject of a hedge. The successful
use of these strategies further depends on the ability of Putnam
Management to forecast interest rates and market movements
correctly. The use of futures and options transactions for
purposes other than hedging entails greater risks.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the SAI.
Lower-rated and other fixed-income securities
As described above, certain of the funds 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 rating categories of
recognized rating agencies (Baa or MIG-4 or lower by Moody's and
BBB or SP-3 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 fund 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 all or a major portion. Under adverse market
or economic conditions or in the event of adverse changes in the
financial condition of the issuer, a fund could find it more
difficult to sell these securities when Putnam Management
believes it advisable to do so or may be able to sell the
securities only at prices lower than if they were more widely
held. Under these circumstances, it may also be more difficult
to determine the fair value of such securities for purposes of
computing a fund's net asset value.
In order to enforce its rights in the event of a default of these
securities, a fund may be required to participate in various
legal proceedings or take possession of and manage assets
securing the issuer's obligations on the securities. This could
increase the fund's operating expenses and adversely affect the
fund's net asset value.
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 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 will generally be greater
when a fund's average maturity is longer. 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 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.
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis. When
a 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 on a current basis to shareholders.
Thus, a fund could be required at times to sell other investments
in order to satisfy its income distribution 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.
The fund may invest up to 15% of its assets in illiquid
securities. Putnam Management believes that opportunities to
earn high yields may exist from time to time in securities which
are illiquid and which may be considered speculative. The sale
of these securities is usually restricted under federal
securities laws. As a result of illiquidity, the fund may not be
able to sell these securities when Putnam Management considers it
desirable to do so or may have to sell them at less than fair
value.
Mortgage-backed and asset-backed securities
As described above, certain of the funds may invest in asset-
backed and mortgage-backed securities, such as CMOs and certain
stripped mortgage-backed securities. CMOs and other mortgage-
backed securities represent a participation in, or are secured
by, mortgage loans and include:
- - Certain securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities
- - Securities issued by private issuers that represent an
interest in or are secured by mortgage-backed securities
issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities
- - Securities issued by private issuers that represent an
interest in or are secured by mortgage loans or mortgage-
backed securities without a government guarantee but usually
having some form of private credit enhancement.
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. A fund may
invest in both the interest-only or "IO" class and the
principal-only or "PO" class. 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. A rapid rate of principal prepayments may
have a measurably adverse effect on a fund's yield to maturity to
the extent it invests in IOs. If the assets underlying the IO
experience greater than anticipated prepayments of principal, a
fund may fail to recoup fully 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 more volatile and less
liquid than that for other mortgage-backed securities,
potentially limiting a fund's ability to buy or sell those
securities at any particular time.
Asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in
mortgage loans, the underlying assets may include motor vehicle
installment sales or installment loan contracts, leases of
various types of real and personal property, and receivables from
credit card agreements. The ability of an issuer of asset-backed
securities to enforce its security interest in the underlying
assets may be limited.
Mortgage-backed and asset-backed securities have yield and
maturity characteristics corresponding to the underlying assets.
Unlike traditional debt securities, which may pay a fixed rate of
interest until maturity when the entire principal amount comes
due, payments on certain mortgage-backed securities and asset-
backed securities include both interest and a partial payment of
principal.
Besides the scheduled repayment of principal, payments of
principal may result from voluntary prepayment, refinancing, or
foreclosure of the underlying mortgage loans or other assets.
Prepayments may require reinvestment of principal under less
attractive terms. Prepayments may also significantly shorten the
effective maturities of these securities, especially during
periods of declining interest rates. Conversely, during periods
of rising interest rates, a reduction in prepayments may increase
the effective maturities of these securities.
Mortgage-backed and asset-backed securities are less effective
than other types of securities as a means of "locking in"
attractive long-term interest rates. One reason is the need to
reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in
interest rates. These prepayments would have to be reinvested at
lower rates. As a result, these securities may have less
potential for capital appreciation during periods of declining
interest rates than other securities of comparable maturities,
although they may have a similar risk of decline in market value
during periods of rising interest rates.
Prepayments may cause losses in securities purchased at a
premium. At times, some of the mortgage-backed and asset-backed
securities in which a fund may invest will have higher than
market interest rates and therefore will be purchased at a
premium above their par value. Unscheduled prepayments, which
are made at par, will cause a fund to experience a loss equal to
any unamortized premium.
Prepayments could cause early retirement of CMOs. CMOs are
issued with a number of classes or series which have different
maturities and that may represent interests in some or all of the
interest or principal on the underlying collateral. Payment of
interest or principal on some classes or series of CMOs may be
subject to contingencies or some classes or series may bear some
or all of the risk of default on the underlying mortgages. CMOs
of different classes or series are generally retired in sequence
as the underlying mortgage loans in the mortgage pool are repaid.
If enough mortgages are repaid ahead of schedule, the classes or
series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of
particular classes or series of a CMO held by the fund would have
the same effect as the prepayment of mortgages underlying other
mortgage-backed securities.
Derivatives
Certain of the instruments in which each fund (except PCM Money
Market Fund) may invest, such as futures contracts, options,
forward contracts, and CMOs, are considered to be "derivatives."
Derivatives are financial instruments whose value depends upon,
or is derived from, the value of an underlying asset, such as a
security or an index. Further information about these
instruments and the risks involved in their use is included
elsewhere in this prospectus and in the SAI.
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 (other than PCM Money Market 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 a 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.
HOW PERFORMANCE IS SHOWN
Each fund's investment performance may from time to time be
included in advertisements about that fund. For funds other than
PCM Money Market Fund, "yield" is calculated by dividing a fund's
annualized net investment income per share during a recent 30-day
period by the maximum public offering price per share on the last
day of that period.
For purposes of calculating yield, net investment income is
calculated in accordance with 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
"Common investment policies and techniques -- Investments in
premium securities." For PCM Money Market Fund, "yield"
represents an annualization of the change in value of an
investment (excluding any capital changes) in the fund for a
specific seven-day period; "effective yield" compounds that yield
for a year and is, for that reason, greater than the fund's
yield.
"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 are based on past investment results and do not predict
future performance.
Investment performance, which will vary, is based on many
factors, including market conditions, 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 with those of other mutual funds and other investment
vehicles.
<PAGE>
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. A fund's performance may be
compared to that of various indexes. See the SAI.
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. As a result of such
insurance - related charges and expenses, an investor's
return under the insurance product would be lower.
For performance information through the funds' most recent fiscal
year, see "Investment Performance of the Trust" in the SAI.
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.
The Trust pays Putnam Management a quarterly fee for these
services based on each fund's average net assets. See the SAI.
The following officers of Putnam Management have had primary
responsibility for the day-to-day management of each fund's
portfolio since the year stated below:
Business experience
Fund name Year (at least 5 years)
--------------------- -------
-------------------------
PCM Asia Pacific
Growth Fund
David K. Thomas 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1987.
<PAGE>
PCM Diversified
Income Fund
William Kohli 1994 Employed as an investment
Managing Director professional by Putnam
Management since September,
1994. Prior to September,
1994, Mr. Kohli was Executive
Vice President, and Co-
Director of Global Bond
Management and, prior to
October, 1993, Mr. Kohli was
Senior Portfolio
Manager at Franklin
Advisors/Templeton Investment
Counsel.
Michael Martino 1994 Employed as an investment
Managing Director professional by Putnam
Management since January,
1994. 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.
Jennifer E. Leichter 1993 Employed as an investment
Senior Vice President professional by Putnam
Management since 1987.
Mark J. Siegel 1994 Employed as an investment
Senior Vice President professional by Putnam
Management since June, 1993.
Prior to June, 1993, Mr.
Siegel was Vice President of
Salomon Brothers International
Ltd.
Neil J. Powers 1994 Employed as an investment
Vice President professional by Putnam
Management since 1986
<PAGE>
PCM Global Asset
Allocation Fund
William Kohli 1994 Employed as an investment
Managing Director professional by Putnam
Management since September,
1994. Prior to September,
1994, Mr. Kohli was Executive
Vice President, and Co-
Director of Global Bond
Management and, prior to
October, 1993, Mr. Kohli was
Senior Portfolio
Manager at Franklin
Advisors/Templeton Investment
Counsel.
William J. Landes 1993 Employed as an investment
Managing Director professional by Putnam
Management since 1985.
Richard M. Frucci 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1984.
David L. King 1993 Employed as an investment
Senior Vice President professional by Putnam
Management since 1983.
John K. Storkerson 1993 Employed as an investment
Senior Vice President professional by Putnam
Management since 1979.
Christopher A. Ray 1993 Employed as an investment
Vice President professional by Putnam
Management since December,
1992. Prior to December,
1992, Mr. Ray was Vice
President and Portfolio
Manager at Scudder, Stevens &
Clark, Inc., and from
February, 1986 to March, 1992,
Mr. Ray was Vice President of
Putnam Management.
David J. Santos 1995 Employed as an investment
Vice President professional by Putnam
Management since 1986.
<PAGE>
PCM Global Growth
Fund
Carol C. McMullen 1995 Employed as an investment
Managing Director professional by Putnam
Management since June, 1995.
Prior to June, 1995, Ms.
McMullen was Senior Vice
President of Baring Asset
Management.
John K. Storkerson 1992 Employed as an investment
Senior Vice President professional by Putnam
Management since 1979.
PCM Growth and Income
Fund
Anthony I. Kreisel 1993 Employed as an investment
Managing Director professional by Putnam
Management since 1986.
David L. King 1993 Employed as an investment
Senior Vice President professional by Putnam
Management since 1983.
PCM High Yield Fund
Rosemary H. Thomsen 1988 Employed as an investment
Senior Vice President professional by Putnam
Management since 1986.
PCM Money Market Fund
Lindsey C. Strong 1992 Employed as an investment
Vice President professional by Putnam
Management since 1984.
PCM New Opportunities
Fund
Daniel L. Miller 1994 Employed as an investment
Managing Director professional by Putnam
Management since 1983.
<PAGE>
PCM U.S. Government
and High Quality
Bond Fund
Kenneth J. Taubes 1993 Employed as an investment
Senior Vice President professional by Putnam
Management since June,
1991. Prior to June,
1991, Mr. Taubes was Senior
Vice President of the Finance
Division of U.S. Trust
Company.
PCM Utilities Growth
and Income Fund
Sheldon N. Simon 1992 Employed as an investment
Senior Vice President professional by Putnam
Management since 1984.
Christopher A. Ray 1995 Employed as an investment
Vice President professional by Putnam
Management since December,
1992. Prior to December,
1992, Mr. Ray was Vice
President and Portfolio
Manager at Scudder, Stevens &
Clark, Inc., and from
February, 1986 to March, 1992,
Mr. Ray was Vice President of
Putnam Management.
PCM Voyager Fund
Roland W. Gillis 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since March, 1995.
Prior to March, 1995, Mr.
Gillis was Vice President at
Keystone Custodian Funds, Inc.
Robert R. Beck 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1989.
Charles H. Swanberg 1994 Employed as an investment
Senior Vice President professional by Putnam
Management since 1984.
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, 1995, based on each fund's average net assets,
were:
Total Management
Expenses Fees
PCM Asia Pacific Growth Fund* 1.22%
0.33%
(reflecting expense limitation)
PCM Diversified Income Fund 0.85% 0.70%
PCM Global Asset Allocation Fund 0.84% 0.70%
PCM Global Growth Fund 0.75% 0.60%
PCM Growth and Income Fund 0.57% 0.52%
PCM High Yield Fund 0.79% 0.70%
PCM Money Market Fund 0.57% 0.45%
PCM New Opportunities Fund 0.84% 0.70%
PCM U.S. Government and High
Quality Bond Fund 0.70% 0.61%
PCM Utilities Growth and Income Fund** 0.78%
0.70%
PCM Voyager Fund 0.68% 0.62%
* The annualized total expenses and management fees
shown above for PCM Asia Pacific Growth Fund reflect an
expense limitation in effect for the period . In the
absence of the expense limitation, annualized management
fees and total expenses would have been 0.80% and 1.70 %,
respectively.
** On January 7, 1996, the Trustees approved a proposal to
change the fees payable to Putnam Management under the
Management Contract for PCM Utilities Growth and Income
Fund. The proposed change is subject to shareholder
approval and will be submitted to shareholders at a meeting
scheduled for July 11, 1996. If the proposed change is
not approved, this prospectus will be revised.
If the proposed change is approved by shareholders,
management fees for PCM Utilities Growth and Income Fund
would thereafter be paid at the following annual rates:
0.70% of the first $500 million of average net assets, 0.60%
of the next $500 million, 0.55% of the next $500 million,
0.50% of the next $5 billion, 0.475% of the next $5 billion,
0.455% of the next $5 billion, 0.44% of the next $5 billion,
and 0.43% of any excess thereafter. The proposed change
would result in an increase in the fees payable by the
fund based on its net assets as of December 31, 1995.
The management fees and total expenses shown in the table
have been restated to reflect this proposed increase.
Actual management fees and total expenses were 0.60% and
0.68%, respectively.
The expenses shown in the table do not reflect the application of
credits related to brokerage service and expense offset
arrangements that reduce certain fund expenses.
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 a
diversified investment company, except for PCM Utilities Growth
and Income Fund, which is a non-diversified investment
company. Until September 1, 1993, PCM Global Asset Allocation
Fund was known as PCM Multi-Strategy Fund. 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
separate account. For matters requiring shareholder approval,
you may be able to instruct the insurance company 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, Massachusetts Institute of
Technology; Jameson Adkins Baxter, President, Baxter Associates,
Inc.; Hans H. Estin, Vice Chairman, North American Management
Corp.; John A. Hill, Chairman and Managing Director, First
Reserve Corporation; Elizabeth T. Kennan, President Emeritus and
Professor, 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 and Director of
Acquisitions , Cabot Partners Limited Partnership; Donald S.
Perkins,* Director of various corporations, including
Cummins Engine Company, Inc. , Lucent Technologies Inc. ,
Springs Industries, Inc. 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, Massachusetts Institute of
Technology; A.J.C. Smith,* Chairman and Chief Executive
Officer , 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, except that, in the case of
PCM Money Market Fund, purchases will not be effected until the
next determination of net asset value after federal funds have
been made available to the Trust. Orders for purchases or sales
of shares of a fund must be received by Putnam Mutual Funds
before the close of regular trading on the New York Stock
Exchange 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 to determine the 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 in this
prospectus of a fund 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 Trustees intend 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 A FUND 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.
Except for securities held by PCM Money Market Fund, securities
for which market quotations are readily available are
valued at market value. Short-term investments that will
mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets
are valued at their fair value following procedures approved by
the Trustees. The Trust values the portfolio investments of PCM
Money Market Fund at amortized cost pursuant to Rule 2a-7 under
the Investment Company Act of 1940.
HOW THE FUNDS MAKE DISTRIBUTIONS TO SHAREHOLDERS; TAX
INFORMATION
PCM Money Market Fund will declare a dividend of its net
investment income daily and distribute such dividend monthly.
Each month's distributions will be paid on the first business day
of the next month. Since the net income of PCM Money Market Fund
is declared as a dividend each time it is determined, the net
asset value per share of the fund remains at $1.00 immediately
after each determination and dividend declaration. Each of the
other funds 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, except that
with respect to PCM Money Market Fund, distributions are
reinvested using the net asset value determined on the day
following the distribution payment date.
Each fund intends to qualify each year as a "regulated investment
company" for federal income tax purposes and to meet all other
requirements 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.
Internal Revenue Service regulations applicable to
variable annuity and variable life insurance separate accounts
generally require that portfolios that serve as the
funding vehicles solely for such separate accounts 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. Alternatively, a portfolio will be treated as
meeting these requirements for any quarter of its taxable year
if, as of the close of such quarter, the portfolio meets the
diversification requirements applicable to regulated investment
companies (see "Taxes" in the SAI) and no more than 55% of the
value of its total assets consists of cash and cash items
(including receivables), U.S. government securities and
securities of other regulated investment companies. Each of
the funds intends to comply with these requirements.
Fund transactions in foreign currencies and hedging activities
will likely produce a difference between book income and taxable
income. This difference may cause a portion of a fund's income
distributions to constitute a return of capital for tax purposes
or require a fund to make distributions exceeding book income to
qualify as a regulated investment company for tax purposes.
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-edged." 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 risk appear somewhat larger than
the 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.
Notes
MIG 1/VMIG 1 -- This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins
of protection are ample although not so large as in the preceding
group.
Commercial paper
Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced
by the following characteristics:
- -- Leading market positions in well established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- -- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- -- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics
cited above to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
Standard & Poor's
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 as having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal. `BB'
indicates the least degree of speculation and `C' the highest.
While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB -- Debt rated `BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The `BB' rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied `BBB-' rating.
B -- Debt rated `B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The `B' rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied `BB' or `BB-' rating.
CCC -- Debt rated `CCC' has a currently identifiable
vulnerability to default, and is dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.
The `CCC' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied `B' or `B-'
rating.
CC -- The rating `CC' typically is applied to debt subordinated
to senior debt that is assigned an actual or implied `CCC'-
rating.
<PAGE>
C -- The rating `C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied `CCC-' debt
rating. The `C' rating may be used to cover a situation where
bankruptcy petition has been filed, but debt service payments are
continued.
D -- Bonds rated D are 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.
Notes
SP-1 -- Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are given a
plus sign (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic changes over
the term of the notes.
Commercial paper
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted with
a plus sign (+) designation.
A-2 -- Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated `A-1'.
<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
<PAGE>
Putnam Capital Manager Trust
PROSPECTUS - MAY 1, 1996
<PAGE>
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 Asia Pacific Growth Fund, PCM Diversified Income
Fund, PCM Growth and Income Fund, PCM New
Opportunities Fund, PCM Utilities Growth and Income Fund,
and PCM Voyager Fund.
PCM Diversified Income Fund may invest significantly in,
lower-rated bonds, commonly known as "junk bonds." Investments
of this type are subject to a greater risk of loss of principal
and non-payment of interest. Investors should carefully assess
the risks associated with an investment in either fund.
This prospectus explains concisely what you should know before
investing in 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, 1996 statement of additional information (the "SAI"),
as amended from time to time. For a free copy of the SAI, call
Putnam Investor Services at 1-800-521-0538. The SAI 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
Financial highlights
Study this table to see, among other things, how the funds have
performed since their inception.
The Trust
This section explains the Trust's relationship to various
variable annuity and variable life insurance products and advises
prospective investors to read the prospectus issued by the
relevant insurance company for information about the annuity or
insurance product.
Investment objectives and policies of the funds
Each of the funds is managed according to its own specific
investment objective or objectives. Read this section to make
sure a fund's objectives are consistent with your own.
Common investment policies and techniques
Certain investment policies and techniques apply to two or more
of the funds. This section defines, describes, and explains
these policies and techniques.
How performance is shown
This section describes and defines the measures used to assess a
fund's performance. All data are based on a fund's past
investment results and do not predict future performance.
How the Trust is managed
Consult this section for information about the Trust's
management, allocation of the Trust's expenses, and how purchases
and sales of securities are made for the Trust.
Organization and history
In this section, you will learn when the Trust was introduced,
how it is organized, how it may offer shares, and who its
Trustees are.
<PAGE>
ABOUT YOUR INVESTMENT
Sales and redemptions
This section describes the terms under which shares may be
purchased and redeemed.
How a fund values its shares
This section explains how a fund determines the value of its
shares.
How the funds make distributions to shareholders; tax
information
This section describes the various options you have in choosing
how to receive dividends from the funds. It also discusses the
federal tax status of the payments and counsels shareholders to
seek specific advice about their own situation.
Financial information
This section informs you that each year you will receive
semiannual and annual reports of the Trust.
ABOUT PUTNAM INVESTMENTS, INC.
Read this section to learn more about the companies that provide
the marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.
APPENDIX
Securities ratings
<PAGE>
About the Trust
FINANCIAL HIGHLIGHTS
The following tables 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 1995 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>
<TABLE>
<CAPTION>
Financial Highlights
(For a share outstanding throughout the period)
Less
Investment
Operations Distributions From:
Net In Excess
Realized and of
Net
Net
Unrealized Total from Net Net Realized
Realized
Year (Period)Net Asset Value , Investment Gain (Loss) on
Investment Investment Gain on Gain
on
Ended Beginning of Period Income
Investments Operations Income Investments
Investments
<S> <C> <C>
<C> <C> <C> <C> <C>
PCM Asia Pacific Growth Fund
December 31, 1995* $10.00 $.06(a)(b) $.17
.23 $- $- $-
PCM Diversified Income Fund
December 31, 1995 $9.74 $.71
$1.09 $1.80 $(.51) $- $-
December 31, 1994 10.23 .61
(1.04) (.43) (.06) - -
December 31, 1993** 10.00 .06
.17 .23 - --
PCM Growth and Income Fund
December 31, 1995 $16.44 $.53
$5.31 $5.84 $(.51) $(.30)$-
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*** 10.00 .42(a)
1.58 2.00 - - -
PCM New Opportunities Fund
December 31, 1995 $10.82 $-
$4.84 $4.84 $- $(.02) $-
December 31, 1994* *** 10.00 -(b)
.82 .82 - - -
PCM Utilities Growth
and Income Fund
December 31, 1995 $10.68 $.53
$2.65 $3.18 $(.58) $ - $-
December 31, 1994 12.00 .60
(1.44) (.84) (.35) (.12)
(.01)
December 31, 1993 10.71 .30
1.13 1.43 (.12) (.02) -
December 31, 1992* **** 10.00 .15(b)
.56 .71 - - -
PCM Voyager Fund
December 31, 1995 $22.20 $.10
$8.76 $8.86 $(.07) $(.49) $-
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 12.58 .11(a)
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*** 10.00 .13(a)
.17 .30 - - -<PAGE>
Ratio of
Total Net
Net
Asset Investment Assets, Ratio of Investment
Return Value, Return at End
of Expenses to Income to
of Total End of Net Asset
Period (in Average Net Average
Net Portfolio CapitalDistributions
PeriodValue(%)(c) thousands) Assets(%)(e) Assets(%)
Turnover(%)
<C> <C> <C> <C> <C>
<C> <C> <C>
$- $- $10.23 2.30(d) $25,045
.81(b)(d) .72(b)(d) 67.72(d)
$- $(.51) $11.03 19.13 $303,721
.85 7.85 297.17
- (.06) 9.74 (4.23) 215,935
.80 7.60 165.17
- - 10.23 2.30(d) 80,449
.28(d) 1.45(d) 40.83(d)
$- $(.81) $21.47 36.71 $3,312,306
.57 3.34 50.87
- (.96) 16.44 .35
$ 1,907,380 .623.64 46.43
- (.76) 17.38 14.27 1,407,382
.64 3.49 62.63
- (.83) 15.93 9.75 641,508
.69 3.79 39.58
- (.70) 15.33 19.05 325,861
.72 4.37 37.94
- (.16) 13.51 1.96 155,942
.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)
$(.01) $(.03) $15.63 44.87 $515,109
.84 (.03) 30.87
- - 10.82 8.20(d) 68,592
.47(b)(d) .03(b)(d) 32.77(d)
$- $(.58) $13.28 31.08 $530,461
.68 4.72 60.33
- (.48) 10.68 (7.02) 384,169
.68 5.23 84.88
- (.14) 12.00 13.42 443,281
.69 5.02 50.79
- - 10.71 7.10(d) 83,522
.64(b)(d) 3.43(b)(d) 19.29(d)
<PAGE>
$- $(.56) $30.50 40.67 $2,000,232
.68 .49 57.51
- (.42) 22.20 1.04
$ 1,026,972 .71 .40 62.44
- (.34) 22.41 18.70 675,198
.66 .33 55.85
- (.52) 19.21 10.36 317,225
.75 .56 48.17
- (.36) 17.94 46.09 156,741
.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)
<FN>
* For the period May 1, 1995 (commencement of operations)
to December 31, 1995.
** For the period September 15, 1993 (commencement of
operations) to December 31, 1993.
*** 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
Asia Pacific Growth for the period
ended December 31, 1995 reflect a reduction of
approximately
$0.03 per share,
expenses of PCM New Opportunities Fund for the
period ended December 31, 1994 reflect a reduction of
approximately
$0.02 per share, and expenses for PCM
Utilities Growth and Income Fund for the period ended December
31,
1992
reflect a reduction of approximately $.01
per share.
(c) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(d) Not annualized.
(e) The ratio of expenses to average net assets for the
period ended December 31, 1995 includes amounts paid through
brokerage service and expense offset arrangements.
Prior period ratios exclude these amounts.
</TABLE>
<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 its own investment objective or
objectives which it pursues through its own investment policies
as described below. The particular objectives and policies of
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 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.
Each fund is not intended to be a complete investment program,
and there is no assurance that any fund will achieve its
objective or objectives.
Additional portfolios with differing investment objectives and
policies may be created from time to time 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
"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 Fannie Mae
bonds.
"CMOs" -- collateralized mortgage obligations
"Ginnie Mae" -- Government National Mortgage Association
"Fannie Mae" -- Federal National Mortgage Association
"Freddie Mac" -- Federal Home Loan Mortgage Corporation
PCM ASIA PACIFIC GROWTH FUND
PCM Asia Pacific Growth Fund's investment objective is to seek
capital appreciation. In seeking capital appreciation, the fund
will invest primarily in securities of companies located in Asia
and in the Pacific Basin. The fund's investments will normally
include common stocks, preferred stocks, securities convertible
into common stocks or preferred stocks, and warrants to purchase
common stocks or preferred stocks. The fund may also invest to a
lesser extent in debt securities and other types of investments
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.
The fund may invest in securities of issuers located in any
country in Asia or the Pacific Basin where Putnam Management
believes there is potential for above-average capital
appreciation. Such countries may include, for example,
Australia, Hong Kong, India, Indonesia, Japan, Korea, Malaysia,
New Zealand, the People's Republic of China, the Philippines,
Singapore, Taiwan and Thailand.
It is anticipated that under normal market conditions the fund
will invest at least 85% of its assets in securities of companies
located in Asia and in the Pacific Basin which Putnam Management
believes have potential for capital appreciation. The fund will
consider an issuer of securities to be located in Asia or in the
Pacific Basin if it is organized under the laws of a country in
Asia or the Pacific Basin and has a principal office in a country
in Asia or the Pacific Basin, if it derives 50% or more of its
total revenues from business in Asia or the Pacific Basin, or if
its equity securities are traded principally on a securities
exchange in Asia or the Pacific Basin. It is anticipated that
under normal circumstances the fund will invest at least 65% of
its assets in securities of issuers meeting at least one of the
first two criteria described in the preceding sentence. For a
discussion of the risks associated with foreign investing, see
"Common investment policies and techniques -- Foreign
investments."
The fund will not limit its investments to any particular type of
company. The fund may invest in companies, large or small, whose
earnings are believed to be in a relatively strong growth trend,
or in companies in which significant further growth is not
anticipated but whose securities are thought to be undervalued.
It may invest in small and relatively less well-known companies.
These companies, which typically have equity market
capitalizations below $1 billion, may present greater
opportunities for capital appreciation, 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,
and only in the over-the-counter market or on a regional
securities exchange. As a result, these securities may fluctuate
in value more than securities of larger, more established
companies.
Debt securities in which the fund may invest will generally be
rated at the time of purchase at least Baa by Moody's or BBB by
S&P, or, if unrated, determined by Putnam Management to be of
comparable quality and in any event the fund will not invest in
debt securities rated below Baa by Moody's or BBB by S&P
(commonly known as "junk bonds"), or, if unrated, determined by
Putnam Management to be of comparable quality if, as a result,
more than 5% of the fund's assets would be invested in such
securities. Debt securities rated Baa or BBB have speculative
characteristics and adverse economic conditions may lead to a
weakened capacity to pay interest and repay principal.
The fund will not necessarily dispose of a security if its rating
is reduced below its rating at the time of purchase, although
Putnam Management will monitor the investment to determine
whether continued investment in the security will assist in
meeting the fund's investment objective.
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. When pursuing
such defensive strategies, the fund may invest without limit in
securities primarily traded in U.S. markets or in other markets
outside Asia or the Pacific Basin. See "Common investment
policies and techniques" below for a discussion of these
strategies. The fund may also engage in foreign currency
exchange transactions and in 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 is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets the fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government securities). The remaining 25% of the fund's total
assets is not subject to this restriction. To the extent the
fund invests a significant portion of its assets in the
securities of a particular issuer, such fund will be subject to
an increased risk of loss if the market value of such issuer's
securities declines.
PCM Asia Pacific Growth Fund will generally be managed in a style
similar to that of Putnam Asia Pacific Growth Fund.
PCM DIVERSIFIED INCOME FUND
PCM Diversified Income Fund seeks high current income consistent
with capital preservation. The fund pursues its investment
objective by allocating its investments among the following three
sectors of the fixed-income securities markets:
* a U.S. Government Sector, consisting primarily of debt
obligations of the U.S. government, its agencies and
instrumentalities;
* a High Yield Sector, consisting of high-yielding, lower-rated,
higher risk U.S. and foreign fixed income securities
(commonly known as "junk bonds"); and
* an International Sector, consisting of obligations of foreign
governments, their agencies and instrumentalities, and other
fixed-income securities denominated in foreign currencies.
Putnam Management believes that diversifying the fund's
investments among these sectors, as opposed to investing
exclusively in any one sector, will better enable the fund to
preserve capital while pursuing its objective of high current
income. Historically, the markets for U.S. government
securities, high yielding corporate fixed-income securities, and
debt securities of foreign issuers have tended to behave
independently and have at times moved in opposite directions.
For example, U.S. government securities have generally been
affected negatively by inflationary concerns resulting from
increased economic activity. High-yield corporate fixed-income
securities, on the other hand, have generally benefitted from
increased economic activity due to improvement in the credit
quality of corporate issuers. The reverse has generally been
true during periods of economic decline. Similarly, U.S.
government securities have often been negatively affected by a
decline in the value of the dollar against foreign currencies,
while the bonds of foreign issuers held by U.S. investors have
generally benefitted from such decline. Putnam Management
believes that, when financial markets exhibit such a lack of
correlation, a pooling of investments among these markets may
produce greater preservation of capital over the long term than
would be obtained by investing exclusively in any one of the
markets.
Putnam Management will determine the amount of assets to be
allocated to each of the three market sectors in which the fund
will invest based on its assessment of the returns that can be
achieved from a portfolio which is invested in all three sectors.
In making this determination, Putnam Management will rely in part
on quantitative analytical techniques that measure relative risks
and opportunities of each market sector based on current and
historical market data for each sector, as well as on its own
assessment of economic and market conditions. Putnam Management
will continuously review this allocation of assets and make such
adjustments as it deems appropriate, although there are no fixed
limits on allocations among sectors, including investments in the
High Yield Sector. Because of the importance of sector
diversification to the fund's investment policies, Putnam
Management expects that a substantial portion of the fund's
assets will normally be invested in each of the three market
sectors. The fund's assets allocated to each of these market
sectors will be managed in accordance with particular investment
policies, which are summarized below. 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. When pursuing such defensive
strategies, the fund may invest without limit in securities
primarily traded in U.S. markets. See "Common investment
policies and techniques" below for a discussion of these
strategies.
The fund may invest in premium securities, engage in foreign
currency exchange transactions, 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 also hold a portion of
its assets in cash and money market instruments.
PCM Diversified Income Fund will generally be managed in a style
similar to that of Putnam Diversified Income Trust.
U.S. Government Sector
The fund will invest assets allocated to the U.S. Government
Sector primarily in U.S. government securities. In purchasing
securities for the U.S. Government Sector, Putnam Management may
take full advantage of the entire range of maturities of U.S.
government securities and may adjust the average maturity of the
investments held in the portfolio from time to time, depending on
its assessment of relative yields of securities of different
maturities and its expectations of future changes in interest
rates. Under normal market conditions, the fund will invest at
least 20% of its net assets in U.S. government securities and at
least 65% of the assets allocated to the U.S. Government Sector
will be invested in U.S. government securities.
The fund may invest assets allocated to the U.S. Government
Sector in a variety of debt securities, including asset-backed
and mortgage-backed securities, such as CMOs and certain stripped
mortgage-backed securities, that are issued by private U.S.
issuers. For a description of these securities, and the risks
associated with them, see "Common investment policies and
techniques -- Mortgage-backed and asset-backed securities."
With respect to assets allocated to the U.S. Government Sector,
the fund will only invest in privately issued debt securities
that are rated at the time of purchase at least A by Moody's or
S&P, or in unrated securities that Putnam Management determines
are of comparable quality. The fund will not necessarily dispose
of a security if its rating is reduced below these levels,
although Putnam Management will monitor the investment to
determine whether continued investment in the security will
assist in meeting the fund's investment objective.
Risk factors. U.S. government securities are considered among
the safest of fixed income investments. Because of this
added safety, the yields available from U.S. government
securities are generally lower than the yields available from
corporate 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
investment income from those securities, but will affect the
fund's net asset value. Thus, a decrease in interest rates will
generally result in an increase in the value of such securities.
Conversely, during periods of rising interest rates, the value of
such securities will generally decline. The magnitude of these
fluctuations will generally be greater for securities with longer
maturities. Because of their added safety, the yields available
from U.S. government securities are generally lower than the
yields available from comparable securities of private issuers.
While 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 things, the ability of
the borrower, or, in the case of mortgage-backed securities, the
mortgagor, to meet its obligations.
High Yield Sector
The fund will invest assets allocated to the High Yield Sector
primarily in high yielding, lower-rated, higher risk U.S. and
foreign corporate fixed-income securities, including debt
securities, convertible securities and preferred stocks. As
discussed below, however, under certain circumstances the fund
may invest all or any part of the High Yield Sector portfolio in
higher-rated and unrated fixed-income securities. The fund will
not necessarily invest in the highest yielding securities
available if in Putnam Management's opinion the differences in
yield are not sufficient to justify the higher risks involved.
The High Yield Sector may invest in any security which is rated,
at the time of purchase, at least Caa as determined by Moody's or
CCC as determined by S&P or in any unrated security which Putnam
Management determines is at least of comparable quality, although
up to 5% of the net assets of the fund may be invested in
securities rated below such quality, or in unrated securities
which Putnam Management determines are of comparable quality.
Securities rated below Caa by Moody's or CCC by S&P are of poor
standing and may be in default. The fund will not necessarily
dispose of a security if its rating is reduced below its rating
at the time of purchase, although Putnam Management will monitor
the investment to determine whether continued investment in the
security will assist in meeting the fund's investment objective.
The rating services' descriptions of these rating categories,
including the speculative characteristics of the lower
categories, are included in the Appendix to this prospectus.
The table below shows the percentages of fund assets invested
during fiscal 1995 in securities assigned to the various rating
categories by S&P, or, if unrated by S&P, assigned to comparable
rating categories by Moody's, and in unrated securities
determined by Putnam Management to be of comparable quality.
<PAGE>
Rated securities, Unrated
securities of
as percentage of comparable
quality, as
Rating net assets percentage of net
assets
- ------ -------------------
- -- -----------------------
"AAA" 42.51% --
"AA" 15.92% --
"A" 0.38% --
"BBB" 0.21% --
"BB" 9.45% 1.19%
"B" 20.22% 0.94%
"CCC" 3.31% 0.04%
"D" -- 0.01%
----------
- - ---------
92.00% 2.18%
-----------
- ----------
For a description of the risks associated with investments in
fixed-income securities, including lower-rated fixed
income securities, see "Common investment policies and techniques
- --Lower-rated and other fixed-income securities."
The fund may invest assets allocated to the High Yield Sector in
participations and assignments of fixed and floating rate loans
made by financial institutions to governmental or corporate
borrowers. In addition to the more general investment
considerations applicable to fixed-income investments,
participations and assignments involve the risk that the
institution's insolvency could delay or prevent the flow of
payments on the underlying loan to the fund. The fund may have
limited rights to enforce the terms of the underlying loan, and
the liquidity of loan participations and assignments may be
limited.
The fund may also invest assets allocated to the High Yield
Sector in lower-rated securities of foreign corporate and
governmental issuers denominated either in U.S. dollars or in
foreign currencies. For a discussion of the risks associated
with foreign investing, see "Common investment policies and
techniques -- Foreign investments."
International Sector
The fund will invest the assets allocated to the International
Sector in debt obligations and other fixed-income securities
denominated in non-U.S. currencies. These securities include:
* debt obligations issued or guaranteed by foreign
national,
provincial, state, or other governments with taxing
authority, or by their agencies or
instrumentalities;
* debt obligations of supranational entities
(described
below); and
* debt obligations and other fixed-income securities
of
foreign and U.S. corporate issuers.
When investing in the International Sector, the fund will
purchase only debt securities of issuers whose long-term debt
obligations are rated A or better at the time of purchase by
Moody's or S&P or that are unrated securities that Putnam
Management determines are of comparable quality. The fund will
not necessarily dispose of a security if its rating is reduced
below its rating at the time of purchase, although Putnam
Management will monitor the investment to determine whether
continued investment in the security will assist in meeting the
fund's investment objective. The fund may, however, make
investments in international debt securities rated below A with
respect to assets allocated to the High Yield Sector.
In the past, yields available from securities denominated in
foreign currencies have often been higher than those of
securities denominated in U.S. dollars. Although the fund has
the flexibility to invest in any country where Putnam Management
sees potential for high income, it presently expects to invest
primarily in securities of issuers in industrialized Western
European countries (including Scandinavian countries) and in
Canada, Japan, Australia, and New Zealand. Putnam Management
will consider expected changes in foreign currency exchange rates
in determining the anticipated returns of securities denominated
in foreign currencies.
The obligations of foreign governmental entities, including
supranational issuers, have various kinds of government support.
Obligations of foreign governmental entities include obligations
issued or guaranteed by national, provincial, state or other
governments with taxing power or by their agencies. These
obligations may or may not be supported by the full faith and
credit of a foreign government.
Supranational entities include international organizations
designated or supported by governmental entities to promote
economic reconstruction or development and international banking
institutions and related government agencies. Examples include
the International Bank for Reconstruction and Development (the
World Bank), the European Steel and Coal Community, the Asian
Development Bank, and the Inter-American Development Bank. The
governmental members or "stockholders" usually make initial
capital contributions to the supranational entity and in many
cases are committed to make additional capital contributions if
the supranational entity is unable to repay its borrowing. Each
supranational entity's lending activities are limited to a
percentage of its total capital (including "callable capital"
contributed by members at the entity's call), reserves, and net
income.
For a discussion of the risks associated with foreign
investments, see "Common investment policies and techniques --
Foreign investments."
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 interests 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
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 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 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 also 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 - long distance telephone, cellular
telephone, paging, personal communication networks;
Media/Entertainment - cable television system operators,
cable
television network programmers, film entertainment providers,
theme park operators, casino operators, radio and television
stations;
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, entertainment software, networking software,
computer
systems integrators, information services companies,
semiconductors;
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 a company's size. Companies in the fund's
portfolio will range from small, rapidly growing companies to
larger, well-established firms. It may invest in small and
relatively less well-known companies. Investing in these
companies may present greater opportunities for capital
appreciation, but also may 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, and only in the over-the-
counter market or on a regional securities exchange. As a
result, these securities may fluctuate in value more than
securities of larger, more established companies.
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
fund's shares may fluctuate in value more than the shares of such
an investment company.
The fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets the fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government securities). The remaining 25% of the fund's total
assets is not subject to this restriction. To the extent the
fund invests a significant portion of its assets in the
securities of a particular issuer, such fund will be subject to
an increased risk of loss if the market value of such issuer's
securities declines.
PCM New Opportunities Fund will generally be managed in a style
similar to that of Putnam New Opportunities Fund.
PCM UTILITIES GROWTH AND INCOME FUND
The investment objective of PCM Utilities Growth and Income Fund
is to seek capital growth and current income. The fund
concentrates its investments in securities issued by companies in
the public utilities industries.
The fund will seek its objective by investing under normal
circumstances at least 65% of its total assets in equity and debt
securities of companies in the public utilities industries.
Equity securities in which the fund may invest include common
stocks, preferred stocks, securities convertible into common
stocks or preferred stocks, and warrants to purchase common or
preferred stocks. Debt securities in which the fund may invest
will be rated at the time of purchase at least Baa by Moody's or
BBB by S&P or will be of comparable quality as determined by
Putnam Management. The fund may invest in debt and equity
securities of issuers in other industries if Putnam Management
believes they will help achieve the fund's objective. Companies
in the public utilities industries include companies engaged in
the manufacture, production, generation, transmission, sale or
distribution of electric or gas energy or other types of energy
and companies engaged in telecommunications, including telephone,
telegraph, satellite, microwave and other communications media
(but not companies engaged in public broadcasting or cable
television). Putnam Management deems a particular company to be
in the public utilities industries if at the time of investment
Putnam Management determines that at least 50% of the company's
assets, revenues or profits are derived from one or more of those
industries.
The portion of the fund's assets invested in equity securities
and in debt securities will vary from time to time in light of
the fund's investment objective, changes in interest rates, and
economic and other factors. Although the fund expects that in
the near term it will invest substantial portions of its assets
in both equity securities and in debt securities, the fund may
invest all of its assets in either equity or debt securities.
The fund may hold a portion of its assets in cash and money
market instruments.
The fund may invest up to 25% 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 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 interests of
the fund's shareholders. See "Common investment policies and
techniques" below for a discussion of these strategies.
Since the fund's investments are concentrated in the utilities
industries, the value of its shares can be expected to change in
light of factors affecting those industries, and may fluctuate
more widely than the value of shares of a portfolio that invests
in a broader range of industries. Many utility companies,
especially electric, gas and other energy-related utility
companies, have historically been subject to risks of increase in
fuel and other operating costs, changes in interest rates on
borrowings for capital improvement programs, changes in
applicable laws and regulations, changes in technology which may
render existing plants, equipment or products obsolete, the
effects of energy conservation and operating constraints, and
increased costs and delays associated with compliance with
environmental regulations. In particular, regulatory changes
with respect to nuclear and conventionally-fueled power
generating facilities could increase costs or impair the ability
of utility companies to operate such facilities or obtain
adequate return on invested capital. Generally, prices charged
by utilities are regulated in the United States and in foreign
countries with the intention of protecting the public while
ensuring that utility companies earn a return sufficient to allow
them to attract capital in order to grow and continue to provide
appropriate services. There can be no assurance that such
pricing policies or rates of return will continue in the future.
In recent years, regulatory changes in the United States have
increasingly allowed utility companies to provide services and
products outside their traditional geographic areas and lines of
business, creating new areas of competition within the utilities
industries. This trend toward deregulation and the emergence of
new entrants have caused non-regulated providers of utility
services to become a significant part of the utilities
industries. Putnam Management believes that the emergence of
competition and deregulation will result in certain utility
companies being able to earn more than their traditional
regulated rates of return, while others may be forced to defend
their core business from increased competition and may be less
profitable. Although Putnam Management seeks to take advantage
of favorable investment opportunities that may arise from these
structural changes, there can be no assurance that the fund will
benefit from any such changes.
Investments in securities rated BBB or Baa have speculative
characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of
the issuer to make principal and interest payments than would
likely be the case with investments in securities with higher
credit ratings. 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 continued investment in the
security would serve the fund's investment objective.
The fund is "non-diversified." This means that it may invest its
assets in a limited number of issuers. In order to qualify as a
"regulated investment company" under the Internal Revenue Code
(see "How the Trust makes distributions to shareholders; tax
information" below), the fund generally may not invest more than
25% of its total assets in obligations of any one issuer other
than U.S. government securities and, with respect to 50% of its
total assets, the fund may not invest more than 5% of its total
assets in the securities of any one issuer (except U.S.
government securities). Thus the fund may invest up to 25% of
its total assets in the securities of each of any two issuers.
Because of the limited number of issuers in the public utilities
industries, the fund is more likely to invest a higher percentage
of its assets in the securities of a single issuer than an
investment company which invests in a broad range of industries.
This practice involves an increased risk of loss to the fund if
the issuer is unable to make interest or principal payments or if
the market value of such securities were to decline.
PCM Utilities Growth and Income Fund will generally be managed in
a style similar to that of Putnam Utilities Growth and Income
Fund. Because that fund is "diversified," however, PCM Utilities
Growth and Income Fund's portfolio may consist of securities of a
smaller number of issuers than the portfolio of that fund.
PCM VOYAGER FUND
PCM Voyager Fund seeks capital appreciation. 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 of companies that Putnam Management
believes have potential for capital appreciation which is
significantly greater than that of market averages. The fund 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 interests of the fund's
shareholders. See "Common investment policies and techniques"
below for a discussion of these strategies.
The fund's investments may include widely-traded common stocks of
larger companies as well as common stocks of smaller, less well-
known issuers. The fund generally invests a portion of its
assets in the securities of small- to medium-sized companies with
equity market capitalizations of less than $3 billion. Investing
in these companies may present greater opportunities for capital
appreciation, 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 and only in the over-the-
counter market or on a regional securities exchange. As a
result, these securities may fluctuate in value more than
securities of larger, more established companies.
PCM Voyager Fund will generally be managed in a style similar to
Putnam Voyager Fund.
GENERAL
As indicated above, certain of 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.
<PAGE>
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 these 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 markups and other
transaction costs on the sale of securities and reinvestment in
other securities. These transactions may result in realization
of taxable capital gains. Portfolio turnover rates for the life
of each fund are shown in the section "Financial highlights."
Investments in premium securities
To the extent described above, certain of the funds may invest in
securities bearing coupon rates higher than prevailing market
rates. Such "premium" securities are typically purchased at
prices greater than the principal amounts payable on maturity.
A fund does not amortize the premium paid for these
securities in calculating its net investment income. As a result,
the purchase of premium securities provides a fund a higher level
of investment income distributable to shareholders on a current
basis than if the fund purchased securities bearing current
market rates of interest. Because the value of premium securities
tends to approach the principal amount as they approach maturity
(or call price in the case of securities approaching their first
call date), the purchase of such securities may increase the
fund's risk of capital loss if such securities are held to
maturity (or first call date).
During a period of declining interest rates, many of a fund's
portfolio investments will likely bear coupon rates that are
higher than current market rates, regardless of whether such
securities were originally purchased at a premium. These
securities would generally carry premium market values that
would be reflected in the net asset value of the fund's shares.
As a result, an investor who purchases shares of a fund during
such periods would initially receive higher taxable monthly
distributions (derived from the higher coupon rates payable on
the fund's investments) than might be available from alternative
investments bearing current market interest rates, but the
investor may face an increased risk of capital loss as these
higher coupon securities approach maturity (or first call date).
In evaluating the potential performance of an investment in a
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."
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 fund assets may be affected
favorably or unfavorably by currency exchange rates and exchange
control regulations. There may be less information publicly
available about a 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 with 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 those 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 fund assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial
instability and diplomatic developments that could affect the
value of 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 investments in securities of
certain issuers located in those foreign countries. Special tax
considerations apply to foreign securities.
The risks described above, including the risks of nationalization
and expropriation of assets, are typically increased to the
extent that a fund invests in issuers located in less developed
and developing nations, whose securities markets are sometimes
referred to as "emerging markets." Investments in securities
located in such countries are speculative and subject to certain
special risks. Political and economic structures in many of
these countries may be in their infancy and developing rapidly,
and such countries may lack the social, political and economic
stability characteristics of more developed countries. Certain
of these countries have in the past failed to recognize private
property rights and have at times nationalized and expropriated
the assets of private companies.
The currencies of certain emerging market countries have
experienced a steady devaluation relative to the U.S. dollar, and
continued devaluations may adversely affect the value of a fund's
assets denominated in such currencies. Many emerging market
companies have experienced substantial, and in some periods
extremely high, rates of inflation for many years, and continued
inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may
affect the values of a fund's investments in these countries and
the availability to the fund of additional investments in these
countries. The small size, limited trading volume and relative
inexperienced of the markets in these countries may make a fund's
investments in such countries, and the fund may be required to
establish special custodial or other arrangements before making
investments in these countries. There may be little financial or
accounting information available with respect to issuers located
in these countries, and it may be more difficult as a result to
assess the value or prospects of an investment in such issuers.
A more detailed explanation of foreign investments, and the risks
and special tax considerations associated with them, is included
in the SAI.
Foreign currency exchange transactions
To the extent described above, certain of the funds may engage in
foreign currency exchange transactions to protect against
uncertainty in the level of future exchange rates. Putnam
Management expects to engage in foreign currency exchange
transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect
against changes in the value of specific portfolio positions
("position hedging").
A fund may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on
which the fund contracts to purchase or sell a security and the
settlement date, or to "lock in" the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. A fund may
also 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 may 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 foreign 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 or
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. To the extent described above,
each fund may, buy and sell index futures contracts ("index
futures"). 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.
Each of these funds 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. Each
of these funds may engage in index futures and options
transactions for hedging purposes and for nonhedging purposes,
such as adjusting exposure to relevant markets. 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, for hedging purposes and for nonhedging
purposes, such as to adjust exposure to relevant markets or, as a
substitute for direct investment in foreign securities.
To the extent described above, each fund may also buy and sell
futures contracts and related options with respect to U.S.
government securities and options directly on U.S. government
securities. Putnam Management believes that, under certain market
conditions, price movements in U.S. government securities futures
and related options may correlate closely with securities in
which such funds may invest and may, as a result, provide hedging
opportunities for the funds. U.S. government securities futures
and related options would be used in a way similar to a fund's
use of index futures and options.
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 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. From time to
time, a fund may also 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. The
use of these strategies may be limited by applicable law.
Risks related to options and futures strategies
Options and futures transactions involve costs and may result in
losses. The effective use of options and futures strategies
depends on a fund's ability to terminate its options and futures
positions at times when Putnam Management deems it desirable to
do so. Although a 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 a fund may purchase or sell are
traded in the "over-the-counter" market rather than on an
exchange. This means that a fund will enter into such option
contracts with particular securities dealers who make markets in
these options. A 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, currencies or indexes underlying the futures and
options purchased and sold by a fund, of the option and futures
contract itself, and of the securities or currencies which are
the subject of a hedge. The successful use of these strategies
further depends on the ability of Putnam Management to forecast
interest rates and market movements correctly. The use of
futures and options transactions for purposes other than hedging
entails greater risks.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the SAI.
<PAGE>
Lower-rated and other fixed-income securities
As described above, certain of the funds 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 rating 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 fund 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 all or a major portion. Under adverse market
or economic conditions or in the event of adverse changes in the
financial condition of the issuer, a fund could find it more
difficult to sell these securities when Putnam Management
believes it advisable to do so or may be able to sell the
securities only at prices lower than if they were more widely
held. Under these circumstances, it may also be more difficult
to determine the fair value of such securities for purposes of
computing a fund's net asset value.
In order to enforce its rights in the event of a default of these
securities, a fund may be required to participate in various
legal proceedings or take possession of and manage assets
securing the issuer's obligations on the securities. This could
increase the fund's operating expenses and adversely affect the
fund's net asset value.
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 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 will generally be greater
when a fund's average maturity is longer. 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 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.
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis. When
a 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 on a current basis to shareholders.
Thus, a fund could be required at times to sell other investments
in order to satisfy its income distribution 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.
The fund may invest up to 15% of its assets in illiquid
securities. Putnam Management believes that opportunities to
earn high yields may exist from time to time in securities which
are illiquid and which may be considered speculative. The sale
of these securities is usually restricted under federal
securities laws. As a result of illiquidity, the fund may not be
able to sell these securities when Putnam Management considers it
desirable to do so or may have to sell them at less than fair
value.
Mortgage-backed and asset-backed securities
As described above, certain of the funds may invest in asset-
backed and mortgage-backed securities, such as CMOs and certain
stripped mortgage-backed securities. CMOs and other mortgage-
backed securities represent a participation in, or are secured
by, mortgage loans and include:
- - Certain securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities
- - Securities issued by private issuers that represent an
interest in or are secured by mortgage-backed securities
issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities
- - Securities issued by private issuers that represent an
interest in or are secured by mortgage loans or mortgage-
backed securities without a government guarantee but usually
having some form of private credit enhancement.
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. A fund may
invest in both the interest-only or "IO" class and the
principal-only or "PO" class. 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. A rapid rate of principal prepayments may
have a measurably adverse effect on a fund's yield to maturity to
the extent it invests in IOs. If the assets underlying the IO
experience greater than anticipated prepayments of principal, a
fund may fail to recoup fully 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 more volatile and less
liquid than that for other mortgage-backed securities,
potentially limiting a fund's ability to buy or sell those
securities at any particular time.
Asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in
mortgage loans, the underlying assets may include motor vehicle
installment sales or installment loan contracts, leases of
various types of real and personal property, and receivables from
credit card agreements. The ability of an issuer of asset-backed
securities to enforce its security interest in the underlying
assets may be limited.
Mortgage-backed and asset-backed securities have yield and
maturity characteristics corresponding to the underlying assets.
Unlike traditional debt securities, which may pay a fixed rate of
interest until maturity when the entire principal amount comes
due, payments on certain mortgage-backed securities and asset-
backed securities include both interest and a partial payment of
principal.
<PAGE>
Besides the scheduled repayment of principal, payments of
principal may result from voluntary prepayment, refinancing, or
foreclosure of the underlying mortgage loans or other assets.
Prepayments may require reinvestment of principal under less
attractive terms. Prepayments may also significantly shorten the
effective maturities of these securities, especially during
periods of declining interest rates. Conversely, during periods
of rising interest rates, a reduction in prepayments may increase
the effective maturities of these securities.
Mortgage-backed and asset-backed securities are less effective
than other types of securities as a means of "locking in"
attractive long-term interest rates. One reason is the need to
reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in
interest rates. These prepayments would have to be reinvested at
lower rates. As a result, these securities may have less
potential for capital appreciation during periods of declining
interest rates than other securities of comparable maturities,
although they may have a similar risk of decline in market value
during periods of rising interest rates.
Prepayments may cause losses in securities purchased at a
premium. At times, some of the mortgage-backed and asset-backed
securities in which a fund may invest will have higher than
market interest rates and therefore will be purchased at a
premium above their par value. Unscheduled prepayments, which
are made at par, will cause a fund to experience a loss equal to
any unamortized premium.
Prepayments could cause early retirement of CMOs. CMOs are
issued with a number of classes or series which have different
maturities and that may represent interests in some or all of the
interest or principal on the underlying collateral. Payment of
interest or principal on some classes or series of CMOs may be
subject to contingencies or some classes or series may bear some
or all of the risk of default on the underlying mortgages. CMOs
of different classes or series are generally retired in sequence
as the underlying mortgage loans in the mortgage pool are repaid.
If enough mortgages are repaid ahead of schedule, the classes or
series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of
particular classes or series of a CMO held by the fund would have
the same effect as the prepayment of mortgages underlying other
mortgage-backed securities.
Derivatives
Certain of the instruments in which each fund may invest,
such as futures contracts, options, forward contracts, and CMOs,
are considered to be "derivatives." Derivatives are financial
instruments whose value depends upon, or is derived from, the
value of an underlying asset, such as a security or an index.
Further information about these instruments and the risks
involved in their use is included elsewhere in this prospectus
and in the SAI.
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 a 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.
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 maximum public
offering price per share on the last day of that period.
For purposes of calculating yield, net investment income is
calculated in accordance with 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
"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 are based on past investment results and do not predict
future performance.
Investment performance, which will vary, is based on many
factors, including market conditions, 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 with those of other mutual funds and other investment
vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. A fund's performance may be
compared to that of various indexes. See the SAI.
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. As a result of such
insurance-related charges and expenses, an investor's return
under the insurance product would be lower.
For performance information through the funds' most recent fiscal
year, see "Investment Performance of the Trust" in the SAI.
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.
The Trust pays Putnam Management a quarterly fee for these
services based on each fund's average net assets. See the SAI.
The following officers of Putnam Management have had primary
responsibility for the day-to-day management of each fund's
portfolio since the year stated below:
Business experience
Fund name Year (at least 5 years)
- ----------- ----
- -------------------------
PCM Asia Pacific
Growth Fund
David K. Thomas 1995 Employed as an
investment
Senior Vice President professional by
Putnam
Management since
1987.
<PAGE>
PCM Diversified
Income Fund
William Kohli 1994 Employed as an
investment
Managing Director professional by
Putnam
Management since
September,
1994. Prior to
September,
1994, Mr. Kohli was
Executive
Vice President, and
Co-
Director of Global
Bond
Management and, prior
to
October, 1993, Mr.
Kohli was
Senior Portfolio
Manager at
Franklin
Advisors/Templeton
Investment Counsel.
Michael Martino 1994 Employed as an
investment
Managing Director professional by
Putnam
Management since
January,
1994. 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.
Jennifer E. Leichter 1993 Employed as an
investment
Senior Vice President professional by
Putnam
Management since
1987.
Mark J. Siegel 1994 Employed as an
investment
Senior Vice President professional by
Putnam
Management since
June, 1993.
Prior to June, 1993,
Mr.
Siegel was Vice
President of
Salomon Brothers
International
Ltd.
Neil J. Powers 1994 Employed as an
investment
Vice President professional by
Putnam
Management since 1986
PCM Growth and Income
Fund
Anthony I. Kreisel 1993 Employed as an
investment
Managing Director professional by
Putnam
Management since
1986.
David L. King 1993 Employed as an
investment
Senior Vice President professional by
Putnam
Management since
1983.
PCM New Opportunities
Fund
Daniel L. Miller 1994 Employed as an
investment
Managing Director professional by
Putnam
Management since
1983.
PCM Utilities Growth
and Income Fund
Sheldon N. Simon 1992 Employed as an
investment
Senior Vice President professional by
Putnam
Management since
1984.
Christopher A. Ray 1995 Employed as an
investment
Vice President professional by
Putnam
Management since
December,
1992. Prior to
December,
1992, Mr. Ray was
Vice
President and
Portfolio
Manager at Scudder,
Stevens &
Clark, Inc., and from
February, 1986 to
March, 1992,
Mr. Ray was Vice
President of
Putnam Management.
PCM Voyager Fund
Roland W. Gillis 1995 Employed as an
investment
Senior Vice President professional by
Putnam
Management since
March, 1995.
Prior to March, 1995,
Mr.
Gillis was Vice
President at
Keystone Custodian
Funds, Inc.
Robert R. Beck 1995 Employed as an
investment
Senior Vice President professional by
Putnam
Management since
1989.
Charles H. Swanberg 1994 Employed as an
investment
Senior Vice President professional by
Putnam
Management since
1984.
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, 1995, based on each fund's average net assets,
were:
Total Management
Expenses Fees
PCM Asia Pacific Growth Fund* 1.22%
0.33%
(reflecting expense limitation)
PCM Diversified Income Fund 0.85%
0.70%
PCM Growth and Income Fund 0.57%
0.52%
PCM New Opportunities Fund 0.84%
0.70%
PCM Utilities Growth and Income Fund**
0.78% 0.70%
PCM Voyager Fund 0.68%
0.62%
* The annualized total expenses and management fees shown
above for PCM Asia Pacific Growth Fund reflect an expense
limitation in effect for the period. In the absence of the
expense limitation, annualized management fees and total
expenses would have been 0.80% and 1.70%, respectively.
** On January 7, 1996, the Trustees approved a proposal to
change the fees payable to Putnam Management under the
Management Contract for PCM Utilities Growth and Income
Fund. The proposed change is subject to shareholder
approval and will be submitted to shareholders at a meeting
scheduled for July 11, 1996. If the proposed change is not
approved, this prospectus will be revised.
If the proposed change is approved by shareholders,
management fees for PCM Utilities Growth and Income Fund
would thereafter be paid at the following annual rates:
0.70% of the first $500 million of average net assets, 0.60%
of the next $500 million, 0.55% of the next $500 million,
0.50% of the next $5 billion, 0.475% of the next $5 billion,
0.455% of the next $5 billion, 0.44% of the next $5 billion,
and 0.43% of any excess thereafter. The proposed change
would result in an increase in the fees payable by the fund
based on its net assets as of December 31, 1995.
<PAGE>
The management fees and total expenses shown in the table
have been restated to reflect this proposed increase.
Actual management fees and total expenses were 0.60% and
0.68%, respectively.
The expenses shown in the table do not reflect the application of
credits related to brokerage service and expense offset
arrangements that reduce fund expenses.
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 a diversified
investment company, except for PCM Utilities Growth and Income
Fund, which is a non-diversified investment company.
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
separate account. For matters requiring shareholder approval,
you may be able to instruct the insurance company 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, Massachusetts Institute of
Technology; Jameson Adkins Baxter, President, Baxter Associates,
Inc.; Hans H. Estin, Vice Chairman, North American Management
Corp.; John A. Hill, Chairman and Managing Director, First
Reserve Corporation; Elizabeth T. Kennan, President Emeritus and
Professor, 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 and Director of
Acquisitions, Cabot Partners Limited Partnership; Donald S.
Perkins,* Director of various corporations, including Cummins
Engine Company, Inc., Lucent Technologies Inc., Springs
Industries, Inc. 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, Massachusetts Institute of Technology; A.J.C.
Smith,* Chairman and Chief Executive Officer, 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 Putnam
Mutual Funds before the close of regular trading on the New York
Stock Exchange 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 to determine the 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 in this
prospectus of a fund 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 Trustees intend 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.
<PAGE>
HOW A FUND 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 valued at market value. Short-term investments
that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets
are valued at their fair value following procedures approved by
the Trustees.
HOW THE FUNDS MAKE DISTRIBUTIONS TO SHAREHOLDERS; 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 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.
Internal Revenue Service regulations applicable to variable
annuity and variable life insurance separate accounts generally
require that portfolios that serve as the funding vehicles solely
for such separate accounts 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. Alternatively, a
portfolio will be treated as meeting these requirements for any
quarter of its taxable year if, as of the close of such quarter,
the portfolio meets the diversification requirements applicable
to regulated investment companies (see "Taxes" in the SAI) and no
more than 55% of the value of its total assets consists of cash
and cash items (including receivables), U.S. government
securities and securities of other regulated investment
companies. Each of the funds intends to comply with these
requirements.
Fund transactions in foreign currencies and hedging activities
will likely produce a difference between book income and taxable
income. This difference may cause a portion of a fund's income
distributions to constitute a return of capital for tax purposes
or require a fund to make distributions exceeding book income to
qualify as a regulated investment company for tax purposes.
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-edged." 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 risk appear somewhat larger than
the 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.
<PAGE>
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.
Standard & Poor's
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 as having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal. `BB'
indicates the least degree of speculation and `C' the highest.
While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
<PAGE>
BB -- Debt rated `BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The `BB' rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied `BBB-' rating.
B -- Debt rated `B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The `B' rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied `BB' or `BB-' rating.
CCC-- Debt rated `CCC' has a currently identifiable vulnerability
to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business,
financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The `CCC' rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied `B' or `B-' rating.
CC -- The rating `CC' typically is applied to debt subordinated
to senior debt that is assigned an actual or implied `CCC'-
rating.
C -- The rating `C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied `CCC-' debt
rating. The `C' rating may be used to cover a situation where
bankruptcy petition has been filed, but debt service payments are
continued.
D -- Bonds rated `D' are 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
<PAGE>
PUTNAM CAPITAL MANAGER TRUST
PROSPECTUS - MAY 1, 1996
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. This prospectus only offers the
Trust's PCM New Opportunities Fund (the "fund").
This prospectus explains concisely what you should know before
investing in 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, 1996 statement of additional information (the "SAI"),
as amended from time to time. For a free copy of the SAI, call
Putnam Investor Services at 1-800-521-0538. The SAI 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 AMOUNT INVESTED.
SHARES OF THE FUND 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
Financial highlights
Study this table to see, among other things, how the fund
has performed since its inception.
The Trust
This section explains the Trust's relationship to various
variable annuity and variable life insurance products and advises
prospective investors to read the prospectus issued by the
relevant insurance company for information about the annuity or
insurance product.
Investment objectives and policies of the fund
The fund is managed according to its own specific
investment objective . Read this section to make sure
the fund's objective is consistent with your own.
How performance is shown
This section describes and defines the measures used to assess
the fund's performance. All data are based on the
fund's past investment results and do not predict future
performance.
How the Trust is managed
Consult this section for information about the Trust's
management, allocation of the Trust's expenses, and how purchases
and sales of securities are made for the Trust.
Organization and history
In this section, you will learn when the Trust was introduced,
how it is organized, how it may offer shares, and who its
Trustees are.
<PAGE>
ABOUT YOUR INVESTMENT
Sales and redemptions
This section describes the terms under which shares may be
purchased and redeemed.
How the fund values its shares
This section explains how the fund determines the value of
its shares.
How the fund makes distributions to shareholders; tax
information
This section describes the various options you have in choosing
how to receive dividends from the fund . It also discusses
the federal tax status of the payments and counsels shareholders
to seek specific advice about their own situation.
Financial information
This section informs you that each year you will receive
semiannual and annual reports of the Trust.
ABOUT PUTNAM INVESTMENTS, INC.
Read this section to learn more about the companies that provide
the marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.
<PAGE>
About the Trust
FINANCIAL HIGHLIGHTS
The following table presents per share financial
information for the life of the 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 1995 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>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Less
Investment Net
Distributions
Operations:
Realized and From From
Net
Unrealized Total from Net Net Realized
Year (period) Net Asset Value Investment
Gain (Loss) on Investment Investment Gain on
endedBeginning of Period Income Investments
Operations Income Investments
<S> <C> <C>
<C> <C> <C> <C>
December 31, 1995 $10.82 $-
$4.84 $4.84 $- $(.02)
December 31, 1994* $ 10.00
- - (c) .82 .82 - -
Ratio of
Total
Net Net
Net Asset Investment
Assets, Ratio of Investment
Value, Return at
End of Expenses to Income to
Return of Total End of Net
Asset Period (in Average Net Average
Net Portfolio
Capital Distributions
Period Value(%)(a) thousands)
Assets(%) Assets(%)(b)(c) Turnover(%)
<C> <C> <C> <C>
<C> <C> <C> <C>
$(.01) $(.03) $15.63 44.87$515,109
.84 (.03) 30.87
- - 10.82 8.20(b)
68,592 .47(b)(c) .03(d)(c) 32.77(b)
<FN>
* For the period May 2, 1994 (commencement of
operations) to December 31, 1994.
(a)
Total investment return assumes dividend
reinvestment and does not reflect the effect of sales charges.
(b)
Not annualized.
(c
) Reflects an expense limitation in effect during
the period. As a result of expense limitations, expenses of the
fund for the period ended December 31, 1994
reflect a reduction of less than $0.02 per share.
</TABLE>
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 OBJECTIVE AND POLICIES OF THE FUND
The investment objective and policies of the
fund may, unless otherwise specifically stated, be
changed by the Trustees without a vote of the shareholders. As a
matter of policy, the Trustees would not materially change the
investment objective of the fund without shareholder
approval. The fund is not intended to be a complete
investment program and there is no assurance that
the fund will achieve its objective .
Additional portfolios with differing investment objectives and
policies may be created from time to time 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 the fund or
divide the fund into two or more classes of shares with
such special or relative rights and privileges as the Trustees
may determine.
PCM NEW OPPORTUNITIES FUND
PCM New Opportunities Fund seeks long-term capital appreciation.
The fund seeks its 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 Investment Management , Inc. ("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
" 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 "Foreign currency exchange transactions" and "Futures and
Options " below for a discussion of these securities and types
of transactions and the risks associated with them. The fund may
also 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 - long distance telephone, cellular
telephone, paging, personal communication networks;
Media/Entertainment - cable television system operators,
cable
television network programmers, film entertainment providers,
theme park operators, casino operators, radio and television
stations;
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, entertainment software, networking software,
computer
systems integrators, information services companies,
semiconductors;
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 a company's size. Companies in the fund's
portfolio will range from small, rapidly growing companies to
larger, well-established firms. It may invest in small and
relatively less well-known companies. Investing in these
companies may present greater opportunities for capital
appreciation, but also may 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, and only in the over-the-
counter market or on a regional securities exchange. As a
result, these securities may fluctuate in value more than
securities of larger, more established companies.
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
fund's shares may fluctuate in value more than the shares of such
an investment company.
The fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets the fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government securities). The remaining 25% of the fund's total
assets is not subject to this restriction. To the extent the
fund invests a significant portion of its assets in the
securities of a particular issuer, such fund will be subject to
an increased risk of loss if the market value of such issuer's
securities declines.
PCM New Opportunities Fund will generally be managed in a style
similar to that of Putnam New Opportunities Fund.
Defensive strategies
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 the
fund's 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 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, the
fund will use these alternative strategies.
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 markups and other
transaction costs on the sale of securities and reinvestment in
other securities. These 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."
Foreign investments
The fund may invest to the extent described above in
securities principally traded in foreign markets. The
fund may also purchase Eurodollar certificates of deposit without
limitation. Since foreign securities are normally denominated
and traded in foreign currencies, the values of the 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 with 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 those 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 the 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 that could affect the
value of 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 investments in securities of
certain issuers located in those foreign countries. Special tax
considerations apply to foreign securities.
The risks described above, including the risks of nationalization
and expropriation of assets, are typically increased to the
extent that a fund invests in issuers located in less developed
and developing nations, whose securities markets are sometimes
referred to as "emerging markets." Investments in securities
located in such countries are speculative and subject to certain
special risks. Political and economic structures in many of
these countries may be in their infancy and developing rapidly,
and such countries may lack the social, political and economic
stability characteristics of more developed countries. Certain
of these countries have in the past failed to recognize private
property rights and have at times nationalized and expropriated
the assets of private companies.
The currencies of certain emerging market countries have
experienced a steady devaluation relative to the U.S. dollar, and
continued devaluations may adversely affect the value of a fund's
assets denominated in such currencies. Many emerging market
companies have experienced substantial, and in some periods
extremely high, rates of inflation for many years, and continued
inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may
affect the values of a fund's investments in these countries and
the availability to the fund of additional investments in these
countries. The small size, limited trading volume and relative
inexperienced of the markets in these countries may make a fund's
investments in such countries, and the fund may be required to
establish special custodial or other arrangements before making
investments in these countries. There may be little financial or
accounting information available with respect to issuers located
in these countries, and it may be more difficult as a result to
assess the value or prospects of an investment in such issuers.
A more detailed explanation of foreign investments, and the risks
and special tax considerations associated with them, is included
in the SAI.
Foreign currency exchange transactions
To the extent described above, the fund may engage
in foreign currency exchange transactions to protect against
uncertainty in the level of future exchange rates. Putnam
Management expects to engage in foreign currency exchange
transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect
against changes in the value of specific portfolio positions
("position hedging").
The fund may engage in transaction hedging to protect
against a change in foreign currency exchange rates between the
date on which the fund contracts to purchase or sell a security
and the settlement date, or to "lock in" the U.S. dollar
equivalent of a dividend or interest payment in a foreign
currency. The fund may also 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, the fund may also enter into
contracts to purchase or sell foreign currencies at a future date
("forward contracts") and may 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, the fund
may also purchase and sell call and put options on foreign
currency futures contracts and on currencies.
The 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 or
short-term investments). For position hedging purposes,
the 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, the fund may also
purchase or sell foreign currency on a spot basis.
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.
For a discussion of the risks associated with options and futures
strategies in connection with the fund's foreign currency
exchange transactions, see "Risks related to options and futures
strategies."
Futures and options
Futures and options on futures. To the extent described above,
the fund may, buy and sell index futures contracts ("index
futures"). 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 the fund enters into and
terminates an index futures transaction, the fund realizes a gain
or loss. The 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.
The fund may engage in index futures and options
transactions for hedging purposes and for nonhedging purposes,
such as adjusting exposure to relevant markets. In addition,
the fund may invest in futures and options on foreign
securities, for hedging purposes and for nonhedging purposes,
such as to adjust exposure to relevant markets or, as a
substitute for direct investment in foreign securities.
To the extent described above, the fund may also buy and
sell futures contracts and related options with respect to U.S.
government securities and options directly on U.S. government
securities. Putnam Management believes that, under certain market
conditions, price movements in U.S. government securities futures
and related options may correlate closely with securities in
which such fund may invest and may, as a result, provide
hedging opportunities for the fund . U.S. government
securities futures and related options would be used in a way
similar to the fund's use of index futures and options.
Options. As described above, the fund may seek to
increase current return by writing covered call and put options
on securities the fund owns or in which it may
invest. The fund receives a premium from writing a call
or put option, which increases return if the option
expires unexercised or is closed out at a net profit.
When the fund writes a call option, it gives up the
opportunity to profit from any increase in the price of a
security 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. 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 may also, to the extent consistent with its
investment objectives and policies, buy and sell put and call
options for hedging purposes. From time to time a fund
may also 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. The use of these
strategies may be limited by applicable law.
Risks related to options and futures strategies
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 its 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, currencies or indexes underlying the futures and
options purchased and sold by a fund, of the option and futures
contract itself, and of the securities or currencies which are
the subject of a hedge. The successful use of these strategies
further depends on the ability of Putnam Management to forecast
interest rates and market movements correctly. The use of
futures and options transactions for purposes other than hedging
entails greater risks.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the SAI.
Derivatives
Certain of the instruments in which the fund may invest,
such as futures contracts, options, forward contracts, and CMOs,
are considered to be "derivatives." Derivatives are financial
instruments whose value depends upon, or is derived from, the
value of an underlying asset, such as a security or an index.
Further information about these instruments and the risks
involved in their use is included elsewhere in this prospectus
and in the SAI.
Securities loans, repurchase agreements and forward commitments
The fund may lend portfolio securities amounting to not
more than 25% of its assets to broker-dealers and may enter into
repurchase agreements on up to 25% of its assets. These
transactions must be fully collateralized at all times. The
fund may also purchase securities for future delivery, which
may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the
settlement date. These transactions involve some risk to
the fund if the other party should default on its
obligation and the fund is delayed or prevented from recovering
the collateral or completing the transaction.
HOW PERFORMANCE IS SHOWN
The fund's investment performance may from time to time be
included in advertisements about the fund. "Total
return" for the one-, five- and ten-year periods (or for the life
of the fund, if shorter) through the most recent calendar
quarter represents the average annual compounded rate of return
on an investment of $1,000 in the fund. Total return may
also be presented for other periods.
All data are based on past investment results and do not predict
future performance.
Investment performance, which will vary, is based on many
factors, including market conditions, the composition of
the fund's portfolio, and the fund's operating
expenses. Investment performance also often reflects the risks
associated with the fund's investment objective or
objectives and policies. These factors should be considered when
comparing the fund's investment results with those of other
mutual funds and other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The fund's performance
may be compared to that of various indexes. See the SAI.
Performance information presented for the fund 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 fund's performance information. As a
result of such insurance-related charges and expenses, an
investor's return under the insurance product would be lower.
For performance information through the fund's most recent
fiscal year, see "Investment Performance of the Trust" in the
SAI.
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.
The Trust pays Putnam Management a quarterly fee for these
services based on each fund's average net assets. See the SAI.
The following officers of Putnam Management have had primary
responsibility for the day-to-day management of each fund's
portfolio since the year stated below:
Business experience
Year (at least 5 years)
----
- -------------------------
Daniel L. Miller
1994 Employed as an investment
Managing Director
professional by Putnam Management
since
1983 .
The Trust, on behalf of the fund , 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, 1995, based on the fund's average net
assets, were:
Total Management
Expenses Fees
PCM New Opportunities Fund 0.84%
0.70%
The management fees and total expenses shown in the table have
been restated to reflect this proposed increase. Actual
management fees and total expenses were 0.60% and 0.68%,
respectively.
Putnam Management places all orders for purchases and sales of
the securities of the 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. The fund is a diversified
investment company . 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 fund 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, Massachusetts Institute of
Technology; Jameson Adkins Baxter, President, Baxter Associates,
Inc.; Hans H. Estin, Vice Chairman, North American Management
Corp.; John A. Hill, Chairman and Managing Director, First
Reserve Corporation; Elizabeth T. Kennan, President Emeritus and
Professor, 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 and Director of
Acquisitions, Cabot Partners Limited Partnership; Donald S.
Perkins,* Director of various corporations, including Cummins
Engine Company, Inc., Lucent Technologies Inc., Springs
Industries, Inc. 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, Massachusetts Institute of Technology; A.J.C.
Smith,* Chairman and Chief Executive Officer, 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
fund with Putnam Mutual Funds, One Post Office Square,
Boston, Massachusetts 02109. Putnam Mutual Funds presently
offers shares of the fund 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 the fund must be received
by Putnam Mutual Funds before the close of regular trading on the
New York Stock Exchange in order to receive that day's net asset
value. No fee is charged to a separate account when it redeems
fund shares.
As noted above, only PCM New Opportunities Fund is offered by
this prospectus. A fund may not be available in your state
due to various insurance regulations. Inclusion in this
prospectus of a fund 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.
The fund currently does not foresee any disadvantages to
policyowners arising out of the fact that the fund offers
its shares to separate accounts of various insurance companies to
serve as the investment medium for their variable products.
Nevertheless, the Trustees intend 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 the fund and
shares of another portfolio of the Trust may be
substituted. This might force the fund to sell portfolio
securities at disadvantageous prices. In addition, the Trustees
may refuse to sell shares of the fund to any separate
account or may suspend or terminate the offering of shares of
the fund if such action is required by law or regulatory
authority or is in the best interests of the shareholders of the
fund.
<PAGE>
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 the 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 FUND VALUES ITS SHARES
The Trust calculates the net asset value of a share of the
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 valued at market value. Short-term
investments that will mature in 60 days or less are valued at
amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following
procedures approved by the Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX
INFORMATION
The 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 the fund 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 .
The fund intends to qualify each year as a "regulated
investment company" for federal income tax purposes and to meet
all other requirements 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.
Internal Revenue Service regulations applicable to variable
annuity and variable life insurance separate accounts generally
require that portfolios that serve as the funding vehicles solely
for such separate accounts 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. Alternatively, a
portfolio will be treated as meeting these requirements for any
quarter of its taxable year if, as of the close of such quarter,
the portfolio meets the diversification requirements applicable
to regulated investment companies (see "Taxes" in the SAI) and no
more than 55% of the value of its total assets consists of cash
and cash items (including receivables), U.S. government
securities and securities of other regulated investment
companies. The fund 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 fund will receive an unaudited
semi-annual financial statement and an audited annual financial
statement for the fund . These reports show the
investments owned by the 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>
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
<PAGE>
PUTNAM CAPITAL MANAGER TRUST
PROSPECTUS - MAY 1, 1996
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 Diversified Income Fund, PCM Global Asset
Allocation Fund, PCM Global Growth Fund, and PCM
U.S. Government and High Quality Bond Fund .
PCM Diversified Income Fund may invest significantly
in lower-rated bonds, commonly known as "junk bonds."
Investments of this type are subject to a greater risk of loss of
principal and non-payment of interest. Investors should
carefully assess the risks associated with an investment in
the fund.
This prospectus explains concisely what you should know before
investing in 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, 1996 statement of additional information (the "SAI"),
as amended from time to time. For a free copy of the SAI, call
Putnam Investor Services at 1-800-521-0538. The SAI 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
Financial highlights
Study this table to see, among other things, how the funds have
performed since their inception.
The Trust
This section explains the Trust's relationship to various
variable annuity and variable life insurance products and advises
prospective investors to read the prospectus issued by the
relevant insurance company for information about the annuity or
insurance product.
Investment objectives and policies of the funds
Each of the funds is managed according to its own specific
investment objective or objectives. Read this section to make
sure a fund's objectives are consistent with your own.
Common investment policies and techniques
Certain investment policies and techniques apply to two or more
of the funds. This section defines, describes, and explains
these policies and techniques.
How performance is shown
This section describes and defines the measures used to assess a
fund's performance. All data are based on a fund's past
investment results and do not predict future performance.
How the Trust is managed
Consult this section for information about the Trust's
management, allocation of the Trust's expenses, and how purchases
and sales of securities are made for the Trust.
Organization and history
In this section, you will learn when the Trust was introduced,
how it is organized, how it may offer shares, and who its
Trustees are.
<PAGE>
ABOUT YOUR INVESTMENT
Sales and redemptions
This section describes the terms under which shares may be
purchased and redeemed.
How a fund values its shares
This section explains how a fund determines the value of its
shares.
How the funds make distributions to shareholders; tax
information
This section describes the various options you have in choosing
how to receive dividends from the funds. It also discusses the
federal tax status of the payments and counsels shareholders to
seek specific advice about their own situation.
Financial information
This section informs you that each year you will receive
semiannual and annual reports of the Trust.
ABOUT PUTNAM INVESTMENTS, INC.
Read this section to learn more about the companies that provide
the marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.
APPENDIX
Securities ratings
<PAGE>
About the Trust
FINANCIAL HIGHLIGHTS
The following tables 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 1995 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>
<TABLE>
<CAPTION>
Financial Highlights
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
<S> <C> <C>
<C> <C> <C> <C>
PCM Diversified Income Fund
December 31, 1995 $9.74 $.71
$1.09 $1.80 $(.51) $ -
December 31, 1994 10.23 .61
(1.04) (.43) (.06) -
December 31, 1993* 10.00 .06
.17 .23 - -
PCM Global Asset Allocation Fund
December 31, 1995 $13.19 $.47
$2.74 $3.21 $(.25) $ -
December 31, 1994 14.29 .35
(.71) (.36) (.29) (.43)
December 31, 1993 12.92 .30
1.87 2.17 (.55) (.25)
December 31, 1992 12.77 .35
.41 .76 (.42) (.19)
December 31, 1991 11.28 .45
1.64 2.09 (.54) (.06)
December 31, 1990 11.26 .54
(.52) .02 - -
December 31, 1989 10.68 .56
1.10 1.66 (.88) (.15)
December 31, 1988** 10.00 .53(a)
.15 .68 - -
PCM Global Growth Fund
December 31, 1995 $13.48 $.20
$1.85 $2.05 $(.11) $(.24)
December 31, 1994 13.68 .13
(.26) (.13) (.05) (.02)
December 31, 1993 10.48 .08
3.28 3.36 (.16) -
December 31, 1992 10.61 .10
(.14) (.04) (.09) -
December 31, 1991 9.32 .11
1.28 1.39 (.10) -
December 31, 1990* ** 10.00 .11
(.79) (.68)
- - -
<PAGE>
PCM U.S. Government and
High Quality Bond Fund
December 31, 1995 $12.22 $.81
$1.56 $2.37 $(.85) $ -
December 31, 1994 13.53 .81
(1.24) (.43) (.66) (.22)
December 31, 1993 12.85 .63
.78 1.41 (.61) (.12)
December 31, 1992 12.57 .60
.28 .88 (.54) (.06)
December 31, 1991 11.36 .56
1.31 1.87 (.66) -
December 31, 1990 10.82 .71
.08 .79 (.22) (.03)
December 31, 1989 10.28 .62
.78 1.40 (.79) (.07)
December 31, 1988* * 10.00 .66(a)
(.38) .28 - -<PAGE>
Less
Ratio of
Distributions from:
Total Net
In Excess of Investment Ratio
of Investment
Net Realized Net Asset
Return at Net Assets Expenses to Income to
Gain on Return of Total Value, End Net
Asset End of Period Average Net Average Net Portfolio
Investments Capital Distributions of
Period Value(%)(b) (in thousands) Assets(%)(d)
Assets(%) Turnover(%)
<C> <C> <C> <C> <C>
<C> <C> <C> <C>
$- $- $(.51) $11.03
19.13 $303,721 .85 7.85 297.17
- - (.06) 9.74
(4.23) 215,935 .80 7.60 165.17
- - - 10.23
2.30(c) 80,449 .28(c) 1.45(c)
40.83(c)
$- $- $(.25) $16.15
24.71 $535,666 .84 3.31 150.88
(.02) - (.74) 13.19 (2.50) 414,223
.76 3.19 150.21
- - (.80) 14.29
17.48 297,307 .72 3.28 192.48
- - (.61) 12.92
6.29 134,667 .79 3.84 141.87
- - (.60) 12.77
19.02 82,071 .87 4.55 77.31
- - - 11.28
.18 51,792 .88 5.31 52.97
- (.05) (1.08) 11.26
16.08 40,200 .88 6.16 95.97
- - - 10.68
6.76(c) 26,202 1.17(c) 5.55(c)
183.11(c)
$- $- $(.35) $15.18
15.67 $831,593 .75 1.49 82.53
- - (.07) 13.48
(0.96) 669,821 .77 1.21 41.55
- - (.16) 13.68
32.40 352,786 .75 1.38 47.00
- - (.09) 10.48
(.36) 86,854 .85 1.82 59.68
- - (.10) 10.61
15.01 40,183 .99 2.01 48.67
- - - 9.32
(6.80)(c) 13,203 .99(c) 2.35(c)
18.07(c)
$- $- $(.85) $13.74
20.44 $747,024 .70 6.22 149.18
- - (.88) 12.22
(3.23) $640,458 .67 6.24 118.34
- - (.73) 13.53
11.28 735,386 .64 6.16 94.01
- - (.60) 12.85
7.49 435,906 .70 6.98 45.82
- - (.66) 12.57
17.28 229,306 .74 7.57 59.29
- - (.25) 11.36
7.51 98,549 .76 8.24 32.70
- - (.86) 10.82
14.06 61,765 .76 8.32 27.81
- - - 10.28
2.78(c) 28,406 .87(c) 7.04(c)
41.41(c)
<FN>
(a) Per share net investment income has been
determined on the basis of the weighted average number of shares
outstanding during the period.
(b)
Total investment return assumes dividend
reinvestment and does not reflect the effect of sales charges.
(c)
Not annualized.
(e) The ratio of expenses to average net assets for
the period ended December 31, 1995 includes amounts paid through
brokerage service and expense offset
arrangements. Prior period ratios exclude these amounts.
* For the period September 15, 1993 (commencement
of operations) to December 31, 1993.
*
* For the period February 1, 1988 (commencement of
operations) to December 31, 1988.
**
* For the period May 1, 1990 (commencement
of operations) to December 31, 1990 .
/TABLE
<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 its own investment objective or
objectives which it pursues through its own investment policies
as described below. The particular objectives and policies of
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 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.
Each fund is not intended to be a complete investment program,
and there is no assurance that any fund will achieve its
objective or objectives.
Additional portfolios with differing investment objectives and
policies may be created from time to time 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
"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 Fannie Mae
bonds.
"CMOs" -- collateralized mortgage obligations
"Ginnie Mae" -- Government National Mortgage Association
"Fannie Mae" -- Federal National Mortgage Association
"Freddie Mac" -- Federal Home Loan Mortgage Corporation
PCM DIVERSIFIED INCOME FUND
PCM Diversified Income Fund seeks high current income consistent
with capital preservation. The fund pursues its investment
objective by allocating its investments among the following three
sectors of the fixed-income securities markets:
* a U.S. Government Sector, consisting primarily of debt
obligations of the U.S. government, its agencies and
instrumentalities;
* a High Yield Sector, consisting of high-yielding, lower-rated,
higher risk U.S. and foreign fixed-income securities (commonly
known as "junk bonds"); and
* an International Sector, consisting of obligations of foreign
governments, their agencies and instrumentalities, and other
fixed-income securities denominated in foreign currencies.
Putnam Management believes that diversifying the fund's
investments among these sectors, as opposed to investing
exclusively in any one sector, will better enable the fund to
preserve capital while pursuing its objective of high current
income. Historically, the markets for U.S. government
securities, high yielding corporate fixed-income securities, and
debt securities of foreign issuers have tended to behave
independently and have at times moved in opposite directions.
For example, U.S. government securities have generally been
affected negatively by inflationary concerns resulting from
increased economic activity. High-yield corporate fixed-income
securities, on the other hand, have generally benefitted from
increased economic activity due to improvement in the credit
quality of corporate issuers. The reverse has generally been
true during periods of economic decline. Similarly, U.S.
government securities have often been negatively affected by a
decline in the value of the dollar against foreign currencies,
while the bonds of foreign issuers held by U.S. investors have
generally benefitted from such decline. Putnam Management
believes that, when financial markets exhibit such a lack of
correlation, a pooling of investments among these markets may
produce greater preservation of capital over the long term than
would be obtained by investing exclusively in any one of the
markets.
Putnam Management will determine the amount of assets to be
allocated to each of the three market sectors in which the fund
will invest based on its assessment of the returns that can be
achieved from a portfolio which is invested in all three sectors.
In making this determination, Putnam Management will rely in part
on quantitative analytical techniques that measure relative risks
and opportunities of each market sector based on current and
historical market data for each sector, as well as on its own
assessment of economic and market conditions. Putnam Management
will continuously review this allocation of assets and make such
adjustments as it deems appropriate, although there are no fixed
limits on allocations among sectors, including investments in the
High Yield Sector. Because of the importance of sector
diversification to the fund's investment policies, Putnam
Management expects that a substantial portion of the fund's
assets will normally be invested in each of the three market
sectors. The fund's assets allocated to each of these market
sectors will be managed in accordance with particular investment
policies, which are summarized below. 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. When pursuing such defensive
strategies, the fund may invest without limit in securities
primarily traded in U.S. markets. See "Common investment
policies and techniques" below for a discussion of these
strategies.
The fund may invest in premium securities, engage in foreign
currency exchange transactions, 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 also hold a portion of
its assets in cash and money market instruments.
PCM Diversified Income Fund will generally be managed in a style
similar to that of Putnam Diversified Income Trust.
U.S. Government Sector
The fund will invest assets allocated to the U.S. Government
Sector primarily in U.S. government securities. In purchasing
securities for the U.S. Government Sector, Putnam Management may
take full advantage of the entire range of maturities of U.S.
government securities and may adjust the average maturity of the
investments held in the portfolio from time to time, depending on
its assessment of relative yields of securities of different
maturities and its expectations of future changes in interest
rates. Under normal market conditions, the fund will invest at
least 20% of its net assets in U.S. government securities and at
least 65% of the assets allocated to the U.S. Government Sector
will be invested in U.S. government securities.
The fund may invest assets allocated to the U.S. Government
Sector in a variety of debt securities, including asset-backed
and mortgage-backed securities, such as CMOs and certain stripped
mortgage-backed securities, that are issued by private U.S.
issuers. For a description of these securities, and the risks
associated with them, see "Common investment policies and
techniques -- Mortgage-backed and asset-backed securities."
With respect to assets allocated to the U.S. Government Sector,
the fund will only invest in privately issued debt securities
that are rated at the time of purchase at least A by Moody's or
S&P, or in unrated securities that Putnam Management determines
are of comparable quality. The fund will not necessarily dispose
of a security if its rating is reduced below these levels,
although Putnam Management will monitor the investment to
determine whether continued investment in the security will
assist in meeting the fund's investment objective.
Risk factors. U.S. government securities are considered among
the safest of fixed-income investments. Because of this added
safety, the yields available from U.S. government securities are
generally lower than the yields available from corporate 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
investment income from those securities, but will affect the
fund's net asset value. Thus, a decrease in interest rates will
generally result in an increase in the value of such securities.
Conversely, during periods of rising interest rates, the value of
such securities will generally decline. The magnitude of these
fluctuations will generally be greater for securities with longer
maturities. Because of their added safety, the yields available
from U.S. government securities are generally lower than the
yields available from comparable securities of private issuers.
While 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 things, the ability of
the borrower, or, in the case of mortgage-backed securities, the
mortgagor, to meet its obligations.
High Yield Sector
The fund will invest assets allocated to the High Yield Sector
primarily in high yielding, lower-rated, higher risk U.S. and
foreign corporate fixed-income securities, including debt
securities, convertible securities and preferred stocks. As
discussed below, however, under certain circumstances the fund
may invest all or any part of the High Yield Sector portfolio in
higher-rated and unrated fixed-income securities. The fund will
not necessarily invest in the highest yielding securities
available if in Putnam Management's opinion the differences in
yield are not sufficient to justify the higher risks involved.
The High Yield Sector may invest in any security which is rated,
at the time of purchase, at least Caa as determined by Moody's or
CCC as determined by S&P or in any unrated security which Putnam
Management determines is at least of comparable quality, although
up to 5% of the net assets of the fund may be invested in
securities rated below such quality, or in unrated securities
which Putnam Management determines are of comparable quality.
Securities rated below Caa by Moody's or CCC by S&P are of poor
standing and may be in default. The fund will not necessarily
dispose of a security if its rating is reduced below its rating
at the time of purchase, although Putnam Management will monitor
the investment to determine whether continued investment in the
security will assist in meeting the fund's investment objective.
The rating services' descriptions of these rating categories,
including the speculative characteristics of the lower
categories, are included in the Appendix to this prospectus.
The table below shows the percentages of fund assets invested
during fiscal 1995 in securities assigned to the various rating
categories by S&P, or, if unrated by S&P, assigned to comparable
rating categories by Moody's, and in unrated securities
determined by Putnam Management to be of comparable quality.
<PAGE>
Rated securities, Unrated
securities of
as percentage of comparable
quality, as
Rating net assets percentage of net
assets
- ------ ---------------- -----
- -------------------
"AAA" 42.51% --
"AA" 15.92% --
"A" 0.38% --
"BBB" 0.21% --
"BB" 9.45% 1.19%
"B" 20.22% 0.94%
"CCC" 3.31% 0.04%
"D" -- 0.01%
------ -----
92.00% 2.18%
====== =====
For a description of the risks associated with investments in
fixed-income securities, including lower-rated fixed-income
securities, see "Common investment policies and techniques --
Lower-rated and other fixed-income securities."
The fund may invest assets allocated to the High Yield Sector in
participations and assignments of fixed and floating rate loans
made by financial institutions to governmental or corporate
borrowers. In addition to the more general investment
considerations applicable to fixed-income investments,
participations and assignments involve the risk that the
institution's insolvency could delay or prevent the flow of
payments on the underlying loan to the fund. The fund may have
limited rights to enforce the terms of the underlying loan, and
the liquidity of loan participations and assignments may be
limited.
The fund may also invest assets allocated to the High Yield
Sector in lower-rated securities of foreign corporate and
governmental issuers denominated either in U.S. dollars or in
foreign currencies. For a discussion of the risks associated
with foreign investing, see "Common investment policies and
techniques -- Foreign investments."
International Sector
The fund will invest the assets allocated to the International
Sector in debt obligations and other fixed-income securities
denominated in non-U.S. currencies. These securities include:
* debt obligations issued or guaranteed by foreign
national,
provincial, state, or other governments with taxing
authority, or by their agencies or
instrumentalities;
* debt obligations of supranational entities
(described below);
and
* debt obligations and other fixed-income securities
of foreign
and U.S. corporate issuers.
When investing in the International Sector, the fund will
purchase only debt securities of issuers whose long-term debt
obligations are rated A or better at the time of purchase by
Moody's or S&P or that are unrated securities that Putnam
Management determines are of comparable quality. The fund will
not necessarily dispose of a security if its rating is reduced
below its rating at the time of purchase, although Putnam
Management will monitor the investment to determine whether
continued investment in the security will assist in meeting the
fund's investment objective. The fund may, however, make
investments in international debt securities rated below A with
respect to assets allocated to the High Yield Sector.
In the past, yields available from securities denominated in
foreign currencies have often been higher than those of
securities denominated in U.S. dollars. Although the fund has
the flexibility to invest in any country where Putnam Management
sees potential for high income, it presently expects to invest
primarily in securities of issuers in industrialized Western
European countries (including Scandinavian countries) and in
Canada, Japan, Australia, and New Zealand. Putnam Management
will consider expected changes in foreign currency exchange rates
in determining the anticipated returns of securities denominated
in foreign currencies.
The obligations of foreign governmental entities, including
supranational issuers, have various kinds of government support.
Obligations of foreign governmental entities include obligations
issued or guaranteed by national, provincial, state or other
governments with taxing power or by their agencies. These
obligations may or may not be supported by the full faith and
credit of a foreign government.
Supranational entities include international organizations
designated or supported by governmental entities to promote
economic reconstruction or development and international banking
institutions and related government agencies. Examples include
the International Bank for Reconstruction and Development (the
World Bank), the European Steel and Coal Community, the Asian
Development Bank, and the Inter-American Development Bank. The
governmental members or "stockholders" usually make initial
capital contributions to the supranational entity and in many
cases are committed to make additional capital contributions if
the supranational entity is unable to repay its borrowing. Each
supranational entity's lending activities are limited to a
percentage of its total capital (including "callable capital"
contributed by members at the entity's call), reserves, and net
income.
For a discussion of the risks associated with foreign
investments, see "Common investment policies and techniques --
Foreign investments."
PCM GLOBAL ASSET ALLOCATION FUND
The investment objective of PCM Global Asset Allocation Fund is
to seek a high level of long-term total return consistent with
preservation of capital. By seeking total return, the fund seeks
to increase the value of the shareholder's investment through
both capital appreciation and investment income. "Total return"
includes interest and dividend income, net of expenses, and
realized and unrealized capital gains and losses on securities.
The fund invests in a wide variety of equity and fixed-income
securities both of U.S. and foreign issuers. The fund's
portfolio may include securities in the following four investment
categories, which in the judgment of Putnam Management represent
large, well-differentiated classes of securities with distinctive
investment characteristics:
U.S. Equities
International Equities
U.S. Fixed Income
International Fixed Income
The amount of fund assets assigned to each investment category
will be reevaluated by Putnam Management at least quarterly based
on Putnam Management's assessment of the relative market
opportunities and risks of each investment category taking into
account various economic and market 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 interests of the fund's shareholders. When pursuing
such defensive strategies, the fund may invest without limit in
securities primarily traded in U.S. markets. See "Common
investment policies and techniques" below for a discussion of
these strategies. The fund may invest in premium securities,
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 also hold a
portion of its assets in cash and money market instruments.
The portion of the fund's assets invested in each investment
category will be managed as a separate investment portfolio in
accordance with that category's particular investment objectives
and policies, independently of the fund's overall objective. The
following is a description of the investment objectives and
policies of each investment category:
U.S. Equities. The objective of the U.S. Equities category is to
seek both capital growth and, to a lesser extent, current income
through equity securities. This category's portfolio will
include equity securities selected primarily to provide one or
more of the following factors: growth in value, capital
protection and dependable income. Investments will be made in
companies, large or small, whose earnings are believed to be in a
relatively strong growth trend or whose securities are thought to
be undervalued. The fund may invest in small and relatively less
well-known companies. Investing in these companies may present
greater opportunities for capital appreciation, but also may
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, and only in the over-the-counter market or on
a regional securities exchange. As a result, these securities
may fluctuate in value more than securities of larger, more
established companies.
International Equities. The objective of the International
Equities category is to seek capital appreciation. This
category's portfolio will be invested in securities principally
traded in foreign securities markets. These securities will
primarily be common stocks or securities convertible into common
stocks. Investments will be made in companies, large or small,
whose earnings are believed to be in a relatively strong growth
trend or whose securities are thought to be undervalued. The
fund may invest in small and relatively less well-known
companies. Investing in these companies may present greater
opportunities for capital appreciation, but also may 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. For a
discussion of the risks associated with foreign investments, see
"Common investment policies and techniques -- Foreign
investments."
U.S. Fixed Income. The objective of the U.S. Fixed Income
category is to seek high current income through a portfolio of
fixed-income securities which in the judgment of Putnam
Management does not involve undue risk to principal or income.
The U.S. Fixed Income category may invest in any fixed-income
securities Putnam Management considers appropriate, including
U.S. government securities, debt securities, mortgage-backed and
asset-backed securities, convertible securities and preferred
stocks of non-governmental issuers.
<PAGE>
Whereas certain U.S. government securities in which the fund may
invest, such as U.S. Treasury obligations and Ginnie Mae
certificates, are supported by the full faith and credit of the
United States, other fixed-income 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 the ability of the borrower, or, in the case of
mortgage-backed securities the mortgagor, to meet its
obligations. While the credit risks presented by differing types
of fixed-income securities vary, the values of all fixed-income
securities change as interest rates fluctuate.
For a description of the risks associated with investments in
mortgage-backed and asset-backed securities, see "Common
investment policies and techniques -- Mortgage-backed and asset-
backed securities."
International Fixed Income. The investment objective of the
International Fixed Income category is to seek high current
income by investing principally in debt securities denominated in
foreign currencies which are issued by foreign governments and
governmental or supranational agencies. This category may also
invest in other privately issued debt securities, convertible
securities and preferred stocks principally traded in foreign
securities markets. For a discussion of the risks associated
with foreign investments, see "Common investment policies and
techniques -- Foreign investments."
General. Putnam Management will adjust the percentage of the
fund's assets in each investment category from time to time based
upon its market outlook and its analysis of longer-term trends.
The fund may from time to time invest in all or any one of the
investment categories as Putnam Management may consider
appropriate in response to changing market conditions.
The fund will not purchase fixed-income securities rated at the
time of purchase below Caa by Moody's or CCC by S&P, or, if
unrated, determined by Putnam Management to be of comparable
quality, if, as a result more than 5% of the fund's total assets
would be invested in securities of that quality. In addition,
the fund will not purchase fixed-income securities rated at the
time of purchase below Baa by Moody's or BBB by S&P, or, if
unrated, determined to be of comparable quality by Putnam
Management if, as a result, more than 35% of the fund's
total assets would be invested in securities of that quality.
The fund will not necessarily dispose of a security if its rating
is reduced below its rating at the time of purchase, although
Putnam Management will monitor the investment to determine
whether continued investment in the security will assist in
meeting the fund's investment objective.
<PAGE>
For a description of the risks of investing in fixed-income
securities, including lower-rated fixed-income securities
(commonly known as "junk bonds"), see "Common investment policies
and techniques -- Lower-rated and other fixed-income securities."
PCM GLOBAL GROWTH FUND
PCM Global Growth Fund seeks capital appreciation. The fund is
designed for investors seeking above-average capital growth
potential through a globally diversified portfolio of common
stocks. Dividend and interest income is only an incidental
consideration. In seeking capital appreciation, the fund follows
a global investment strategy of investing primarily in common
stocks traded in securities markets located in a number of
foreign countries and in the United States. The fund may at
times invest up to 100% of its assets in securities principally
traded in securities markets outside the United States, and will
under normal market conditions invest at least 65% of its assets
in at least three different countries, one of which may be the
United States. The fund may hold a portion of its assets in cash
and money market instruments.
The fund will not limit its investments to any particular type of
company. It may invest in companies, large or small, whose
earnings are believed to be in a relatively strong growth trend,
or in companies in which significant further growth is not
anticipated but the securities of which are thought to be
undervalued. It may invest in small and relatively less well-
known companies. Investing in these companies may present
greater opportunities for capital appreciation, 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, and only in the over-the-counter market or on
a regional securities exchange. As a result, these securities
may fluctuate in value more than securities of larger, more
established companies.
Putnam Management believes that the securities markets of many
nations move relatively independently of one another, because
business cycles and other economic or political events that
influence one country's securities markets may have little effect
on securities markets in other countries. By investing in a
globally diversified portfolio, Putnam Management attempts to
reduce the risks associated with investing in the economy of only
one country. The countries which Putnam Management believes
offer attractive opportunities for investment may change from
time to time.
Foreign investments can involve risks, however, that may not be
present in domestic 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
interests of the fund's shareholders. When pursuing such
defensive strategies, the fund may invest without limit in
securities primarily traded in U.S. markets. See "Common
investment policies and techniques" below for a discussion of
these strategies.
PCM Global Growth Fund will generally be managed in a style
similar to that of Putnam Global Growth Fund.
PCM U.S. GOVERNMENT AND HIGH QUALITY BOND FUND
PCM U.S. Government and High Quality Bond Fund seeks current
income consistent with preservation of capital. The fund invests
primarily in U.S. government securities and in other debt
obligations rated at least A by Moody's or S&P at the time of
investment, or, if not rated, determined by Putnam Management to
be of comparable quality. For a more detailed description of
security ratings, see the Appendix to this prospectus. The fund
will not necessarily dispose of a security if its rating is
reduced below its rating at the time of purchase, although Putnam
Management will monitor the investment to determine whether
continued investment in the security will assist in meeting the
fund's investment objective.
Putnam Management will allocate the fund's assets between U.S.
government securities and other high quality bonds, depending on
its assessment of market conditions and the relative investment
returns available from such securities. The fund will not,
however, make any investment, if, as a result, less than 25% of
the value of its assets would be invested in U.S. government
securities. The fund may also invest up to 10% 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 invest in
premium securities, 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 strategies and
the risks associated with them. The fund may also 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.
Putnam Management may take full advantage of the entire range of
maturities of U.S. government securities and other high quality
bonds and may adjust the average maturity of the fund's portfolio
from time to time, depending on its assessment of relative yields
on securities of different maturities and expectations of future
changes in interest rates. Thus, at certain times the average
maturity of the portfolio may be relatively short (less than one
year to five years, for example) and at other times may be
relatively long (more than 10 years, for example).
The fund may also invest in high quality mortgage-backed and
asset-backed securities. For a description of these securities,
and the risks associated with them, see "Common investment
policies and techniques -- Mortgage-backed and asset-backed
securities."
U.S. government securities and other high quality bonds do not
involve the degree of credit risk associated with investments in
lower quality fixed-income securities, although, as a result, the
yields available from U.S. government securities and other high
quality bonds are generally lower than the yields available from
many other fixed-income securities. Like other fixed-income
securities, however, the values of U.S. government securities and
other high quality bonds change as interest rates fluctuate.
Fluctuations in the value of the fund's securities will not
affect interest income on securities already held by the fund,
but will be reflected in the fund's net asset value. Since the
magnitude of these fluctuations generally will be greater at
times when the fund's average maturity is longer, under certain
market conditions the fund may invest in short-term investments
yielding lower current income rather than investing in higher
yielding longer-term securities.
GENERAL
As indicated above, certain of 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.
<PAGE>
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 these 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 markups and other
transaction costs on the sale of securities and reinvestment in
other securities. These transactions may result in realization
of taxable capital gains. Portfolio turnover rates for the life
of each fund are shown in the section "Financial highlights."
Investments in premium securities
To the extent described above, certain of the funds may invest in
securities bearing coupon rates higher than prevailing market
rates. Such "premium" securities are typically purchased at
prices greater than the principal amounts payable on maturity.
A fund does not amortize the premium paid for these securities in
calculating its net investment income. As a result, the purchase
of premium securities provides a fund a higher level of
investment income distributable to shareholders on a current
basis than if the fund purchased securities bearing current
market rates of interest. Because the value of premium securities
tends to approach the principal amount as they approach maturity
(or call price in the case of securities approaching their first
call date), the purchase of such securities may increase the
fund's risk of capital loss if such securities are held to
maturity (or first call date).
During a period of declining interest rates, many of a fund's
portfolio investments will likely bear coupon rates that are
higher than current market rates, regardless of whether such
securities were originally purchased at a premium. These
securities would generally carry premium market values that would
be reflected in the net asset value of the fund's shares. As a
result, an investor who purchases shares of a fund during such
periods would initially receive higher taxable monthly
distributions (derived from the higher coupon rates payable on
the fund's investments) than might be available from alternative
investments bearing current market interest rates, but the
investor may face an increased risk of capital loss as these
higher coupon securities approach maturity (or first call date).
In evaluating the potential performance of an investment in a
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."
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 fund assets may be affected
favorably or unfavorably by currency exchange rates and exchange
control regulations. There may be less information publicly
available about a 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 with 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 those 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 fund assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial
instability and diplomatic developments that could affect the
value of 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 investments in securities of
certain issuers located in those foreign countries. Special tax
considerations apply to foreign securities.
The risks described above, including the risks of nationalization
and expropriation of assets, are typically increased to the
extent that a fund invests in issuers located in less developed
and developing nations, whose securities markets are sometimes
referred to as "emerging markets." Investments in securities
located in such countries are speculative and subject to certain
special risks. Political and economic structures in many of
these countries may be in their infancy and developing rapidly,
and such countries may lack the social, political and economic
stability characteristics of more developed countries. Certain
of these countries have in the past failed to recognize private
property rights and have at times nationalized and expropriated
the assets of private companies.
The currencies of certain emerging market countries have
experienced a steady devaluation relative to the U.S. dollar, and
continued devaluations may adversely affect the value of a fund's
assets denominated in such currencies. Many emerging market
companies have experienced substantial, and in some periods
extremely high, rates of inflation for many years, and continued
inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may
affect the values of a fund's investments in these countries and
the availability to the fund of additional investments in these
countries. The small size, limited trading volume and relative
inexperienced of the markets in these countries may make a fund's
investments in such countries, and the fund may be required to
establish special custodial or other arrangements before making
investments in these countries. There may be little financial or
accounting information available with respect to issuers located
in these countries, and it may be more difficult as a result to
assess the value or prospects of an investment in such issuers.
A more detailed explanation of foreign investments, and the risks
and special tax considerations associated with them, is included
in the SAI.
Foreign currency exchange transactions
To the extent described above, certain of the funds may engage in
foreign currency exchange transactions to protect against
uncertainty in the level of future exchange rates. Putnam
Management expects to engage in foreign currency exchange
transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect
against changes in the value of specific portfolio positions
("position hedging").
<PAGE>
A fund may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on
which the fund contracts to purchase or sell a security and the
settlement date, or to "lock in" the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. A fund may
also 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 may 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 foreign 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 or
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. To the extent described above,
each fund may, buy and sell index futures contracts ("index
futures"). 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.
Each of these funds 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. Each
of these funds may engage in index futures and options
transactions for hedging purposes and for nonhedging purposes,
such as adjusting exposure to relevant markets. 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, for hedging purposes and for nonhedging
purposes, such as to adjust exposure to relevant markets or, as a
substitute for direct investment in foreign securities.
To the extent described above, each fund may also buy and sell
futures contracts and related options with respect to U.S.
government securities and options directly on U.S. government
securities. Putnam Management believes that, under certain market
conditions, price movements in U.S. government securities futures
and related options may correlate closely with securities in
which such funds may invest and may, as a result, provide hedging
opportunities for the funds. U.S. government securities futures
and related options would be used in a way similar to a fund's
use of index futures and options.
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 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.
<PAGE>
Each fund may also, to the extent consistent with its investment
objectives and policies, buy and sell put and call options for
hedging purposes. From time to time, a fund may also 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. The use of these strategies may be
limited by applicable law.
Risks related to options and futures strategies
Options and futures transactions involve costs and may result in
losses. The effective use of options and futures strategies
depends on a fund's ability to terminate options and
futures positions at times when Putnam Management deems it
desirable to do so. Although a 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 a fund may purchase or sell are
traded in the "over-the-counter" market rather than on an
exchange. This means that a fund will enter into such option
contracts with particular securities dealers who make markets in
these options. A 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, currencies or indexes underlying the futures and
options purchased and sold by a 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 rates and market movements correctly. The use of
futures and options transactions for purposes other than hedging
entails greater risks.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the SAI.
Lower-rated and other fixed-income securities
As described above, certain of the funds 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 rating 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 fund 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 all or a major portion. Under adverse market
or economic conditions or in the event of adverse changes in the
financial condition of the issuer, a fund could find it more
difficult to sell these securities when Putnam Management
believes it advisable to do so or may be able to sell the
securities only at prices lower than if they were more widely
held. Under these circumstances, it may also be more difficult
to determine the fair value of such securities for purposes of
computing a fund's net asset value.
In order to enforce its rights in the event of a default of these
securities, a fund may be required to participate in various
legal proceedings or take possession of and manage assets
securing the issuer's obligations on the securities. This could
increase the fund's operating expenses and adversely affect the
fund's net asset value.
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 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 will generally be greater
when a fund's average maturity is longer. 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 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.
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis. When
a 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 on a current basis to shareholders.
Thus, a fund could be required at times to sell other investments
in order to satisfy its income distributions .
Certain investment grade securities in which a fund may invest
share some of the risk factors discussed above with respect to
lower-rated securities.
The fund may invest up to 15% of its assets in illiquid
securities. Putnam Management believes that opportunities to
earn high yields may exist from time to time in securities which
are illiquid and which may be considered speculative. The sale
of these securities is usually restricted under federal
securities laws. As a result of illiquidity, the fund may not be
able to sell these securities when Putnam Management considers it
desirable to do so or may have to sell them at less than fair
value.
Mortgage-backed and asset-backed securities
As described above, certain of the funds may invest in asset-
backed and mortgage-backed securities, such as CMOs and certain
stripped mortgage-backed securities. CMOs and other mortgage-
backed securities represent a participation in, or are secured
by, mortgage loans and include:
- - Certain securities issued or guaranteed by the U.S.
government or one of its agencies or
instrumentalities
- - Securities issued by private issuers that represent
an
interest in or are secured by mortgage-backed
securities
issued or guaranteed by the U.S. government or one
of its
agencies or instrumentalities
- - Securities issued by private issuers that represent
an
interest in or are secured by mortgage loans or
mortgage-
backed securities without a government guarantee but
usually
having some form of private credit enhancement.
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. A fund may
invest in both the interest-only or "IO" class and the
principal-only or "PO" class. 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. A rapid rate of principal prepayments may
have a measurably adverse effect on a fund's yield to maturity to
the extent it invests in IOs. If the assets underlying the IO
experience greater than anticipated prepayments of principal, a
fund may fail to recoup fully 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 more volatile and less
liquid than that for other mortgage-backed securities,
potentially limiting a fund's ability to buy or sell those
securities at any particular time.
Asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in
mortgage loans, the underlying assets may include motor vehicle
installment sales or installment loan contracts, leases of
various types of real and personal property, and receivables from
credit card agreements. The ability of an issuer of asset-backed
securities to enforce its security interest in the underlying
assets may be limited.
Mortgage-backed and asset-backed securities have yield and
maturity characteristics corresponding to the underlying assets.
Unlike traditional debt securities, which may pay a fixed rate of
interest until maturity when the entire principal amount comes
due, payments on certain mortgage-backed securities and asset-
backed securities include both interest and a partial payment of
principal.
Besides the scheduled repayment of principal, payments of
principal may result from voluntary prepayment, refinancing, or
foreclosure of the underlying mortgage loans or other assets.
Prepayments may require reinvestment of principal under less
attractive terms. Prepayments may also significantly shorten the
effective maturities of these securities, especially during
periods of declining interest rates. Conversely, during periods
of rising interest rates, a reduction in prepayments may increase
the effective maturities of these securities.
Mortgage-backed and asset-backed securities are less effective
than other types of securities as a means of "locking in"
attractive long-term interest rates. One reason is the need to
reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in
interest rates. These prepayments would have to be reinvested at
lower rates. As a result, these securities may have less
potential for capital appreciation during periods of declining
interest rates than other securities of comparable maturities,
although they may have a similar risk of decline in market value
during periods of rising interest rates.
Prepayments may cause losses in securities purchased at a
premium. At times, some of the mortgage-backed and asset-backed
securities in which a fund may invest will have higher than
market interest rates and therefore will be purchased at a
premium above their par value. Unscheduled prepayments, which
are made at par, will cause a fund to experience a loss equal to
any unamortized premium.
Prepayments could cause early retirement of CMOs. CMOs are
issued with a number of classes or series which have different
maturities and that may represent interests in some or all of the
interest or principal on the underlying collateral. Payment of
interest or principal on some classes or series of CMOs may be
subject to contingencies or some classes or series may bear some
or all of the risk of default on the underlying mortgages. CMOs
of different classes or series are generally retired in sequence
as the underlying mortgage loans in the mortgage pool are repaid.
If enough mortgages are repaid ahead of schedule, the classes or
series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of
particular classes or series of a CMO held by the fund would have
the same effect as the prepayment of mortgages underlying other
mortgage-backed securities.
Derivatives
Certain of the instruments in which each fund may invest,
such as futures contracts, options, forward contracts, and CMOs,
are considered to be "derivatives." Derivatives are financial
instruments whose value depends upon, or is derived from, the
value of an underlying asset, such as a security or an index.
Further information about these instruments and the risks
involved in their use is included elsewhere in this prospectus
and in the SAI.
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 a 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.
<PAGE>
HOW PERFORMANCE IS SHOWN
Each fund's investment performance may from time to time be
included in advertisements about that fund. For funds ,
"yield" is calculated by dividing a fund's annualized net
investment income per share during a recent 30-day period by the
maximum public offering price per share on the last day of that
period.
For purposes of calculating yield, net investment income is
calculated in accordance with 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
"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 are based on past investment results and do not predict
future performance.
Investment performance, which will vary, is based on many
factors, including market conditions, 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 with those of other mutual funds and other investment
vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. A fund's performance may be
compared to that of various indexes. See the SAI.
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. As a result of such insurance
related charges and expenses, an investor's return under
the insurance product would be lower.
For performance information through the funds' most recent fiscal
year, see "Investment Performance of the Trust" in the SAI.
<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.
The Trust pays Putnam Management a quarterly fee for these
services based on each fund's average net assets. See the SAI.
The following officers of Putnam Management have had primary
responsibility for the day-to-day management of each fund's
portfolio since the year stated below:
Business experience
Fund name Year (at least 5 years)
--------- -------
- -------------------------
PCM Diversified
Income Fund
William Kohli 1994 Employed as an
investment
Managing Director professional by
Putnam
Management since
September,
1994. Prior to
September,
1994, Mr. Kohli was
Executive
Vice President, and
Co-
Director of Global
Bond
Management and, prior
to
October, 1993, Mr.
Kohli was
Senior Portfolio
Manager at
Franklin
Advisors/Templeton
Investment Counsel.
Michael Martino 1994 Employed as an
investment
Managing Director professional by
Putnam
Management since
January,
1994. 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.
Jennifer E. Leichter 1993 Employed as an
investment
Senior Vice President professional by Putnam
Management since 1987.
<PAGE>
Mark J. Siegel 1994 Employed as an
investment
Senior Vice President professional by Putnam
Management since June, 1993.
Prior to June, 1993, Mr.
Siegel was Vice President of
Salomon Brothers International
Ltd.
Neil J. Powers 1994 Employed as an
investment
Vice President professional by
Putnam
Management since
1986 .
PCM Global Asset
Allocation Fund
William Kohli 1994 Employed as an
investment
Managing Director professional by
Putnam
Management since
September,
1994. Prior to
September,
1994, Mr. Kohli was
Executive
Vice President, and
Co-
Director of Global
Bond
Management and, prior
to
October, 1993, Mr.
Kohli was
Senior Portfolio
Manager at
Franklin
Advisors/Templeton
Investment Counsel.
William J. Landes 1993 Employed as an
investment
Managing Director professional by
Putnam
Management since
1985.
Richard M. Frucci 1995 Employed as an
investment
Senior Vice President professional by Putnam
Management since 1984.
David L. King 1993 Employed as an
investment
Senior Vice President professional by Putnam
Management since 1983.
John K. Storkerson 1993 Employed as an
investment
Senior Vice President professional by Putnam
Management since 1979.
Christopher A. Ray 1993 Employed as an
investment
Vice President professional by
Putnam
Management since
December,
1992. Prior to
December,
1992, Mr. Ray was
Vice
President and
Portfolio
Manager at Scudder,
Stevens &
Clark, Inc., and from
February, 1986 to
March, 1992,
Mr. Ray was Vice
President of
Putnam Management.
David J. Santos 1995 Employed as an
investment
Vice President professional by
Putnam
Management since
1986.
PCM Global Growth
Fund
Carol C. McMullen 1995 Employed as an
investment
Managing Director professional by
Putnam
Management since
June, 1995.
Prior to June, 1995,
Ms.
McMullen was Senior
Vice
President of Baring
Asset
Management.
John K. Storkerson 1992 Employed as an
investment
Senior Vice President professional by Putnam
Management since 1979.
PCM U.S. Government
and High Quality
Bond Fund
Kenneth J. Taubes 1993 Employed as an
investment
Senior Vice President professional by Putnam
Management since June, 1991.
Prior to June, 1991, Mr.
Taubes was Senior Vice
President of the Finance
Division of U.S. Trust
Company.
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, 1995, based on each fund's average net assets,
were:
<PAGE>
Total Management
Expenses Fees
---------- -----------
PCM Diversified Income Fund 0 .85%
0 .70%
PCM Global Asset Allocation Fund 0 .84%
0 .70%
PCM Global Growth Fund 0 .75%
0 .60%
PCM U.S. Government and High
Quality Bond Fund 0 .70%
0 .61%
The expenses shown in the table do not reflect the application of
credits related to brokerage service and expense offset
arrangements that reduce certain fund expenses.
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 a diversified
investment company . Until September 1, 1993, PCM Global
Asset Allocation Fund was known as PCM Multi-Strategy Fund.
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
separate account. For matters requiring shareholder approval,
you may be able to instruct the insurance company 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, Massachusetts Institute of
Technology; Jameson Adkins Baxter, President, Baxter Associates,
Inc.; Hans H. Estin, Vice Chairman, North American Management
Corp.; John A. Hill, Chairman and Managing Director, First
Reserve Corporation; Elizabeth T. Kennan, President Emeritus and
Professor, 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 and Director of
Acquisitions, Cabot Partners Limited Partnership; Donald S.
Perkins,* Director of various corporations, including Cummins
Engine Company, Inc., Lucent Technologies Inc., Springs
Industries, Inc. 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, Massachusetts Institute of Technology; A.J.C.
Smith,* Chairman and Chief Executive Officer, 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.
<PAGE>
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 Putnam
Mutual Funds before the close of regular trading on the New York
Stock Exchange 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 to determine the 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 in this
prospectus of a fund 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 Trustees intend 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 A FUND 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 valued at market value. Short-term
investments that will mature in 60 days or less are valued at
amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following
procedures approved by the Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX
INFORMATION
Each of the funds 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 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.
Internal Revenue Service regulations applicable to variable
annuity and variable life insurance separate accounts generally
require that portfolios that serve as the funding vehicles solely
for such separate accounts 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. Alternatively, a
portfolio will be treated as meeting these requirements for any
quarter of its taxable year if, as of the close of such quarter,
the portfolio meets the diversification requirements applicable
to regulated investment companies (see "Taxes" in the SAI) and no
more than 55% of the value of its total assets consists of cash
and cash items (including receivables), U.S. government
securities and securities of other regulated investment
companies. Each of the funds intends to comply with these
requirements.
Fund transactions in foreign currencies and hedging activities
will likely produce a difference between book income and taxable
income. This difference may cause a portion of a fund's income
distributions to constitute a return of capital for tax purposes
or require a fund to make distributions exceeding book income to
qualify as a regulated investment company for tax purposes.
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-edged." 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 risk appear somewhat larger than
the 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.
<PAGE>
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.
Standard & Poor's
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 as having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal. `BB'
indicates the least degree of speculation and `C' the highest.
While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB -- Debt rated `BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The `BB' rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied `BBB-' rating.
B -- Debt rated `B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The `B' rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied `BB' or `BB-' rating.
CCC -- Debt rated `CCC' has a currently identifiable
vulnerability to default, and is dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.
The `CCC' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied `B' or `B-'
rating.
CC -- The rating `CC' typically is applied to debt subordinated
to senior debt that is assigned an actual or implied `CCC'-
rating.
C -- The rating `C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied `CCC-' debt
rating. The `C' rating may be used to cover a situation where
bankruptcy petition has been filed, but debt service payments are
continued.
D -- Bonds rated `D' are 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
<PAGE>
PUTNAM CAPITAL MANAGER TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
May 1, 1996
This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the prospectus of
the Trust dated May 1, 1996, as revised from time to time. This
SAI contains information which may be useful to investors but
which is not included in the prospectus. If the Trust has more
than one form of current prospectus, each reference to the
prospectus in this SAI shall include all the Trust's
prospectuses, unless otherwise noted. The SAI 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.
The Report of the Trust's independent accountants and the audited
financial statements of the Trust are incorporated by reference
into this SAI.
Table of Contents
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .B-2
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . .
. . . . . . . . .B-2
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .B- 26
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . .
. . . . .B- 28
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .B- 32
INVESTMENT PERFORMANCE OF THE TRUST. . . . . . . . . . . . . . .
. . . . .B- 62
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . .
. . . . .B- 64
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . .
. . . . .B- 66
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . .
. . . . .B- 67
CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .B- 67
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .
. . . . .B- 68
<PAGE>
PUTNAM CAPITAL MANAGER TRUST
SAI
DEFINITIONS
The "Trust" -- Putnam Capital Manager
Trust.
"Putnam Management" -- Putnam Investment
Management,
Inc., the Trust's
investment
manager.
"Putnam Mutual Funds" -- Putnam Mutual Funds
Corp., the
Trust's principal
underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust
Company,
Company" the Trust's custodian.
"Putnam Investor Services" -- Putnam Investor
Services, a
division of Putnam
Fiduciary
Trust Company, the
Trust's
investor servicing
agent.
INVESTMENT OBJECTIVES AND POLICIES
The Trust consists of eleven separate investment portfolios (the
"funds") with differing investment objectives and policies: PCM
Asia Pacific Growth Fund, PCM Diversified Income Fund, PCM Global
Asset Allocation Fund, PCM Global Growth Fund, PCM Growth and
Income Fund, PCM High Yield Fund, PCM Money Market Fund, PCM New
Opportunities Fund, PCM U.S. Government and High Quality Bond
Fund, PCM Utilities Growth and Income Fund, and PCM Voyager Fund.
The investment objectives and policies of the funds are described
in the prospectus offering such funds. This SAI contains, among
other things, the investment restrictions of the funds. It also
contains information concerning certain investment practices in
which some or all of the funds may engage. The prospectus
indicates which practices are applicable to each fund which it
offers.
Except as described below under "Investment Restrictions of the
Trust," the investment policies described in the prospectus and
in this SAI are not fundamental, and the Trustees may change such
policies without shareholder approval. As a matter of policy,
the Trustees would not materially change the funds' investment
objectives without shareholder approval.
Short-term Trading
In seeking a fund's objective(s), 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. This
expense may include brokerage commissions or dealer markups 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. A fund's portfolio turnover
rate is not a limiting factor when Putnam Management considers a
change in the fund's portfolio.
Lower-rated Securities
Each 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 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 payment of interest and principal would likely
make the values of securities held by a fund more volatile and
could limit a 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 at times may be unable to establish the fair value of
such securities.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' 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. In addition, the rating assigned to a security
by Moody's Investors Service, Inc. or Standard & Poor's (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 for a description of security
ratings.
<PAGE>
Like those of other fixed-income securities, the values of lower-
rated securities fluctuate in response to changes in interest
rates. 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 values of lower-rated securities may
often be affected to a greater extent by changes in general
economic conditions and business conditions affecting the issuers
of such securities and their industries. Negative publicity or
investor perceptions may also adversely affect the values of
lower-rated securities. Changes by recognized rating services in
their ratings of any fixed-income security and changes in the
ability of an issuer to make payments of interest and principal
may also affect the value of these investments. Changes in the
value of portfolio securities generally will not affect income
derived from these securities, but will affect a fund's net asset
value. A fund will not necessarily dispose of a security when
its rating is reduced below its rating at the time of purchase.
However, Putnam Management will monitor the investment to
determine whether its retention will assist in meeting a fund's
investment objective(s).
Issuers of lower-rated securities are often highly leveraged, so
that their ability to service their debt obligations during an
economic downturn or during sustained periods of rising interest
rates may be impaired. Such issuers may not have more
traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by
refinancing. The risk of loss due to default in payment of
interest or repayment of principal by such issuers is
significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior
indebtedness.
At times, a substantial portion of a 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 all or a major portion.
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, a fund could find it more
difficult to sell these securities when Putnam Management
believes it advisable to do so or may be able to sell the
securities only at prices lower than if they were more widely
held. Under these circumstances, it may also be more difficult
to determine the fair value of such securities for purposes of
computing 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 participate in various legal proceedings or
take possession of and manage assets securing the issuer's
obligations on such securities. This could increase the fund's
operating expenses and adversely affect the fund's net asset
value. In addition, each fund's intention to qualify as a
"regulated investment company" under the Internal Revenue Code
may limit the extent to which a fund may exercise its rights by
taking possession of such assets.
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 without limit in so-called "zero-
coupon" bonds and "payment-in-kind" bonds identified in the
prospectus, 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 and payment-in-kind
bonds do not pay interest currently in cash, their values are
subject to greater fluctuation in response to changes in market
interest rates than bonds which pay interest currently in cash.
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 in cash. 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.
Investments in Premium Securities
Unless otherwise specified in the prospectus or elsewhere in this
SAI, if a fund may invest in premium securities, it may do so
without limit.
Investments in Miscellaneous Fixed Income Securities
Unless otherwise specified in the prospectus or elsewhere in this
SAI, if a fund may invest in inverse floating obligations,
premium securities, or interest-only or principal-only classes of
mortgage-backed securities (IOs and POs) , it may do so
without limit. None of the funds, however, currently
intends to invest more than 15% of its assets in inverse
floating obligations or more than 35% of its assets in IOs and
POs under normal market conditions.
Private Placements
Each fund may invest in securities that are purchased in private
placements and, accordingly, are subject to restrictions on
resale as a matter of contract or under federal securities laws.
Because there may be relatively few potential purchasers for such
investments, especially 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. At times,
it may also be more difficult to determine the fair value of such
securities for purposes of computing the fund's net asset value.
Mortgage Related Securities
To the extent described in the prospectus, each fund may invest
in mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and certain stripped mortgage-backed
securities. CMOs and other mortgage-backed securities represent
a participation in, or are secured by, mortgage loans.
Mortgage-backed securities have yield and maturity
characteristics corresponding to the underlying assets. Unlike
traditional debt securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount comes
due, payments on certain mortgage-backed securities include both
interest and a partial repayment of principal. Besides the
scheduled repayment of principal, repayments of principal may
result from the voluntary prepayment, refinancing, or foreclosure
of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these
prepayments will result in early payment of the applicable
mortgage-related securities. In that event the fund may be
unable to invest the proceeds from the early payment of the
mortgage-related securities in an investment that provides as
high a yield as the mortgage-related securities. Consequently,
early payment associated with mortgage-related securities may
cause these securities to experience significantly greater price
and yield volatility than that experienced by traditional fixed-
income securities. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage
and other social and demographic conditions. During periods of
falling interest rates, the rate of mortgage prepayments tends to
increase, thereby tending to decrease the life of mortgage-
related securities. During periods of rising interest rates, the
rate of mortgage prepayments usually decreases, thereby tending
to increase the life of mortgage-related securities. If the life
of a mortgage-related security is inaccurately predicted, the
fund may not be able to realize the rate of return it expected.
Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term
interest rates. One reason is the need to reinvest prepayments
of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest
rates. These prepayments would have to be reinvested at lower
rates. As a result, these securities may have less potential for
capital appreciation during periods of declining interest rates
than other securities of comparable maturities, although they may
have a similar risk of decline in market value during periods of
rising interest rates.
Prepayments may cause losses in securities purchased at a
premium. At times, some of the mortgage-backed securities in
which a fund may invest will have higher than market interest
rates and therefore will be purchased at a premium above their
par value. Unscheduled prepayments, which are made at par, will
cause the fund to experience a loss equal to any unamortized
premium.
CMOs may be issued by a U.S. government agency or instrumentality
or by a private issuer. Although payment of the principal of,
and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by the U.S. government or its
agencies or instrumentalities, these CMOs represent obligations
solely of the private issuer and are not insured or guaranteed by
the U.S. government, its agencies or instrumentalities or any
other person or entity.
Prepayments could cause early retirement of CMOs. CMOs are
designed to allocate the risk of prepayment among investors by
issuing multiple classes of securities, each having different
maturities, interest rates and payment schedules, and with the
principal and interest on the underlying mortgages allocated
among the several classes in various ways. Payment of interest
or principal on some classes or series of CMOs may be subject to
contingencies or some classes or series may bear some or all of
the risk of default on the underlying mortgages. CMOS of
different classes or series are generally retired in sequence as
the underlying mortgage loans in the mortgage pool are repaid.
If enough mortgages are repaid ahead of schedule, the classes or
series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of
particular classes or series of a CMO held by a fund would have
the same effect as the prepayment of mortgages underlying other
mortgage-backed securities.
Prepayments could result in losses on stripped 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
loans. A fund may invest in both the interest-only or "IO" class
and the principal-only or "PO" class. 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. A rapid rate of principal prepayments may
have a measurable adverse effect on the fund's yield to maturity
to the extent it invests in IOs. If the assets underlying the IO
experience greater than anticipated prepayments of principal, the
fund may fail to recoup fully 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 more volatile and less liquid than that for other mortgage-
backed securities, potentially limiting a fund's ability to buy
or sell those securities at any particular time.
Securities Loans
Each 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 the 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 may 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
Each 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 a 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, a
fund may dispose of a commitment prior to settlement if Putnam
Management deems it appropriate to do so. A fund may realize
short-term profits or losses upon the sale of forward
commitments.
A fund may enter into TBA sale commitments to hedge its portfolio
positions or to sell 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
the current market value of the underlying securities. If the
TBA sale commitment is closed through the acquisition of an
offsetting purchase commitment, that fund realizes a gain or loss
on the commitment without regard to any unrealized gain or loss
on the underlying security. If a 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
Each fund may enter into repurchase agreements up to the limit
specified in the prospectus. A repurchase agreement is a
contract under which a 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 Trust's present intention to
enter into repurchase agreements only with commercial banks and
registered broker-dealers approved by the Trustees 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 a 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, a 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, a 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. Each 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 a fund's investment objective(s)
and policies. Call options written by a 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.
Each fund may write only covered options, which means that, so
long as a 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. Each fund may
write combinations of covered puts and calls on the same
underlying security.
A 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.
A 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. If a
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. A 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. A 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.
<PAGE>
Risk Factors in Options Transactions
The successful use of a 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 a 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 a 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, a
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 normal market 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, a 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.
<PAGE>
Disruptions in the markets for the securities underlying options
purchased or sold by a 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,
the Options Clearing Corporation 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.
Foreign-traded options are subject to many of the same risks
presented by internationally-traded securities. In addition,
because of time differences between the United States and the
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 a 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, a fund may invest without limit in the types of
futures contracts and related options identified in the
prospectus for hedging and non-hedging purposes. The use of
futures and options transactions for purposes other than hedging
entails greater risks. 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 Commodities 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. If the fund is unable to enter into
a closing transaction, the amount of the fund's potential loss is
unlimited. 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, the purchaser 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 a 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, the 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 a 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.
A fund may elect to close some or all of its futures positions at
any time prior to their delivery date in order to reduce or
eliminate the 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. A 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 futures 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 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, a
fund may purchase put options or write call options on futures
contracts rather than sell futures contracts. Similarly, a 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.
A fund will be required to deposit initial margin and variation
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 a fund is subject to
Putnam Management's ability to predict movements in various
factors affecting securities markets, including interest rates.
Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves
less potential risk to a 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 a
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 a 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. 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 a
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 a 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 securities held in its portfolio,
and the prices of the fund's 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 particular
securities. For example, if a fund has hedged against a decline
in the values of fixed-income securities held by it by selling
Treasury security futures and the values of Treasury securities
subsequently increase while the values of its fixed-income
securities decrease, the fund would incur losses on both the
Treasury security futures contracts written by it and the
fixed-income securities held in its portfolio.
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. A fund may
enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective(s). A fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's 500 Composite 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 a
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 a fund of
index futures. 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 a fund is also subject to
Putnam Management's ability to predict movements in the market.
For example, it is possible that, where a 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 a 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 profitable position over a short time period.
<PAGE>
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, a fund may purchase 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
A 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 purchase price paid for the warrant.
<PAGE>
A fund will normally use index warrants in a manner similar to
its use of options on securities indices. The risks of a 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 times, 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, each fund may invest up to the limit of its
total assets specified in the prospectus in securities
principally traded in markets outside the United States.
Eurodollar certificates of deposit are excluded for purposes of
this limitation. Since foreign securities are normally
denominated and traded in foreign currencies, the value of a
fund's assets may be affected favorably or unfavorably by changes
in currency exchange rates, exchange control regulations and
restrictions or prohibitions on the repatriation of foreign
currencies. 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.
<PAGE>
The risks described above, including the risks of nationalization
or expropriation of assets, are typically increased to the extent
that a fund invests in issuers located in less developed and
developing nations, whose securities markets are sometimes
referred to as "emerging securities markets." Investments in
securities located in such countries are speculative and subject
to certain special risks. Political and economic structures in
many of these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and
economic stability characteristic of more developed countries.
Certain of these countries have in the past failed to recognize
private property rights and have at times nationalized and
expropriated the assets of private companies.
The currencies of certain emerging market countries have
experienced a steady devaluation relative to the U.S. dollar, and
continued devaluations may adversely affect the value of a fund's
assets denominated in such currencies. Many emerging market
companies have experienced substantial, and in some periods
extremely high, rates of inflation for many years, and continued
inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may
affect the values of a fund's investments in these countries and
the availability to such fund of additional investments in these
countries. The small size, limited trading volume and relative
inexperience of the securities markets in these countries may
make a fund's investments in such countries illiquid and more
volatile than investments in more developed countries, and such
fund may be required to establish special custodial or other
arrangements before making investments in these countries. There
may be little financial or accounting information available with
respect to issuers located in these countries, and it may be
difficult as a result to assess the value or prospects of an
investment in such issuers.
Foreign Currency Transactions
Unless otherwise specified in the prospectus or this SAI, a fund
may engage without limit in currency exchange transactions,
including purchasing and selling foreign currency, foreign
currency options, foreign currency forward contracts and foreign
currency futures contracts and related options, to protect
against uncertainty in the level of future currency exchange
rates. In addition, a fund may write covered call and put
options on foreign currencies for the purpose of increasing its
current return.
Generally, a 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.
A 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.
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 transaction hedging purposes, a 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 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, a 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). In
connection with position hedging, the fund may purchase put or
call options on foreign currencies 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.
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 a 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. See "Risk factors in options
transactions" above.
A 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 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, forward contracts and futures
contracts) 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, forward contracts and
futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or
futures contract 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, forward contracts and
futures contracts, 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.
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 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 may
either 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 a 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 of the risks described above. Foreign currency
options are traded primarily in the over-the-counter market,
although options on foreign currencies are also 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.
A 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.
Settlement procedures. Settlement procedures relating to a
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 currencies 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.
<PAGE>
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 a 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 delegation 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
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 Trust. Each 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 to so
qualify and to qualify for the special tax treatment accorded
regulated investment companies and their shareholders, each 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 stocks 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 its taxable net investment income (exclusive of net capital
gains) and 90% of its net tax-exempt income; 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 a 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 a 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.
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 a 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 fund is exempt from this distribution requirement and excise
tax if at all times during the calendar year each shareholder in
a fund was "a segregated asset account of a life insurance
company held in connection with variable contracts."
Hedging transactions. If a fund engages in hedging 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
the fund's distributions. 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 Trust"), a 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.
<PAGE>
Securities issued or purchased at a discount. The fund's
investment in securities that are treated for tax purposes as
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. Distributions from capital gains are
made after applying any available capital loss carryovers. The
amount and expiration date of any capital loss carryovers
available to a fund are shown in Note 1 (Federal income taxes) to
the financial statements incorporated by reference into this SAI.
With respect to investment income and gains received by a fund
from sources outside the United States, such income and gains may
be subject to foreign taxes which are withheld at the source.
The effective rate of foreign taxes to which a fund will be
subject depends on the specific countries in which its assets
will be invested and the extent of the assets invested in each
such country and therefore cannot be determined in advance.
Investment by a fund in "passive foreign investment companies"
could subject the fund to a U.S. federal income tax or other
charge on the proceeds from the sale of its investment in such a
company; however, this tax can be avoided by making an election
to mark such investments to market annually or to treat the
passive foreign investment company as a "qualified electing
fund."
A "passive foreign investment company" is any foreign
corporation: (i) 75 percent of more of the income of which for
the taxable year is passive income, or (ii) the average
percentage of the assets of which (generally by value, but by
adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent.
Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties,
rents, annuities, the excess of gains over losses from certain
property transactions and commodities transactions, and foreign
currency gains. Passive income for this purpose does not include
rents and royalties received by the foreign corporation from
active business and certain income received from related persons.
This discussion of federal income tax treatment of the Trust and
its shareholders is based on the law as of the date of this SAI.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed
as to any fund without a vote of a majority of the outstanding
voting securities of that fund, the Trust may not and will not
take any of the following actions with respect to that fund:
(1) (All funds except PCM Voyager Fund) Borrow money in excess
of 10% of the value (taken at the lower of cost or current value)
of the fund's total assets (not including the amount borrowed) at
the time the borrowing is made, and then only from banks as a
temporary measure to facilitate the meeting of redemption
requests (not for leverage) which might otherwise require the
untimely disposition of portfolio investments or for
extraordinary or emergency purposes. Such borrowings will be
repaid before any additional investments are purchased.
(PCM Voyager Fund) Borrow more than 50% of the value of its
total assets (excluding borrowings and stock index futures
contracts and call options on stock index futures contracts and
stock indices) less liabilities other than borrowings and stock
index futures contracts and call options on stock index futures
contracts and stock indices.
(2) Pledge, hypothecate, mortgage or otherwise encumber its
assets in excess of 15% of the fund's 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 and other collateral arrangements 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 considered 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 the fund 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) (All funds except PCM Asia Pacific Growth Fund, PCM
Diversified Income Fund, PCM New Opportunities Fund , and
PCM Utilities Growth and Income Fund) Purchase or sell real
estate, although it may purchase securities which are secured by
or represent interests in real estate.
<PAGE>
(PCM Diversified Income Fund) Purchase or sell real estate,
although it may purchase securities of issuers which deal in real
estate, securities which are secured by interests in real estate
and securities representing interests in real estate.
(PCM Asia Pacific Growth Fund, PCM New Opportunities Fund and PCM
Utilities Growth and Income Fund) Purchase or sell real estate,
although it may purchase securities of issuers which deal in real
estate, securities which are secured by interests in real estate,
and securities representing interests in real estate, and it may
acquire and dispose of real estate or interests in real estate
acquired through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein.
(7) Purchase or sell commodities or commodity contracts, except
that it may purchase or sell futures contracts, options on
futures, forward contracts and options on foreign currencies.
(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 Trust, officers and Trustees of the Trust and officers and
directors of Putnam Management who beneficially own more than
0.5% of the securities of that issuer together beneficially own
more than 5%.
(10) (All funds except PCM Asia Pacific Growth Fund, PCM New
Opportunities Fund , and PCM Utilities Growth and Income
Fund) 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, or, with respect to 25% of the fund's
total assets, securities of any foreign government, its agencies
or instrumentalities, securities of supranational entities, and
securities backed by the credit of a governmental entity.
(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, except that PCM Money Market Fund may invest more
than 25% of its assets in securities of banks and bank holding
companies as a group when in the opinion of Putnam Management
yield differentials make such investments desirable, and suitable
investments are available, and except that PCM Utilities Growth
and Income Fund may invest more than 25% of its assets in any of
the public utilities industries. (U.S. government securities and
securities of any foreign government, its agencies or
instrumentalities, securities of supranational entities, and
securities backed by the credit of a governmental entity are not
considered to represent an industry).
(13) (All funds except PCM Asia Pacific Growth Fund, PCM Money
Market Fund, PCM New Opportunities Fund , and PCM Utilities
Growth and Income Fund) Purchase securities the disposition of
which is restricted under federal securities laws, if, as a
result, such investments would exceed 15% of the value of the
fund's net assets, excluding restricted securities that have been
determined by the Trustees of the Trust (or the person designated
by them to make such determinations) to be readily marketable.
(PCM Money Market Fund) 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.
(14) (All funds except PCM Utilities Growth and Income Fund) Buy
or sell oil, gas or other mineral leases, rights or royalty
contracts.
(PCM Utilities Growth and Income Fund) Buy or sell oil, gas or
other mineral leases, rights or royalty contracts, although it
may purchase securities of issuers which deal in, represent
interests in, or are secured by interests in such leases, rights,
or contracts, and it may acquire or dispose of such leases,
rights, or contacts acquired through the exercise of its rights
as a holder of debt obligations secured thereby.
(15) Make investments for the purpose of gaining control of a
company's management.
(16) Issue any class of securities which is senior to the fund's
shares of beneficial interest.
It is contrary to each of PCM Asia Pacific Growth Fund's, PCM New
Opportunities Fund's , and PCM Utilities Growth and Income
Fund's present policy, which may be changed without shareholder
approval, to purchase securities restricted as to resale
(excluding securities determined by the Trustees or Putnam
Management to be readily marketable), if as a result such
investments would exceed 15% of the fund's net assets.
It is contrary to the present policy of each of the funds, which
may be changed without shareholder approval, to invest in
securities of other registered open-end investment companies
except as they may be acquired as part of a merger or
consolidation or acquisition of assets.
---------------------
In addition, each fund has agreed that, so long as shares of
beneficial interest in the fund are registered for offer and sale
in the State of California and such undertaking is required as a
condition to such registration, except as noted below, any fund
investing in foreign securities will at all times invest in
securities of issuers located in a minimum of five different
foreign countries. However, this minimum is reduced to four
different foreign countries when the fund's foreign investments
comprise less than 80% of its net assets, to three different
foreign countries when the fund's foreign investments comprise
less than 60% of its net assets, to two different foreign
countries when the fund's foreign investments comprise less than
40% of its net assets, and is eliminated when the fund's foreign
investments comprise less than 20% of its net assets. In
addition, no fund may invest more than 20% of its net assets in
securities of issuers located in any one foreign country, except
that, to the extent consistent with its investment policies, a
fund may invest up to 35% of its net assets in securities of
issuers located in any one of the following countries:
Australia, Canada, France, Germany, Japan or the United Kingdom.
Also, subject to such more restrictive investment restrictions
and policies as a fund may adopt from time to time, the borrowing
limits for any fund are (1) 10% of net asset value when borrowing
for any general purpose, and (2) 25% of net asset value when
borrowing as a temporary measure to facilitate redemptions. For
this purpose, a fund's net asset value shall be the market value
of all investments owned less outstanding liabilities of the
portfolio at the time that any new or additional borrowing is
undertaken.
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 a fund or the
Trust means the affirmative vote of the lesser of (1) more than
50% of the outstanding shares of a fund or the Trust, as the case
may be, 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.
MANAGEMENT
Trustees
Name (Age)
*+George Putnam (69), Chairman and President. Chairman and
Director of Putnam Investment Management, Inc. and Putnam Mutual
Funds Corp. Director, The Boston Company, Inc., Boston Safe
Deposit and Trust Company, Freeport-McMoRan, Inc. , Freeport
Copper and Gold, Inc., McMoRan Oil and Gas, Inc. , General
Mills, Inc., Houghton Mifflin Company, Marsh & McLennan
Companies, Inc. and Rockefeller Group, Inc.
<PAGE>
+William F. Pounds (68) , Vice Chairman. Professor of
Management, Alfred P. Sloan School of Management, Massachusetts
Institute of Technology. Director of EG&G, Inc., IDEXX
Laboratories, Inc., Perseptive Biosystems, Inc., Management
Sciences for Health , Inc., and Sun Company, Inc.
Jameson A. Baxter (52), Trustee. President, Baxter Associates,
Inc. (a management and financial consultant) . Director of
Avondale Federal Savings Bank, ASHTA Chemicals, Inc. and Banta
Corporation. Chairman Emeritus of the Board of Trustees, Mount
Holyoke College.
+Hans H. Estin (67) , Trustee. Vice Chairman, North American
Management Corp. (a registered investment adviser). Director of
The Boston Company, Inc. and Boston Safe Deposit and Trust
Company.
John A. Hill (54), Trustee. Chairman and Managing Director,
First Reserve Corporation (a registered investment adviser).
Director, Maverick Tube Corporation, PetroCorp Incorporated,
Snyder Oil Corporation, Weatherford Enterra, Inc. (an oil field
service company) and various First Reserve Funds.
Elizabeth T. Kennan (58) , Trustee. President Emeritus and
Professor, 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 (53) , 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.
+Robert E. Patterson (51) , Trustee. Executive Vice
President and Director of Acquisitions , Cabot Partners
Limited Partnership (a registered investment adviser).
*Donald S. Perkins (69) , Trustee. Director of various
corporations, including AON Corp., Cummins Engine
Company, Inc., Current Assets L.L.C., Illinova and
Illinois Power Company, Inland Steel Industries, Inc., LaSalle
Street Fund, Inc., Lucent Technologies Inc., Springs
Industries, Inc. (a textile manufacturer), and Time Warner
Inc.
*#George Putnam, III (44), Trustee. President, New Generation
Research, Inc. (publisher of bankruptcy information) and New
Generation Advisers, Inc. (a registered investment adviser).
Eli Shapiro (79), Trustee. Alfred P. Sloan Professor of
Management, Emeritus, Alfred P. Sloan School of Management,
Massachusetts Institute of Technology. Past director of
Nomura Dividend Fund, Inc. (a privately held registered
investment company managed by Putnam Management) and former
Trustee of the Putnam funds (1984-1990).
*A.J.C. Smith (62) , Trustee. Chairman and Chief
Executive Officer , Marsh & McLennan Companies, Inc.
Director, Trident Corp.
W. Nicholas Thorndike (63) , Trustee. Director of various
corporations and charitable organizations, including Courier
Corporation, Data General Corporation, Bradley Real
Estate , Inc., and Providence Journal Co.
*Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the Trust,
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 Trust and may exercise all of the powers of
the Trustees.
#George Putnam, III is the son of George Putnam.
Officers
Name (Age)
Charles E. Porter (57), Executive Vice President. Managing
Director of Putnam Investments, Inc. and Putnam Investment
Management, Inc.
Patricia C. Flaherty (49), Senior Vice President. Senior Vice
President of Putnam Investments, Inc. and Putnam Investment
Management, Inc.
Gordon H. Silver (48), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. and Putnam
Investment Management, Inc.
William N. Shiebler (54), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President and
Director of Putnam Mutual Funds Corp. Vice President of the
Putnam funds.
John R. Verani (56), Vice President. Senior Vice President of
Putnam Investments, Inc. and Putnam Investment Management, Inc.
Vice President of the Putnam funds.
Paul M. O'Neil (42), Vice President. Vice President of Putnam
Investments, Inc. and Putnam Investment Management, Inc. Vice
President of the Putnam funds.
John D. Hughes (61), Senior Vice President and Treasurer. Vice
President and Treasurer of the Putnam funds.
Beverly Marcus (51), Clerk and Assistant Treasurer. Clerk and
Assistant Treasurer of the Putnam funds.
Gary N. Coburn (49), Vice President. Senior Managing Director of
Putnam Investment Management, Inc. Director, Putnam Investments,
Inc. Vice President of certain of the Putnam funds.
Peter Carman (54), Vice President. Senior Managing Director of
Putnam Investment Management, Inc. Director, Putnam Investments,
Inc. Vice President of certain of the Putnam funds.
Brett C. Browchuk (33), Vice President. Managing Director of
Putnam Investment Management, Inc.
D. William Kohli (35), Vice President. Managing Director of
Putnam Investment Management, Inc. Vice President of certain of
the Putnam funds.
Anthony I. Kreisel (51), Vice President. Managing Director of
Putnam Investment Management, Inc. Vice President, Putnam
Fiduciary Trust Company. Vice President of certain of the Putnam
funds.
William J. Landes (43), Vice President. Managing Director of
Putnam Investment Management, Inc. Vice President of certain of
the Putnam funds.
Michael Martino (43), Vice President. Managing Director of
Putnam Investment Management, Inc. Vice President of certain of
the Putnam funds.
Carol C. McMullen (40), Vice President. Managing Director of
Putnam Investment Management, Inc. Vice President of certain of
the Putnam funds.
Daniel L. Miller (38), Vice President. Managing Director of
Putnam Investment Management, Inc. Vice President of certain of
the Putnam funds.
Robert R. Beck (55), Vice President. Senior Vice President of
Putnam Investment Management, Inc. Vice President of certain of
the Putnam funds.
Richard M. Frucci (51), Vice President. Senior Vice President of
Putnam Investment Management, Inc.
Roland W. Gillis (46), Vice President. Senior Vice President of
Putnam Investment Management, Inc. Vice President of certain of
the Putnam funds.
David L. King (39), Vice President. Senior Vice President of
Putnam Investment Management, Inc. Vice President of certain of
the Putnam funds.
Jennifer E. Leichter (35), Vice President. Senior Vice
President of Putnam Investment Management, Inc. Vice President
of certain of the Putnam funds.
Neil J. Powers (34), Vice President. Senior Vice President of
Putnam Investment Management, Inc. Vice President of certain of
the Putnam funds.
Christopher A. Ray (32), Vice President. Senior Vice President
of Putnam Investment Management, Inc. Vice President of certain
of the Putnam funds.
Sheldon N. Simon (38), Vice President. Senior Vice President of
Putnam Investment Management, Inc. Vice President of certain of
the Putnam funds.
John K. Storkerson (57), Vice President. Senior Vice President
of The Putnam Advisory Company, Inc. Vice President of certain
of the Putnam funds.
Charles H. Swanberg (48), Vice President. Senior Vice President
of Putnam Investment Management, Inc. Vice President of certain
of the Putnam funds.
Kenneth J. Taubes (38), Vice President. Senior Vice President of
Putnam Investment Management, Inc. Vice President of certain of
the Putnam funds.
David K. Thomas (54), Vice President. Senior Vice President of
Putnam Investment Management, Inc. Vice President of certain of
the Putnam funds.
Rosemary H. Thomsen (35), Vice President. Senior Vice President
of Putnam Investment Management, Inc. Vice President of certain
of the Putnam funds.
David J. Santos (38), Vice President. Vice President of Putnam
Investment Management, Inc. Vice President of certain of the
Putnam funds.
Mark J. Siegel (36), Vice President. Vice President of Putnam
Investment Management, Inc. Vice President of certain of the
Putnam funds.
Lindsey C. Strong (35), Vice President. Vice President of Putnam
Investment Management, Inc. Vice President of certain of the
Putnam funds.
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. Prior to January, 1992, Ms.
Baxter was Vice President and Principal, Regency Group, Inc. and
Consultant, The First Boston Corporation. During the past five
years Dr. Shapiro has provided economic and financial consulting
services to various clients. Prior to August 1, 1993, Mr. Carman
was Chief Investment Officer, Chairman of the U.S. Equity
Investment Policy Committee and a Director of Sanford C.
Bernstein & Company, Inc. 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. Prior to March, 1995, Mr. Gillis was
Vice President at Keystone Custodian Funds, Inc. Prior to
September, 1994, Mr. Kohli was Executive Vice President and Co-
Director of Global Bond Management and, prior to October, 1993,
Senior Portfolio Manager, at Franklin Advisors/Templeton
Investment Counsel. Prior to June, 1991, Mr. Taubes was Senior
Vice President of the Finance Division of U.S. Trust Company.
Prior to January, 1993, Mr. Ray was Vice President and Portfolio
Manager at Scudder, Stevens & Clark, Inc., and from February,
1986 to March, 1992, Mr. Ray was a Vice President of Putnam
Management.
The Trust 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 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 each PCM fund and by all of the Putnam
funds are shown below:
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Aggregate
compensation* from:
<S> <C> <C> <C> <C>
<C> <C>
Asia Pacific Diversified Global
Asset Global Growth and High
Trustee/Year Growth Income
Allocation Growth Income Yield
Jameson A. Baxter/1994 $148
$1,059 $1,178 $1,961 $3,662
$1,183
Hans H. Estin/1972 145
1,066 1,187 1,976 3,685
1,192
John A. Hill/1985*** 148
1,059 1,178 1,962 3,659
1,183
Elizabeth T. Kennan/1992 145
1,066 1,187 1,976 3,685
1,192
Lawrence J. Lasser/1992 140
1,060 1,179 1,963 3,656
1,184
Robert E. Patterson/1984 150
1,073 1,195 1,989 3,714
1,200
Donald S. Perkins/1982 140
1,060 1,179 1,963 3,656
1,184
William F. Pounds/1971 148
1,059 1,179 1,962 3,658
1,183
George Putnam/1957 145
1,066 1,187 1,976 3,685
1,192
George Putnam, III/1984 145
1,066 1,187 1,976 3,685
1,192
Eli Shapiro/1995**** 104 709
780 1,311 2,481 799
A.J.C. Smith/1986 139
1,053 1,171 1,949 3,629
1,175
W. Nicholas Thorndike/1992 150
1,073 1,195 1,989 3,714
1,200
/TABLE
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE (continued)
Aggregate
compensation* from:
<S> <C> <C> <C> <C>
<C> <C>
Money New Utilities
Growth U.S. Government and Voyager All
Putnam
Trustee/Year Market Opportunities
and Income High Quality Bond Fund funds**
Jameson A. Baxter/1994 $756 $895
$1,265 $1,537
$3,016 $150,854
Hans H. Estin/1972 759 898
1,275 1,547
3,031 150,854
John A. Hill/1985*** 756 893
1,265 1,538
3,013 149,854
Elizabeth T. Kennan/1992 759 898
1,275 1,547
3,031 148,854
Lawrence J. Lasser/1992 756 889
1,266 1,539
3,010 150,854
Robert E. Patterson/1984 762 907
1,283 1,555
3,052 152,854
Donald S. Perkins/1982 756 889
1,266 1,539
3,010 150,854
William F. Pounds/1971 756 892
1,265 1,538
3,012 149,854
George Putnam/1957 759 898
1,275 1,547
3,031 150,854
George Putnam, III/1984 759 898
1,275 1,547
3,031 150,854
Eli Shapiro/1995**** 502 651
848 1,023
2,038 95,372
A.J.C. Smith/1986 753 883
1,257 1,530
2,992 149,854
W. Nicholas Thorndike/1992 762 907
1,283 1,555
3,052 152,854
*Includes an annual retainer and 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, 1995,
there were 99 funds in the Putnam family.
***Includes compensation deferred pursuant to a Trustee
Compensation Deferral Plan. The total amount of deferred
compensation payable to Mr. Hill by all Putnam funds as of
December 31, 1995 was $51,142, including income earned on
such amounts.
****Elected as a Trustee in April 1995.
/TABLE
<PAGE>
The Trust'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 each 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 will receive similar benefits upon their retirement. A
Trustee who retired in calendar 1995 and was eligible to receive
benefits under these Guidelines would have received an annual
benefit of $66,749, based upon the aggregate retainer fees paid
by the Putnam funds for such year. The Trustees 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 Trustees, see
"Management" in this SAI.
The Agreement and Declaration of Trust of the Trust provides that
the Trust 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
Trust, except if it is determined in the manner specified in such
Agreement and Declaration of Trust that such Trustees and
officers have not acted in good faith in the reasonable belief
that their actions were in the best interests of the Trust or
that such indemnification would relieve any officer or Trustee of
any liability to the Trust or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense,
provides liability insurance for the benefit of its Trustees and
officers.
<PAGE>
Trustees and officers of the Trust who are also officers of
Putnam Management or its affiliates or stockholders of Marsh &
McLennan Companies, Inc. will benefit from the advisory fees,
transfer agency fees and custodian fees and fees paid or allowed
by the Trust. At March 31, 1996 the officers and Trustees
as a group owned no shares of the Trust or any fund. As of this
date, less than 1% of the value of the accumulation units with
respect to any fund was attributable to the officers and Trustees
of the Trust, as a group, owning variable annuity contracts or
variable life insurance policies issued by the insurers listed in
the following tables. All of the shares of each of the funds are
owned by the insurance company separate accounts listed below and
by Putnam Management pursuant to its initial capital contribution
to each fund during the organization of the Trust and the
subsequent organization of PCM Global Growth Fund, PCM Utilities
Growth and Income Fund, PCM Diversified Income Fund, PCM New
Opportunities Fund , and PCM Asia Pacific Growth Fund.
<PAGE>
Issuer and name of
Separate Account
Percentage of
(1) Hartford Life
shares owned of record
Insurance Company Fund
as of March 29, 1996
(a) Putnam Capital Manager
Trust Separate Account
PCM Asia Pacific
Growth Fund
39.85%
PCM Diversified
Income Fund
54.86%
PCM Global Asset
Allocation Fund
58.63%
PCM Global Growth Fund
51.64%
PCM Growth and Income Fund
60.96%
PCM High Yield Fund
52.50%
PCM Money Market Fund
55.15%
PCM New Opportunities Fund
44.40%
PCM U.S. Government and
High Quality Bond
Fund 73.96%
PCM Utilities Growth
and Income Fund
59.43%
PCM Voyager Fund
56.92%
<PAGE>
Percentage of
(1) Hartford Life
shares owned of record
Insurance Company Fund as
of March 29, 1996
(b) Putnam Capital Manager
Trust Separate Account
VLI
PCM Diversified
Income Fund 0.01%
PCM Global Asset
Allocation Fund
0.24%
PCM Global Growth Fund
0.21%
PCM Growth and Income Fund
0.08%
PCM High Yield Fund
0.09%
PCM Money Market Fund
0.15%
PCM New Opportunities Fund
0.08%
PCM U.S. Government and
High Quality Bond
Fund 0.09%
PCM Utilities Growth
and Income Fund
0.09%
PCM Voyager Fund 0.21%<PAGE>
Percentage of
(1) Hartford Life
shares owned of record
Insurance Company Fund as
of March 29, 1996
(c) Putnam Capital Manager
Trust Separate Account
VLII
PCM Diversified
Income Fund
0.01%
PCM Global Asset
Allocation Fund
0.24%
PCM Global Growth Fund
0.21%
PCM Growth and Income Fund
0.08%
PCM High Yield Fund
0.09%
PCM Money Market Fund
0.15%
PCM New Opportunities Fund
0.08%
PCM U.S. Government and
High Quality Bond
Fund 0.09%
PCM Utilities Growth
and Income Fund
0.09%
PCM Voyager Fund 0.21%<PAGE>
Percentage of
(1) Hartford Life shares
owned of record
Insurance Company Fund
as of March 29, 1996
(d) Putnam Capital Manager
Trust Variable Life
Separate Account Five
PCM Asia Pacific
Growth Fund
0.82%
PCM Diversified
Income Fund
0.21%
PCM Global Asset
Allocation Fund
0.12%
PCM Global Growth Fund
0.39%
PCM Growth and Income Fund
0.21%
PCM High Yield Fund
0.43%
PCM Money Market Fund
1.03%
PCM New Opportunities Fund
0.61%
PCM U.S. Government and
High Quality Bond
Fund 0.13%
PCM Utilities Growth
and Income Fund
0.17%
PCM Voyager Fund 0.23%<PAGE>
Issuer and name
of Separate Account
(2) ITT Hartford Life
Percentage of
and Annuity
shares owned of record
Insurance Company Fund
as of March 29, 1996
(a) Putnam Capital Manager
Trust Separate
Account Two
PCM Asia Pacific
Growth Fund 55.81%
PCM Diversified
Income Fund
41.59%
PCM Global Asset
Allocation Fund
39.71%
PCM Global Growth Fund
47.17%
PCM Growth and Income Fund
37.02%
PCM High Yield Fund
46.50%
PCM Money Market Fund
38.58%
PCM New Opportunities Fund
52.78%
PCM U.S. Government and
High Quality Bond
Fund 23.41%
PCM Utilities Growth
and Income Fund 39.09%
PCM Voyager Fund 40.21%
<PAGE>
(2) ITT Hartford Life
Percentage of
and Annuity
shares owned of record
Insurance Company Fund
as of March 29, 1996
(b) Putnam Capital Manager
Trust Separate Account
VLII
PCM Diversified
Income Fund 0.01%
PCM Global Asset
Allocation Fund 0.24%
PCM Global Growth Fund 0.21%
PCM Growth and Income Fund 0.08%
PCM High Yield Fund 0.09%
PCM Money Market Fund 0.15%
PCM New Opportunities Fund 0.08%
PCM U.S. Government and
High Quality Bond Fund 0.09%
PCM Utilities Growth
and Income Fund 0.09%
PCM Voyager Fund 0.21%<PAGE>
(2) ITT Hartford Life
Percentage of
and Annuity
shares owned of record
Insurance Company Fund as of
March 29 , 1996
(c) Putnam Capital Manager
Trust Variable Life
Separate Account Five
PCM Asia Pacific
Growth Fund
0.25%
PCM Diversified
Income Fund 0.11%
PCM Global Asset
Allocation Fund 0.06%
PCM Global Growth Fund 0.12%
PCM Growth and Income Fund
0.12%
PCM High Yield Fund 0.15%
PCM Money Market Fund 0.73%
PCM New Opportunities Fund 0.33%
PCM U.S. Government and
High Quality Bond Fund 0.05%
PCM Utilities Growth
and Income Fund
0.10%
PCM Voyager Fund 0.11%<PAGE>
Issuer and name of
Separate Account
Percentage of
(3) Northwestern National
shares owned of record
Life Insurance Company Fund
as of March 29, 1996
(a) Putnam Capital Manager
Trust Select Life
PCM Diversified
Income Fund 0.06%
PCM Growth and Income Fund 0.02%
PCM Utilities Growth
and Income Fund 0.04%
PCM Voyager Fund 0.08%
(b) Putnam Capital Manager
Trust Select Life II
Variable Account
PCM Asia Pacific
Growth Fund
0.45%
PCM Diversified
Income Fund
0.12%
PCM Growth and Income Fund
0.06%
PCM New Opportunities Fund
0.19%
PCM Utilities Growth
and Income Fund
0.08%
PCM Voyager Fund
0.29%
<PAGE>
Percentage of
(3) Northwestern National
shares owned of record
Life Insurance Company Fund as
of March 29, 1996
(c) Putnam Capital Manager
Trust Select Life III
Variable Account
PCM Asia Pacific
Growth Fund
0.45%
PCM Diversified
Income Fund
0.12%
PCM Growth and Income Fund
0.06%
PCM New Opportunities Fund
0.19%
PCM Utilities Growth
and Income Fund
0.08%
PCM Voyager Fund
0.29%
(d) Putnam Capital Manager
Trust NWNL Select
Annuity II
PCM Diversified
Income Fund
0.18%
PCM Growth and Income Fund 0.06%
PCM Utilities Growth
and Income Fund
0.15%
PCM Voyager Fund
0.22%
(e) Putnam Capital Manager
Trust NWNL Select
Annuity III
PCM Asia Pacific
Growth Fund
2.38%
PCM Diversified
Income Fund
1.95%
PCM Growth and Income Fund
0.36%
PCM New Opportunities Fund
1.00%
PCM Utilities Growth
and Income Fund
0.61%
PCM Voyager Fund 0.89%<PAGE>
Issuer and name of
Separate Account
Percentage of
(4) American Enterprise shares
owned of record
Life Insurance Company Fund as of
March 29 , 1996
(a) Putnam Capital Manager
Trust American Enterprise
Variable Annuity Account
PCM Diversified
Income Fund
0.37%
PCM Growth and Income Fund
0.07%
PCM High Yield Fund
0.16%
PCM New Opportunities Fund
0.25%
(5) Investors Life
Percentage of
Insurance Company of
shares owned of record
North America Fund as of
March 29 , 1996
Putnam Capital PCM Growth and Income Fund
0.84%
Manager Trust
CIGNA Separate PCM Money Market Fund
4.06%
Account I
PCM U.S. Government and
High Quality Bond Fund
1.97%
PCM Voyager Fund
0.14%
<PAGE>
Issuer and name of
Separate Account
Percentage of shares
(6) Paragon Life
owned of record as
Insurance Company Fund
of March 29, 1996
Putnam Capital
Manager Trust
Paragon Variable Life
PCM Asia Pacific
Growth Fund --
PCM Diversified
Income Fund --
PCM Global Asset
Allocation Fund --
PCM Global Growth Fund --
PCM Growth and Income Fund --
PCM High Yield Fund --
PCM Money Market Fund --
PCM New Opportunities Fund --
PCM U.S. Government and
High Quality Bond
Fund --
PCM Utilities Growth
and Income Fund --
PCM Voyager Fund --
Percentage of shares
(7) IDS Life
owned of record as
Insurance Company Fund
of March 29, 1996
Putnam Capital
Manager Trust
IDS Variable
Account 10
PCM New Opportunities
Fund
0.42%
<PAGE>
The address for the separate accounts listed in (1) through (2)
above is: P.O. Box 2099, Hartford, CT 06140-2999. The address
for the separate account listed in (3) above is: 20 Washington
Avenue South, Minneapolis, MN 55401. The address for the
separate account listed in (4) above is: 80 S. Eighth Street,
Minneapolis, MN 55440. The address for the separate account
listed in (5) above is: Austin Centre, 701 Brazos Street,
Austin, TX 78701. The address for the separate account listed in
(6) above is: 100 South Brentwood, St. Louis, MO 63105. The
address for the separate account listed in (7) above is: IDS
Tower 10, Minneapolis, MN 55440.
Each of the insurance companies issuing the separate accounts
listed above have agreed to vote their shares in proportion to
and in the manner instructed by contract and policy owners. By
virtue of the foregoing, each of these insurance companies, or
any of them together, may be deemed to be a controlling person of
each of the funds.
Putnam Management and its affiliates
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 could be purchased by the
investor 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 $93 billion in assets
in nearly 5 million shareholder accounts at December 31, 1995.
An affiliate, The Putnam Advisory Company, Inc., manages domestic
and foreign institutional accounts and mutual funds, including
the accounts of many Fortune 500 companies. Another affiliate,
Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers.
At December 31, 1995, Putnam Management and its affiliates
managed over $125 billion in assets, including over $17 billion
in tax-exempt securities and over $55 billion in retirement plan
assets.
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 a 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, custodian fees and transfer
agency fees paid or allowed by the fund.
The Management Contract
Under a Management Contract between the Trust and Putnam
Management dated October 2, 1987, as supplemented March 2, 1990,
and as further supplemented February 27, 1992, July 9, 1993,
April 5, 1994, June 2, 1994, April 7, 1995, July 13, 1995 and
as further supplemented July , 1996, subject to such
policies as the Trustees may determine, Putnam Management, at its
expense, furnishes continuously an investment program for the
Funds and makes investment decisions on their behalf. Subject to
the control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the
Trust, furnishes office space and equipment, provides bookkeeping
and clerical services (including determination of the net asset
values of the funds, but excluding shareholder accounting
services) and places all orders for the purchase and sale of the
Trust's portfolio securities. Putnam Management may place the
Trust's 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 Trust and other clients. In
so doing, Putnam Management may cause a fund to pay greater
brokerage commissions than it might otherwise pay.
The compensation payable to Putnam Management under the
Management Contract for its investment management services to the
funds is paid quarterly at the following annual rates of each
fund's average net assets, as determined at the close of each
business day during the quarter:
fund
Rate
PCM Asia Pacific Growth Fund 0.80% of the
first
$500 million
of
average net
assets,
0.70% of the
next
$500
million, 0.65%
of the next
$500
million,
0.60% of
the next $5
billion,
0.575% of
the next
$5 billion,
0.555%
of the next
$5
billion,
0.54% of
the next $5
billion,
and 0.53% of
any
excess
thereafter
<PAGE>
PCM Diversified Income Fund, PCM Global 0.70% of the
first
Asset Allocation Fund, PCM High Yield $500 million
of
Fund, PCM New Opportunities Fund average net
assets,
and PCM Voyager Fund 0.60% of the
next
$500
million, 0.55%
of the next
$500
million, and
0.50%
of any
amount over
$1.5 billion
PCM Growth and Income Fund 0.65% of the
first
$500 million
of
average net
assets,
0.55% of the
next
$500
million, 0.50%
of the next
$500
million, and
0.45%
of any
amount over
$1.5 billion
PCM U.S. Government and High 0.65% of the
first
Quality Bond Fund $500 million of
average net assets,
0.55% of the next
$500 million, 0.50%
of the next $500
million, 0.45% of
the next $5 billion,
0.425% of the next
$5 billion, 0.405%
of the next $5
billion, 0.39% of
the next $5 billion,
and 0.38% of any
excess thereafter
PCM Global Growth Fund,
0.60% of
average net
and PCM Utilities Growth assets
and Income Fund *
PCM Money Market Fund 0.45% of the
first
$500 million
of
average net
assets,
0.35% of the
next
$500
million, 0.30%
of the next
$500
million, and
0.25%
of any
amount over
$1.5 billion
<PAGE>
* On January 5, 1996, the Trustees approved a proposal to
change the fees payable to Putnam Management under the Management
Contract for PCM Utilities Growth and Income Fund. The
proposed change is subject to shareholder approval and will be
submitted to shareholders at a meeting scheduled for July 11,
1996. If the proposed change is not approved, this SAI will
be revised.
If approved at that meeting, management fees for the fund would
thereafter be paid at the following annual rates: 0.70% of the
first $500 million of average net assets, 0.60% of the next $500
million, 0.55% of the next $500 million, 0.50% of the next $5
billion, 0.475% of the next $5 billion, 0.455% of the next $5
billion, 0.44% of the next $5 billion, and 0.43% of any excess
thereafter. The proposed change would result in an increase in
fees paid by the fund to Putnam Management based upon the net
assets of the fund at December 31, 1995.
The Trust pays affiliates of Putnam Management additional amounts
for investor servicing and custody services.
In addition to the fee paid to Putnam Management, the Trust
reimburses Putnam Management for the compensation and related
expenses of certain officers of the funds and certain persons who
assist them in carrying out the responsibilities of their
offices. During fiscal 1995, the Trust reimbursed Putnam
Management $ 157,952 in this regard , including $137,513
in contributions to the Putnam Investments, Inc. Profit Sharing
Retirement Plan for the benefit of such officers and their
assistants . The Trust may also pay or reimburse Putnam
Management for all or a part of the compensation and related
expenses of one or more other officers of the Trust and their
assistants. Currently the Trust is reimbursing Putnam Management
for the compensation and related expenses of the Senior Vice
President and the Clerk of the Trust. The aggregate amount of
all such payments and reimbursements is determined annually by
the Trustees. Putnam Management pays all other salaries of
officers of the Trust. The Trust pays all expenses not assumed
by Putnam Management including, without limitation, auditing,
legal, custodial, investor servicing and shareholder reporting
expenses. The Trust pays any cost of typesetting for its
prospectuses and any cost of printing and mailing 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 Trust or to any shareholder of
the Trust for any act or omission in the course of or connected
with rendering services to the Trust 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 as to the Trust or as to any fund
without penalty by vote of the Trustees or the shareholders of
one or more Funds affected, or by Putnam Management, on 30 days'
written notice. It may be amended with respect to a fund only by
a vote of the shareholders of that 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 as to any fund only so long as such
continuance is approved at least annually by vote of either the
Trustees or the shareholders of that fund, and, in either case,
by a majority of the Trustees who are not "interested persons" of
Putnam Management or any fund. In each of the foregoing cases,
the vote of the shareholders of any fund is the affirmative vote
of a "majority of the outstanding voting securities" of such fund
as defined in the Investment Company Act of 1940. The
continuation of the Contract as to all funds was unanimously
approved by the Trustees, including those Trustees who are not
"interested persons," on January 5, 1996.
Management fees
Reflecting a
reduction
in the
following
amounts
pursuant
to an
Fund Fiscal Management expense
name year fee paid limitation
- ---- ------ ---------- -----------------
PCM Asia Pacific
Growth Fund 1995+ $67,583 $40,348
PCM Diversified
Income Fund 1995 $1,741,950
1994 $1,219,268
1993++ $56,026
PCM Global Asset
Allocation Fund 1995 $3,253,739
1994 $2,501,952
1993 $1,167,001
PCM Global Growth
Fund 1995 $4,329,841
1994 $3,316,215
1993 $1,000,268
PCM Growth & Income
Fund 1995 $13,096,405
1994 $9,644,524
1993 $5,982,583
PCM High Yield Fund 1995 $2,909,080
1994 $2,098,314
1993 $1,208,791
PCM Money Market
Fund 1995 $1,061,046
1994 $960,766
1993 $370,812
PCM New
Opportunities Fund 1995 $1,618,748
1994+++ $119,511 $49,240
PCM U.S. Government
and High Quality
Bond Fund 1995 $4,133,901
1994 $4,062,088
1993 $3,574,490
PCM Utilities
Growth and Income
Fund 1995 $2,666,363
1994 $2,450,006
1993 $1,496,570
PCM Voyager Fund 1995 $8,864,927
1994 $5,347,055
1993 $2,770,454
+ Commencement of operations May 1, 1995
++ Commencement of operations September 15, 1993
+++ Commencement of operations May 1, 1994
Portfolio Transactions
Investment decisions. Investment decisions for each of the funds
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 Trust of
negotiated brokerage commissions. Such commissions vary among
different brokers. Also, 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 Trust
usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid includes a disclosed,
fixed commission or discount retained by the underwriter or
dealer.
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 and from third
parties with which these broker-dealers have arrangements which
execute portfolio transactions for the clients of such advisers.
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
funds' portfolio transactions and from third parties with which
those 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 services, 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 Trust), although not all of these services
are necessarily useful and of value in managing the Trust. The
management fee paid by the Trust 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 each fund and buys and sells
investments for each fund through a substantial number of brokers
and dealers. In so doing, Putnam Management uses its best
efforts to obtain for each 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 each 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 a 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 a securities transaction on
stock exchanges and other agency 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 a fund to pay any such greater
commissions is subject to such policies as the Trustees may adopt
from time to time. Putnam Management does not currently intend
to cause the Trust 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, and accordingly Putnam Management
will use its best efforts 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 a fund, less any direct expenses approved by the
Trustees, shall be recaptured by the fund through a reduction of
the fee payable under the Management Contract. Putnam Management
seeks to recapture for each 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 Trust (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 Funds.
Fund Fiscal Brokerage
name year commissions
- ---- ------ -----------
PCM Asia Pacific
Growth Fund 1995 $205,198
(Commencement of
operations
May 1, 1995)
PCM Diversified
Income Fund 1995 $14,676
1994 $3,004
1993 $252
<PAGE>
PCM Global Asset
Allocation Fund 1995 $797,004
1994 $818,846
1993 $611,157
PCM Global Growth
Fund 1995 $2,275,831
1994 $1,992,940
1993 $1,163,591
PCM Growth & Income
Fund 1995 $3,637,703
1994 $2,736,406
1993 $2,560,288
PCM High Yield Fund 1995 $11,800
1994 $4,461
1993 $19,196
PCM Money Market
Fund 1995 $0
1994 $0
1993 $0
PCM New
Opportunities Fund 1995 $312,487
(Commencement of 1994 $68,123
operations
May 2, 1994
PCM U.S. Government
and High Quality
Bond Fund 1995 $2,880
1994 $17,014
1993 $7,844
PCM Utilities
Growth and Income
Fund 1995 $938,350
1994 $1,069,430
1993 $760,057
PCM Voyager Fund 1995 $2,171,392
1994 $1,295,494
1993 $799,917
Principal Underwriter
Putnam Mutual Funds is the principal underwriter of shares of the
Trust, which are continuously offered, and shares of the other
continuously offered Putnam funds. Putnam Mutual Funds is not
obligated to sell any specific amount of shares of the Trust and
will purchase shares for resale only against orders for shares.
<PAGE>
Investor servicing agent and Custodian
Putnam Investor Services, a division of Putnam Fiduciary Trust
Company ("PFTC"), is the Trust's investor servicing agent
(transfer, plan and dividend disbursing agent), for which it
receives fees which are paid monthly by the Trust as an expense
of all its shareholders. The fee paid to PFTC 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 shareholder
service components demonstrated that Putnam Investor Services
exceeded the industry standard in all categories.
The Trust paid $5,038,496 in fees to PFTC for its investor
servicing and custody services during fiscal 1995. The Trust
made no payments to PFTC for out-of-pocket expenses related to
the investor servicing agent's function for the year. For a
description of the custodial services provided by PFTC, see
"Custodian" below.
Putnam Fiduciary Trust Company is also investor servicing agent
for the other Putnam funds and receives fees from each of those
funds for its services.
INVESTMENT PERFORMANCE OF THE TRUST
Standard Performance Measures
Yield and total return data for the funds may from time to time
be presented in the prospectus, this SAI and advertisements. The
data is calculated as follows.
Total return for the life of the funds is determined by
calculating the actual dollar amount of investment return on a
$1,000 investment in a fund at the beginning of the period, 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 a fund during that period.
A 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 net asset value of the fund on the last day of the
base period. The result is annualized on a compounding basis to
determine the fund's 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 GNMAs, based on
cost). Dividends on equity securities are accrued daily at their
stated dividend rates.
PCM Money Market Fund's yield is computed by determining the
percentage net change, excluding capital changes, in the value of
an investment in one share of the fund 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). The fund's
effective yield represents a compounding of the fund's 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.
At times, Putnam Management may reduce its compensation or assume
expenses of a fund in order to reduce that fund's expenses. The
annual per share amount of any such reduction or assumption of
expenses is shown in the table entitled "Financial highlights" in
the prospectus. Any such waiver or assumption of expenses would
increase a fund's yield and total return during the period of the
waiver or assumption. The table below presents performance
information for the periods ended December 31, 1995. All
data is based on past performance and does not predict future
results.
Total
Return
PCM Fund Yield *1 year 5 years Life of
fund
Asia Pacific N/A N/A N/A 2.30%
Diversified Income 5.79% 19.13% N/A 5.29
Global Asset
Allocation 1.96 24.71 12.56% 10.75
Global Growth N/A 15.67 11.69 8.88
Growth and Income 2.98 36.71 15.42 15.08
High Yield 8.08 18.32 19.28 10.95
Money Market 5.37 5.46 4.31 5.58
New Opportunities N/A 44.87 N/A 30.98
U.S. Government and
High Quality Bond 5.64 20.44 10.33 9.56
Utilities
Growth & Income 3.87 31.08 N/A 11.29
Voyager N/A 40.67 22.16 17.70
* Information shown for all funds except for the Money
Market Fund represents 30-day yield. Information shown for
the Money Market Fund is 7-day yield.
<PAGE>
See the prospectus for the inception date of each fund .
The foregoing performance information reflects an expense
limitation applicable to PCM High Yield Fund for fiscal 1988, PCM
Utilities Growth and Income Fund for fiscal 1992, PCM New
Opportunities Fund for fiscal 1994 and PCM Asia Pacific
Growth Fund for fiscal 1995. 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 under their variable annuity contracts. These charges
and expenses are not reflected in the funds' performance and
would reduce an investor's return under the annuity contract.
DETERMINATION OF NET ASSET VALUE
The Trust values the shares of each fund daily on each day the
New York Stock Exchange (the "Exchange") is open. Currently, the
New York Stock 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 Trust determines net asset value as of the close
of regular trading on the Exchange, currently 4:00 p.m. However,
equity options held by a fund are priced as of the close of
trading at 4:10 p.m., and futures on U.S. government securities
and index options held by a fund are priced as of their close of
trading at 4:15 p.m.
PCM Money Market fund. The valuation of the fund's portfolio
instruments at amortized cost is permitted in accordance with
Securities and Exchange Commission Rule 2a-7 and certain
procedures adopted by the Trustees. The amortized cost of an
instrument is determined by valuing it at cost originally and
thereafter amortizing any discount or premium from its face value
at a constant rate until maturity, regardless of the effect of
fluctuating interest rates on the market value of the instrument.
Although the amortized cost method provides certainty in
valuation, it may result at times in determinations of value that
are higher or lower than the price the fund would receive if the
instruments were sold. Consequently, changes in the market value
of portfolio instruments during periods of rising or falling
interest rates will not normally be reflected either in the
computation of net asset value of the fund's portfolio or in the
daily computation of net income. Under the procedures adopted by
the Trustees, the fund must maintain a dollar-weighted average
portfolio maturity of 397 days or less, purchase only instruments
having remaining maturities of 90 days or less and invest in
securities determined by the Trustees to be of high quality with
minimal credit risks. The Trustees have also established
procedures designed to stabilize, to the extent reasonably
possible, the fund's price per share as computed for the purpose
of distribution, redemption and repurchase at $1.00. These
procedures include review of the fund's portfolio holdings by the
Trustees, at such intervals as they may deem appropriate, to
determine whether the fund's net asset value calculated by using
readily available market quotations deviates from $1.00 per
share, and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing shareholders. In the
event the Trustees determine that such a deviation exists, they
will take such corrective action as they regard as necessary and
appropriate, including selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average
portfolio maturity, withholding dividends, redeeming
shares in kind, or establishing a net asset value per share by
using readily available market quotations.
Since the net income of the fund is declared as a dividend each
time it is determined, the net asset value per share of the fund
remains at $1.00 per share immediately after such determination
and dividend declaration. Any increase in the value of a
shareholder's investment in the fund representing the
reinvestment of dividend income is reflected by an increase in
the number of shares of the fund in the shareholder's account on
the first day of the next month (or, if that day is not a
business day, on the next business day). It is expected that the
fund's net income will be positive each time it is determined.
However, if because of realized losses on sales of portfolio
investments, a sudden rise in interest rates, or for any other
reason the net income of the fund determined at any time is a
negative amount, the fund will offset such amount allocable to
each then shareholder's account from dividends accrued during the
month with respect to such account. If at the time of payment of
a dividend (either at the regular monthly dividend payment date,
or, in the case of a shareholder who is withdrawing all or
substantially all of the shares in an account, at the time of
withdrawal), such negative amount exceeds a shareholder's accrued
dividends, the fund will reduce the number of outstanding shares
by treating the shareholder as having contributed to the capital
of the fund that number of full and fractional shares which
represent the amount of excess. Each shareholder is deemed to
have agreed to such contribution in these circumstances by his or
her investment in the fund.
Other Funds. Each of the other funds determines net asset value
as follows: 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 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 outstanding.
<PAGE>
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 a fund are
restricted as to resale, Putnam Management determines their fair
value following procedures approved by the Trustees. The
Trustees periodically review such valuations and procedures.
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 Trust'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 funds' net asset
values. If events materially affecting the values of such
securities occur during such period, then these securities will
be valued at their fair value following procedures approved by
the Trustees.
SUSPENSION OF REDEMPTIONS
The Trust may not suspend the right of redemption and/or postpone
payment for more than seven days unless the New York Stock
Exchange is closed for other than customary weekends or holidays,
or except, 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 Trust 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 the protection of
investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Trust. However, the Agreement and Declaration of Trust
disclaims shareholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or
executed by the Trust or the Trustees. The Agreement and
Declaration of Trust provides for indemnification out of a fund's
property for all loss and expense of any shareholder held
personally liable for the obligations of that fund. Thus, the
risk of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which a fund
would be unable to meet its obligations.
CUSTODIAN
Putnam Fiduciary Trust Company ("PFTC") is the custodian of the
Trust'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
Trust's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Trust's
investments. PFTC and any subcustodians employed by it have a
lien on the securities of each fund (to the extent permitted by
the Trust'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 Trust for the
benefit of that fund. The Trust expects that such advances will
exist only in unusual circumstances. Neither PFTC nor any
subcustodian determines the investment policies of any fund or
decides which securities a fund will buy or sell. PFTC pays the
fees and other charges of any subcustodians employed by it. The
Trust may from time to time pay custodial expenses in full or in
part through the placement by Putnam Management of the Trust's
portfolio transactions with the subcustodians or with a third-
party broker having an agreement with the subcustodians. The
Trust pays PFTC an annual fee based on each 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.
<PAGE>
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Price Waterhouse LLP are the Trust'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 Trust's Annual Report for the fiscal
year ended December 31, 1995, filed electronically on March 7,
1996 (File No. 811-5346) , are incorporated by reference into
this SAI.
The financial highlights in the prospectuses and incorporated
by reference into this SAI and the financial statements
incorporated by reference into the prospectus and this SAI 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>
PUTNAM CAPITAL MANAGER TRUST
FORM N-lA
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Index to Financial Statements and Supporting
Schedules:
(1) Financial Statements:
Statements of assets and liabilities --
December 31, 1995 (a) .
Statements of operations -- year
ended
December 31, 1995 (a) .
Statement of changes in net assets --
years ended December 31, 1995
and
December 31, 1994 (a) .
Financial highlights (a)
(b) .
Notes to financial statements
(a) .
(2) Supporting Schedules:
Schedule I - Portfolios of investments
owned -- December 31,
1995
(a) .
Schedules II through IX
omitted because the
required matter is not
present.
---------------
(a) Included in Part B.
(b) Included in Part A.
(b) Exhibits:
1. Agreement and Declaration of Trust dated
September 24, 1987 -- Incorporated by
reference to Post-Effective Amendment No.
10
to the Registrant's Registration
Statement.
2. By-Laws, as amended through June 7, 1991
- --
Incorporated by reference to
Post-Effective
Amendment No. 10 to the Registrant's
Registration Statement.
3. Not applicable.
4a. Not applicable
4b. Portions of Agreement and Declaration of
Trust Relating to Shareholders' Rights --
Incorporated by reference to
Post-Effective
Amendment No. 10 to the Registrant's
Registration Statement.
4c. Portions of By-Laws Relating to
Shareholders'
Rights -- Incorporated by reference to
Post-
Effective Amendment No. 10 to the
Registrant's Registration Statement.
5. Management Contract, dated October 2,
1987,
as supplemented March 2, 1990, as further
supplemented February 27, 1992, July 9,
1993,
April 5, 1994, June 2, 1994, April 7,
1995,
July 13, 1995 and July , 1996 --
Incorporated by reference to Post-
Effective Amendment No. 11 to the
Registrant's Registration Statement.
6a. Distributor's Contract dated May 6, 1994
- --
Incorporated by reference to
Post-Effective
Amendment No. 10 to the Registrant's
Registration Statement.
6b. Form of Specimen Dealer Sales Contract --
Incorporated by reference to Post-
Effective Amendment No. 11 to the
Registrant's Registration Statement.
6c. Form of Specimen Financial Institution
Sales
Contract -- Incorporated by reference
to
Post-Effective Amendment No. 11 to the
Registrant's Registration Statement.
7. Not applicable.
8. Custodian Agreement with Putnam Fiduciary
Trust Company dated May 3, 1991, as
amended
July 13, 1992 -- Incorporated by
reference to
Post-Effective Amendment No. 10 to the
Registrant's Registration Statement.
9. Investor Servicing Agreement, dated June
3,
1991 with Putnam Fiduciary Trust Company
- --
Incorporated by reference to
Post-Effective
Amendment No. 10 to the Registrant's
Registration Statement.
10. Opinion of Ropes & Gray, including
consent --
Incorporated by reference to
Post-Effective
Amendment No. 10 to the Registrant's
Registration Statement.
11. Not applicable.
12. Not applicable.
13. Investment Letters from The Putnam
Management
Company, Inc. to the Registrant --
Incorporated by reference to
Post-Effective
Amendment No. 10 to the Registrant's
Registration Statement.
14. Not applicable.
15. Not applicable.
16. Schedules for computation of performance
quotations -- Exhibit 1 .
17a. Financial Data Schedule -- PCM Asia
Pacific
Growth Fund -- Exhibit 2 .
17b. Financial Data Schedule -- PCM
Diversified
Income Fund -- Exhibit 3 .
17c. Financial Data Schedule -- PCM Global
Asset
Allocation Fund -- Exhibit 4 .
17d. Financial Data Schedule -- PCM Global
Growth
Fund -- Exhibit 5 .
17e. Financial Data Schedule -- PCM Growth and
Income Fund -- Exhibit 6 .
17f. Financial Data Schedule -- PCM High Yield
Fund -- Exhibit 7 .
17g. Financial Data Schedule -- PCM Money
Market
Fund -- Exhibit 8 .
17h. Financial Data Schedule -- PCM New
Opportunities Fund -- Exhibit 9 .
17i. Financial Data Schedule -- PCM U.S.
Government and High Quality Bond Fund --
Exhibit 10 .
17j. Financial Data Schedule -- PCM Utilities
Growth and Income Fund -- Exhibit
11 .
17k. Financial Data Schedule -- PCM Voyager
Fund
-- Exhibit 12 .
Item 25. Persons Controlled by or under Common Control
with
Registrant
None.
Item 26. Number of Holders of Securities
As of March 31, 1996 there were
17 shareholders of the Registrant's 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.
33-17486).<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
James D. Babcock Prior to June, 1994, Interest
Assistant Vice President Supervisor, Salomon Brothers, Inc.
7 World Trade Center, New York, NY
10048
Robert K. Baumbach Prior to August, 1994, Vice President
Vice President and Analyst, Keystone Custodian
Funds, 200 Berkeley St., Boston, MA
02110
Janet S. Becker Prior to July, 1995, National Account
Assistant Vice President Manager for Booz-Allen & Hamilton,
American Express Travel Management
Services, 100 Cambridge Park Drive,
02140; Prior to August, 1994,
Account Manager, Hilton at Dedham
Place, Dedham, MA 02026
Matthew G. Bevin Prior to February, 1995, Consultant,
Assistant Vice President SEI Corporation, 680 East Swedesford
Road, Wayne, PA 19807
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
Susan M. Braid Prior to October, 1995, Manager,
Vice President Pioneer Group, Inc., 60 State St.,
Boston, MA 02109
Brett Browchuk Prior to April, 1994, Managing
Managing Director Director, Fidelity Investments, 82
Devonshire St., Boston, MA 02109
Brian E. Broyles Prior to September, 1995, Accounts
Assistant Vice President Payable Manager, Entex Information
Services, Six International Drive,
Rye Brook, NY 10573
Andrea Burke Prior to August, 1994, Vice President
Vice President and Portfolio Manager, Back Bay
Advisors, 399 Boylston St., Boston,
MA 02116
Susan Chapman Prior to June, 1995, Vice President,
Senior Vice President Forbes, Walsh, Kelly & Company,
Inc., 17 Battery Place, New York, NY
10004
Louis F. Chrostowski Prior to August, 1995, Manager of
Vice President Compensation and Benefits, Itek
Optical Systems, 10 MacGuire Rd.,
Lexington, MA 02173
Beth C. Cotner Prior to September, 1995, Executive
Senior Vice President Vice President, Director of U.S.
Equity Funds, Kemper Financial
Services, 120 S. LaSalle St.,
Chicago, IL 60603
Peter J. Curran Prior to January, 1996, Vice President
Senior Vice President ITT Sheraton Director Worldwide
Staffing, ITT Sheraton Corporation,
60 State St., Boston, MA 02109
Judith S. Deming Prior to May, 1995, Asset Manager,
Assistant Vice President Fidelity Management & Research
Company, 82 Devonshire St., Boston,
MA 02109
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
Joseph J. Eagleeye Prior to August, 1994, Associate,
Assistant Vice President David Taussig & Associates, 424
University Ave., Sacramento, CA
95813
<PAGE>
Michael T. Fitzgerald Prior to September, 1994, Senior
Senior Vice President Vice President, Vantage Global
Advisers, 1201 Morningside Dr.,
Manhattan Beach, CA 90266
Brian J. Fullterton Prior to November, 1995, Vice
Senior Vice President President, Pension and 401(k)
Derivatives Marketing, J.P. Morgan,
60 Wall Street, New York, NY 10260
Roland Gillis Prior to March, 1995, Vice President
Senior Vice President and Senior Portfolio Manager,
Keystone Group, Inc., 200 Berkeley
St., Boston, MA 02116
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
Jill Grossberg Prior to March, 1995, Associate
Assistant Vice President Counsel, 440 Financial Group of
and Associate Counsel Worcester, Inc., 440 Lincoln St.,
Worcester, MA 01653
Deborah R. Healey Prior to June, 1994, Senior Equity
Senior Vice President Trader, Fidelity Management &
Research Company, 82 Devonshire St.,
Boston, MA 02109
Lisa A. Heitman Prior to July, 1994, Securities
Senior Vice President Analyst, Lord, Abbett & Company, 767
Fifth Ave., New York, NY 10153
Pamela Holding Prior to May, 1995, Senior Securities
Vice President Analyst, Kemper Financial Services,
Inc., 120 South LaSalle St.,
Chicago, IL 60603
Michael F. Hotchkiss Prior to May, 1994, Vice President,
Vice President Massachusetts Financial Services,
500 Boylston St., Boston, MA 02116
<PAGE>
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
Mary E. Kearney Prior to February, 1995, Partner,
Managing Director Price Waterhouse, 160 Federal St.,
Boston, MA 02110
Paula Kienert Prior to June, 1995, Senior Reference
Assistant Vice President Librarian, Fidelity Investments, 82
Devonshire Street, Boston, MA 02109
D. William Kohli Prior to September, 1994, Executive
Managing Director Vice President and Co-Director of
Global Bond Management, Franklin
Advisors/Templeton Investment
Counsel, 777 Mariners Island Blvd.,
San Mateo, CA 94404
Karen R. Korn Prior to June, 1994, Vice President,
Vice President Assistant to the President, Designs,
Inc. 1244 Boylston St., Chestnut
Hill, MA 02167
Peter B. Krug Prior to January, 1995, Owner and
Vice President Director, Griswold Special Care, 42
Ethan Allen Drive, Acton, MA 01720
Catherine A. Latham Prior to August, 1995, Director of
Vice President Human Resources, Electronic Data
Systems, 1601 Trapello Rd., Waltham,
MA 02154
Kevin Lemire Prior to March, 1995, Corporate
Assistant Vice President Facilities Manager, Bose
Corporation, The Mountain,
Framingham, MA 01701; Prior to June,
1994, Facilities Manager, The
Pioneer Group, 60 State St., Boston,
MA 02109
Lawrence J. Lasser Director, Marsh & McLennan Companies,
President, Director Inc., 1221 Avenue of the Americas,
and Chief Executive New York, NY 10020; Director,
Officer INROADS/Central New England, Inc.,
99 Bedford St., Boston,MA 02111
Jeffrey R. Lindsey Prior to April, 1994, Vice President,
Vice President Strategic Portfolio Management, 1200
Ashwood Parkway, Suite 290, Atlanta,
GA 30338
James W. Lukens Prior to February, 1995, Vice
Senior Vice President President of Institutional
Marketing, Keystone Group, Inc., 200
Berkeley St., Boston, MA 02116
Helen Mazareas Prior to May, 1995, Librarian,
Assistant Vice President Scudder, Stevens & Clark, 2
International Place, Boston, MA
02110
Alexander J. McAuley Prior to June, 1995, Vice President,
Senior Vice President Deutsche Bank Securities Corp. -
Deutsche Asset Management, 1290
Avenue of the Americas, New York, NY
10019
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
Carol McMullen Prior to June, 1995, Senior Vice,
Managing Director President and Senior Portfolio
Manager, Baring Asset Management,
125 High Street, Boston, MA 02110
Darryl Mikami Prior to June, 1995, Vice President,
Senior Vice President Fidelity Management & Research
Company, 82 Devonshire St., Boston,
MA 02109
Carol H. Miller Prior to July, 1995, Business
Assistant Vice President Development Officer, Bank of Boston
- Connecticut, 100 Pearl St.,
Hartford, CT 06101
Seung H. Minn Prior to June, 1995, Vice President
Vice President in Portfolio Management and
Research, Templeton Quantitative
Advisors, Inc.,
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
Kenneth Mongtomery Prior to July, 1995, Senior Vice
Managing Director President and Director of World Wide
Sales, Chemcial Banking Corporation,
Paul G. Murphy Prior to January, 1995, Section
Assistant Vice President Manager, First Data Corp., 53 State
Street, Boston, MA 02109
C. Patrick O'Donnell, Jr. Prior to May, 1994, President,
Managing Director Exeter Research, Inc., 163 Water
Street, Exeter, New Hampshire, 03833
Samuel Perry Prior to January, 1996, Regional Vice
Vice President President, AIM Distributors, Inc.,
Jane E. Price Prior to February, 1995, Associate
Assistant Vice President ERISA Attorney, Hale & Dorr,
60 State St., Boston, MA 02109
Keith Quinton Prior to July, 1995, Vice President,
Senior Vice President Falconwood Securities Corporation.,
Paul T. Quistberg Prior to July, 1995, Assistant
Assistant Vice President Investment Officer, The Travelers
Insurance Group.,
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
Thomas Rosalanko Prior to February, 1995, Senior
Senior Vice President Account Manager, SEI Corporation,
680 East Swedesford Road, Wayne, PA
19807
<PAGE>
Michael Scanlon Prior to February, 1995, Senior
Assistant Vice President Financial Analyst, Massachusetts
Financial Services, 500 Boylston
St., Boston, MA 02116
Robert M. Shafto Prior to January, 1995, Account
Assistant Vice President Manager, IBM Corporation, 404 Wyman
St., Waltham, MA 02254
Karen F. Smith Prior to May, 1994, Consultant and
Assistant Vice President Portfolio Manager, Wyatt Asset
Services, Inc., 1211 W.W. 5th Ave.,
Portland, OR 97204
Margaret Smith Prior to September, 1995, Vice
Senior Vice President President, State Street Research,
One Financial Center, Boston, MA
02111
Steven Spiegel Prior to December, 1994, 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
James H. Steggall Prior to May, 1995, Senior Municipal
Assistant Vice President Analyst, Colonial Management
Associates, Inc., One Financial
Center, Boston, MA 02111; Prior to
May, 1994, Controller, Wheelabrator
Environmental Systems, Libery Lane,
Hampton, NH 03842
Karen Stewart Prior to May, 1995, Equity Research
Assistant Vice President Analyst, Chancellor Capital
Management, 1166 Avenue of the
Americas, New York, NY 10036
Roger Sullivan Prior to December, 1994, Vice
Senior Vice President President, State Street Research &
Management Co., One Financial
Center, Boston, MA 02111
Robert Swift Prior to August, 1995, Far East Team
Senior Vice President Leader and Portfolio Manager, IAI
International/Hill Samuel Investment
Advisors, 10 Fleet Place, London,
England
<PAGE>
Jerry H. Tempelman Prior to May, 1994, Senior Money
Assistant Vice President Market Trader, State Street Bank &
Trust Co., 225 Franklin, Street,
Boston, MA 02110
Michael Temple Prior to June, 1995, Vice President,
Vice President Duff & Phelps, 55 East Monroe,
Chicago, IL 60613
Hillary F. Till Prior to May, 1994, Fixed-Income
Vice President Derivative Trader, Bank of Boston,
100 Federal Street, Boston, MA 02109
Lisa L. Trubiano Prior to July, 1995, Senior Marketing
Vice President Consultant, John Hancock Mutual Life
Insurance Company,
Elizabeth A. Underhill Prior to August, 1994, Vice President
Senior Vice President and Senior Equity Analyst, State
Street Bank and Trust Company, 225
Franklin St., Boston, MA 02110
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
Herbert S. Wagner, III Prior to August, 1995, Investment
Assistant Vice President The First National Bank of Chicago,
One First National Plaza, Chicago,
IL 60670
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 Retirement Fund, Putnam California Tax Exempt
Income Trust, Putnam California Tax Exempt Money Market Fund,
Putnam Capital Appreciation Fund, Putnam Capital Manager Trust,
Putnam Convertible Income-Growth Trust, Putnam Diversified Equity
Trust, Putnam Diversified Income Trust, Putnam Diversified Income
Trust II, 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, The Putnam Fund for Growth and Income, Putnam Growth
and Income Fund II, Putnam Health Sciences Trust, Putnam High
Yield Trust, Putnam High Yield Advantage Fund, Putnam Income
Fund, Putnam Intermediate Tax Exempt Fund, Putnam Intermediate
U.S. Government Income Fund, Putnam Investment Funds, Putnam
Investors Fund, Putnam Massachusetts Tax Exempt Income Fund,
Putnam Michigan Tax Exempt Income Fund, Putnam Minnesota Tax
Exempt Income Fund, 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, Putnam OTC Emerging Growth
Fund, Putnam Overseas Growth Fund, Putnam Pennsylvania Tax Exempt
Income Fund, Putnam Preferred Income 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, Putnam Voyager Fund II.<PAGE>
<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
Steven E. Asher Senior Vice President None
Scott A. Avery Vice President None
Christian E. Aymond Vice President None
Hallie L. Baron Assistant Vice President None
Ira G. Baron Senior Vice President None
John L. Bartlett Senior Vice President None
Dale Beardon Senior Vice President None
Steven M. Beatty Vice President None
Matthew F. Beaudry Vice President None
Janet S. Becker Assistant Vice President None
John J. Bent Vice President None
Thomas A. Beringer Vice President None
Sharon A. Berka Vice President None
Maureen L. Boisvert Vice President None
John F. Boneparth Managing Director None
Keith R. Bouchard Vice President None
Linda M. Brady Assistant Vice President None
Susan M. Braid Vice President None
Leslee R. Bresnahan Senior Vice President None
James D. Brockelman Senior Vice President None
Brian E. Broyles Assistant Vice President None
Gail D. Buckner Senior Vice President None
Robert W. Burke Senior Managing Director None
Susan D. Cabana Vice President None
Ellen S. Callahan Vice President None
Thomas C. Callahan Assistant Vice President None
Peter J. Campagna Vice President None
Robert Capone Vice President None
Patricia A. Cartwright Assistant Vice President None
Janet Casale-Sweeney Vice President None
Stephen J. Chaput Assistant Vice President None
Louis F. Chrostowski 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
Karen E. Connolly Assistant Vice President None
Anna Coppola Vice President None
F. Nicholas Corvinus Senior Vice President None
Thomas A. Cosmer Vice President None
Chad H. Cristo Assistant Vice President None
Peter J. Curran Senior Vice President None
Jessica E. Dahill Vice President None
Kenneth L. Daly Senior Vice President None
Edward H. Dane Vice President None
Nancy M. Days Assistant Vice President None
Pamela De Oliveira-Smith Assistant Vice President None
Lisa M. DeMont Assistant Vice President None
Richard D. DeSalvo Vice President None
Joseph C. DeSimone Assistant Vice President None
Daniel J. Delianedis Vice President None
Judith S. Deming Assistant 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 Vice President None
Dwyer Cabana, Susan Vice President None
David B. Edlin Senior Vice President None
James M. English Senior Vice President None
Vincent Esposito Managing Director None
Mary K. Farrell Assistant Vice President None
Michael J. Fechter 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 Senior Vice President None
Joseph C. Fiumara Vice President None
Patricia C. Flaherty Senior Vice President None
Brian J. Fullerton Senior Vice President None
Samuel F. Gagliardi Vice President None
Karen M. Gardner Assistant Vice President None
Judy S. Gates Vice President None
Richard W. Gauger Assistant Vice President None
Joseph P. Gennaco Vice President None
Stephen E. Gibson Managing Director None
Mark P. Goodfellow Assistant Vice President None
Robert Goodman Managing Director None
Mark D. Goodwin Assistant Vice President None
Anthony J. Grace Assistant Vice President None
Linda K. Grace Assistant Vice President None
Robert G. Greenly Vice President None
Jill Grossberg Assistant Vice President None
Jeffrey P. Gubala Vice President None
James E. Halloran Vice President None
Thomas W. Halloran Vice President None
Meghan C. Hannigan Assistant Vice President None
Bruce D. Harrington Assistant Vice President None
Marilyn M. Hausammann Senior Vice President None
Howard W. Hawkins, III Vice President None
Deanna R. Hayes-Castro Vice President None
Paul P. Heffernan Vice President None
Susan M. Heimanson Vice President None
Joanne Heyman Assistant 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 Senior Managing Director, Director None
Jay M. Johnson Vice President None
Kevin M. Joyce Senior Vice President None
Karen R. Kay Senior Vice President None
Mary E. Kearney Managing Director None
John P. Keating Vice President None
A. Siobahn Kelly Assistant Vice President None
Brian J. Kelly Vice President None
Anne Kinsman Assistnat Vice President None
Deborah H. Kirk Senior Vice President None
Jill A. Koontz Assistant Vice President None
Linda G. Kraunelis Assistant Vice President None
Howard H. Kreutzberg Senior Vice President None
Marjorie B. Krieger Assistant Vice President None
Charles Lacasia Assistant Vice President None
Arthur B. Laffer, Jr. Vice President None
Catherine A. Latham Vice President None
James D. Lathrop Vice President None
Charles C. Ledbetter Vice President None
Kevin Lemire Assistant Vice President None
Anthony J. Leonard Vice President None
Eric S. Levy Vice President None
Edward V. Lewandowski Senior Vice President None
Edward V. Lewandowski, Jr. Vice President None
Samuel L. Lieberman Vice President None
David M. Lifsitz Assistant Vice President None
Ann Marie Linehan Assistant Vice President None
Maura A. Lockwood Vice President None
Rufino R. Lomba Vice President None
Peter V. Lucas Senior Vice President None
Robert F. Lucey Senior Managing Director, Director None
Kathryn A. Lucier Assistant Vice President None
Alana Madden Vice President None
Ann Malatos Assistant Vice President None
Bonnie Mallin Vice President None
Renee L. Maloof Assistant Vice President None
Frederick S. Marius Assistant Vice President None
Karen E. Marotta 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 Senior Vice President None
Gregory J. McMillan Vice President None
Claye A. Metelmann Vice President None
Bart D. Miller Vice President None
Douglas W. Miller Vice President None
Jeffery M. Miller Senior Vice President None
Ronald K. Mills Vice President None
Peter M. Moore Assistant Vice President None
Mitchell Moret Senior 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
John P. Nickodemus Vice President None
Michael C. Noonis Assistant Vice President None
Kristen P. O'Brien Vice President None
Kevin L. O'Shea Senior Vice President None
Nathan D. O'Steen Assistant Vice President None
Larence J. Olewinksi 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 Senior Vice President None
Jeffrey E. Place Senior Vice President None
Keith Plapinger Vice President None
Douglas H. Powell Vice President None
Jane E. Price Assistant Vice President None
Susannah Psomas Vice President None
Scott M. Pulkrabek Vice President None
George Putnam Director Chairman & President
George A. Rio Senior Vice President None
Debra V. Rothman Vice President None
Robert B. Rowe Vice President None
Kevin A. Rowell Senior Vice President None
Thomas C. Rowley Vice President None
Charles A. Ruys de Perez Senior Vice President None
Deborah A. Ryan Assistant Vice President None
Debra J. Sarkisian Assistant Vice President None
Catherine A. Saunders Senior Vice President None
Robbin L. Saunders Assistant Vice President None
Karl W. Saur Vice President None
Michael Scanlon Assistant Vice President None
Shannon D. Schofield Vice President None
Christine A. Scordato Vice President None
Joseph W. Scott Assistant Vice President None
John B. Shamburg Vice President None
Kathleen G. Sharpless Managing Director None
William N. Shiebler Director and President Vice President
Mark J. Siebold Assistant Vice President None
Gordon H. Silver Senior Managing Director Vice President
John Skistimas, Jr. Assistant Vice President None
Steven Spiegel Senior Managing Director None
Nicholas T. Stanojev Senior Vice President None
Paul R. Stickney Vice President None
Brian L. Sullivan Vice President None
Guy Sullivan Seniior Vice President None
Kevin J. Sullivan Vice President None
Moira Sullivan Vice President None
James S. Tambone Managing Director None
B. Iris Tanner Assistant Vice President None
Louis Tasiopoulos Managing Director None
David S. Taylor Vice President None
John R. Telling Vice President None
Cynthia Tercha Vice President None
Richard B. Tibbetts Senior Vice President None
Patrice M. Tirado Vice President None
Janet E. Tosi Assistant Vice President None
Bonnie L. Troped Vice President None
Christine M. Twigg Assistant Vice Presient None
Larry R. Unger Vice President None
Douglas J. Vander Linde Senior 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
Jane Wolfson 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 Vice President None
Laura J. Zografos Vice President None
</TABLE>
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, 131 Crystal Road, Colmar, PA 18915
Mr. Avery, 7031 Spring Ridge Rd., Cary NC 27511
Mr. Aymond, 212 Lochview Drive, Cary, NC 27511
Mr. Baron, 31 Cala Moreya, Laguna Niguel, CA 92667
Mr. Bartlett, 7 Fairfield St., Boston, MA 02116
Mr. Beatty, 200 High St., Winchester, MA 01890
Mr. Beringer, 4915 Dupont Avenue South, Minneapolis, MN 55409
Ms. Besset, 1140 North LaSalle Blvd, Chicago, IL 60610
Mr. Bouchard, 18 Brice Rd., Annapolis, MD 21401
Mr. Brockelman, 94 Middleton Rd., Boxford, MA 01921
Mr. Brown, 2012 West Grove Drive, Gibson, PA 15044
Ms. Buckner, 21012 West Grove Drive, Gibsonia, PA 15044
Mr. Campagna, 1130 Green Meadow Court, Acworth, GA 30102
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. Coneeny, 10 Amherst St., Arlington, MA 02174
Mr. Connelly, 4634 Mirada Way, Sarasota, FL 34238
Mr. Corvinus, 274 Water St., Newburyport, MA 01950
Ms. Dahill, 270-1 C Iven Ave., St. David's, PA 19087
Mr. Deliandis, 5161 Muirfield Lane, Concord, CA 94521
Mr. DeSalvo, 54 Morriss Place, Maddison, NJ 07940
Mr. DeSimone, Pheasant Run Apartments, Inlet Ridge Drive,
Maryland Heights, MO 63043
Ms. Dwyer-Cabana, 7730 Herrick Park, Hudson, OH 44236
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, 4308 Rickover Drive, Dallas, TX 75244
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
Mr. Kelley, 1026 E. Olympus Ridge Cove, Salt Lake City, UT 84117
Ms. Kelly, 31 Jeffrey's Neck Road, Ipswich, MA 01938
Ms. Kinsman, 9599 Brookview Circle, Woodbury, MN 55125
Ms. Kirk, 200 East 62nd Street, New York, NY 10021
Ms. Kraunelis, 584 East Eighth St., South Boston, MA 02127
Mr. Lathrop, 14814 Straub Hill Lane, Chesterfield, MO 63017
Mr. Ledbetter, 820 South Monaco, Denver, CO 80224
Mr. Leonard, 3673 Hopper Ridge Road, Cincinnati, OH 45255
Mr. Lewandowski, 805 Darrell Road, Hillsborough, CA 94010
Mr. Lewandowski, Jr., 1 Kara East, Irvine, CA 92720
Mr. Lieberman, 200 Roy St., Seattle, WA 98109
Ms. Madden, 201 Plantation Club Drive, Melbourne, FL 32940
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. B. Miller, 24815 Acropolis Drive, Mission Viejo, CA 92691
Mr. D. Miller, 7 Anthony Place, Riverside, CT 06878
Mr. Moret, 4519 Lawn Avenue, Western Springs, IL 60558
Mr. Murray, 710 Cheyenne Drive, Franklin Lakes, NJ 07417
Mr. Nadherny, 9714 Marmount Drive, Seattle, WA 98117
Mr. Nickodemus, 463 Village Oaks Court, Ann Arbor, MI 48103
Mr. Olewinski, 7707 Hamilton Avenue, Burr Ridge, IL 60521
Mr. O'Steen, 2091-B Lake Park Drive, Smyrna, GA 30080
Mr. Papes, 12891 S. Summit, Olatag, KS 66062
Mr. Pataccoli, 333 39th St., Manhattan Beach, CA 90266
Mr. Perry, 4031 West Main, Houston, TX 77027
Mr. Joe Phoenix, 1426 Asbury Avenue, Hubbard Woods, IL 60093
Mr. John Phoenix, 2987 Jackson Ave., Coconut Grove, FL 33133
Mr. Place, 4211 Loch Highland Parkway, Roswell, GA 30075
Mr. Pulkrabek, 190 Jefferson Lane, Streamwood, IL 60107
Mr. Powell, 1508 Ruth Lane, Newport Beach, CA 92660
Mr. Rowe, 109 Shore Drive, Longwood, FL 32779
Mr. Rowell, 2240 Union St., San Francisco, CA 94123
Mr. Rowley, 237 Peeke Avenue, Kirkwood, MO 63122
Ms. Sarkisian, 1 Goodridge Ct., Boston, MA 02113
Ms. Saunders, 39939 Stevenson Common, Freemont, CA 94538
Ms. Schofield, 172 Rime Village, Hoover, AL 35216
Mr. Shamburg, 10603 N. 100th Street, Scottsdale, AZ 85260
Mr. Stickney, 1314 Log Cabin Lane, St. Louis, MO 63124
Mr. B. Sullivan, 777 Pinoake Road, Pittsburgh, PA 15243
Mr. G. Sullivan, 35 Marlborough St., Boston, MA 02116
Ms. M. Sullivan, 493 Zinfandel Lane, St. Helena, CA 94574
Ms. Sweeney, 8 Surf St., Marblehead, MA 01945
Mr. Tambone, 10 Commercial Wharf, Boston, MA 02110
Mr. Tasiopolous, 5 Homestead Farms Drive, Norwell, MA 02061
Ms. Tercha, 611 East 18th St., Houston, TX 77009
Mr. Telling, 5 Spindriff Court, Williamsville, NY 14221
Mr. Unger, 212 E. Broadway, New York, NY 10002
Mr. Williamson, 111 Maple Ridge Way, Covington, LA 70433
Ms. Williamson, 158 Summer St., Hingham, MA 02043
Mr. White, 10 Mannion Place, Littleton, MA 01460
Mr. Woloshin, 100 West 89th St., New York, NY 10024
Ms. Zebedee, 1616 Queen Ann Ave., N., Seattle, WA 98109
Ms. Zografos, 12712 Coeur de Monde Ct., St. Louis, MO 63146
<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"); and Registrant's transfer and dividend disbursing
agent, Putnam Investor Services, a division of PFTC. The address
of the Clerk, investment adviser, principal underwriter,
custodian and transfer and dividend disbursing agent 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 Prospectuses and Statement of Additional Information
constituting parts of this Post-Effective Amendment No. 12
to the Registration Statement on Form N-1A (File No. 33-17486)
(the "Registration Statement") of our report dated February
20, 1996 , relating to the financial statements and
financial highlights appearing in the December 31, 1995
Annual Report of Putnam Capital Manager Trust, 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
and Financial Statements" in such Statement of Additional
Information and under the heading "Financial highlights" in such
Prospectuses .
PRICE WATERHOUSE LLP
Boston, Massachusetts
April 24 , 1996
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust of
Putnam Capital Manager Trust 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 relevant series of the Registrant.
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 29th day
of April , 1996.
PUTNAM CAPITAL MANAGER TRUST
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of
1933, this Amendment to the Registration Statement of Putnam
Capital Manager Trust 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 Senior Vice President;
Treasurer and
Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and
Principal
Accounting Officer
Jameson Adkins 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
George Putnam, III Trustee
Eli Shapiro Trustee
A.J.C. Smith Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver,
as Attorney-in-Fact
April 29, 1996
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Capital Manager Trust -- PCM Asia Pacific
Growth Fund
Fiscal period ending: December 31, 1995
Inception date (if less than 10 years of performance): May 1,
1995
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
ERV = Ending Redeemable Value $ $ $1,013
T = Average Annual
Total Return % % 1.35%*
*Life of fund, if less than 10 years
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Capital Manager Trust -- PCM Diversified
Income Fund
Fiscal period ending: December 31, 1995
Inception date (if less than 10 years of performance): September
15, 1993
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
ERV = Ending Redeemable Value $1,175 $ $1,130
T = Average Annual
Total Return 17.47% % 5.49%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $1,620,314
Expenses $197,803
Reimbursement $0
Average shares 27,070,497
NAV $11.03
Sales Charge 0%
POP $11.03
Yield at POP 5.79%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Capital Manager Trust -- PCM Global Asset
Allocation Fund
Fiscal period ending: December 31, 1995
Inception date (if less than 10 years of performance): February
1, 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
ERV = Ending Redeemable Value $1,230 $ $2,009
T = Average Annual
Total Return 22.97% % 9.21%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $1,178,221
Expenses $311,440
Reimbursement $0
Average shares 32,993,072
NAV $16.15
Sales Charge 0%
POP $16.15
Yield at POP 1.96%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Capital Manager Trust -- PCM Global Growth
Fund
Fiscal period ending: December 31, 1995
Inception date (if less than 10 years of performance): May 1,
1990
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 $1,141 $1,621 $1,496
T = Average Annual
Total Return 14.06% 10.14% 7.37%*
*Life of fund, if less than 10 years
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Capital Manager Trust -- PCM Growth and Income
Fund
Fiscal period ending: December 31, 1995
Inception date (if less than 10 years of performance): February
1, 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
ERV = Ending Redeemable Value $1,348 $ $2,720
T = Average Annual
Total Return 34.81% % 13.47%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $9,418,268
Expenses $1,344,288
Reimbursement $0
Average shares 152,217,762
NAV $21.47
Sales Charge 0%
POP $21.47
Yield at POP 2.98%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Capital Manager Trust -- PCM High Yield Fund
Fiscal period ending: December 31, 1995
Inception date (if less than 10 years of performance): February
1, 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
ERV = Ending Redeemable Value $1,167 $ $2,039
T = Average Annual
Total Return 16.67% % 9.41%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $3,448,218
Expenses $214,631
Reimbursement $0
Average shares 39,455,578
NAV $12.37
Sales Charge 0%
POP $12.37
Yield at POP 8.08%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Capital Manager Trust -- PCM Money Market Fund
Fiscal periods ending: December 31, 1995
Inception date (if less than 10 years of performance): February
1, 1988
7 DAY YIELD FORMULA - DIVIDENDS DECLARED FOR LAST 7 DAYS / 7 *365
TOTAL DIVIDENDS DECLARED
PER SHARE FOR LAST 7 DAYS: 0.001025
7 DAY YIELD = 5.34464%
CALCULATION OF 7 DAY EFFECTIVE YIELD
7 DAY YIELD ^52.142857
( 1 + --------------------) -1
(100 * 52.142587)
7 DAY EFFECTIVE YIELD = 5.4871894%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Capital Manager Trust -- PCM New Opportunities
Fund
Fiscal period ending: December 31, 1995
Inception date (if less than 10 years of performance): May 2,
1994
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
ERV = Ending Redeemable Value $1,429 $ $1,531
T = Average Annual
Total Return 42.85% % 29.06%*
*Life of fund, if less than 10 years
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Capital Manager Trust -- PCM U.S. Government
and High
Quality Bond Fund
Fiscal period ending: December 31, 1995
Inception date (if less than 10 years of performance): February
1, 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
ERV = Ending Redeemable Value $1,188 $ $1,845
T = Average Annual
Total Return 18.77% % 8.04%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $3,794,907
Expenses $344,885
Reimbursement $0
Average shares 54,045,674
NAV $13.74
Sales Charge 0%
POP $13.74
Yield at POP 5.64%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Capital Manager Trust -- PCM Utilities Growth
and
Income Fund
Fiscal period ending: December 31, 1995
Inception date (if less than 10 years of performance): May 4,
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 $ $1,000
ERV = Ending Redeemable Value $1,293 $ $1,407
T = Average Annual
Total Return 29.25% % 9.76%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $1,982,598
Expenses $300,592
Reimbursement $0
Average shares 39,611,596
NAV $13.28
Sales Charge 0%
POP $13.28
Yield at POP 3.87%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Capital Manager Trust -- PCM Voyager Fund
Fiscal period ending: December 31, 1995
Inception date (if less than 10 years of performance): February
1, 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 $1,387 $2,536 $3,252
T = Average Annual
Total Return 38.71% 20.46% 16.06%*
*Life of fund, if less than 10 years
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 Capital Manager Trust PCM Asia Pacific Growth Fund
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST > 25,538,238
<INVESTMENTS-AT-VALUE> 25,884,765
<RECEIVABLES> 756,188
<ASSETS-OTHER> 16,203
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,657,156
<PAYABLE-FOR-SECURITIES> 1,045,889
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 566,654
<TOTAL-LIABILITIES> 1,612,543
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,421,188
<SHARES-COMMON-STOCK> 2,448,848
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 260,391
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (281,037)
<ACCUM-APPREC-OR-DEPREC> 644,071
<NET-ASSETS> 25,044,613
<DIVIDEND-INCOME> 109,697
<INTEREST-INCOME> 54,434
<OTHER-INCOME> 0
<EXPENSES-NET> 73,898
<NET-INVESTMENT-INCOME> 90,233
<REALIZED-GAINS-CURRENT> (151,962)
<APPREC-INCREASE-CURRENT> 644,071
<NET-CHANGE-FROM-OPS> 582,342
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,079,125
<NUMBER-OF-SHARES-REDEEMED> (2,630,277)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25,044,613
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 67,583
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 101,374
<AVERAGE-NET-ASSETS> 12,585,530
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> .17
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.23
<EXPENSE-RATIO> .81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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 Capital Manager Trust PCM Diversified Income Fund AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST > 292,147,041
<INVESTMENTS-AT-VALUE> 298,767,167
<RECEIVABLES> 7,601,968
<ASSETS-OTHER> 21,640
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 306,390,775
<PAYABLE-FOR-SECURITIES> 1,363,345
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,306,637
<TOTAL-LIABILITIES> 2,669,982
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 279,391,034
<SHARES-COMMON-STOCK> 27,533,478
<SHARES-COMMON-PRIOR> 22,158,718
<ACCUMULATED-NII-CURRENT> 19,613,479
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,680,317)
<ACCUM-APPREC-OR-DEPREC> 6,396,597
<NET-ASSETS> 303,720,793
<DIVIDEND-INCOME> 204,785
<INTEREST-INCOME> 21,335,530
<OTHER-INCOME> 0
<EXPENSES-NET> 2,018,877
<NET-INVESTMENT-INCOME> 19,521,438
<REALIZED-GAINS-CURRENT> 6,168,362
<APPREC-INCREASE-CURRENT> 17,173,203
<NET-CHANGE-FROM-OPS> 42,863,003
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,017,722)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,146,785
<NUMBER-OF-SHARES-REDEEMED> (1,905,536)
<SHARES-REINVESTED> 1,133,511
<NET-CHANGE-IN-ASSETS> 87,785,464
<ACCUMULATED-NII-PRIOR> 11,319,097
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (8,073,322)
<GROSS-ADVISORY-FEES> 1,741,950
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,109,255
<AVERAGE-NET-ASSETS> 248,530,691
<PER-SHARE-NAV-BEGIN> 9.74
<PER-SHARE-NII> .71
<PER-SHARE-GAIN-APPREC> 1.09
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.51)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.03
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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 Capital Manager Trust PCM Global Asset Allocation
Fund AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST > 483,960,531
<INVESTMENTS-AT-VALUE> 544,509,764
<RECEIVABLES> 9,225,682
<ASSETS-OTHER> 675,607
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 554,411,053
<PAYABLE-FOR-SECURITIES> 14,585,814
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,158,859
<TOTAL-LIABILITIES> 18,744,673
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 433,719,530
<SHARES-COMMON-STOCK> 33,173,381
<SHARES-COMMON-PRIOR> 31,412,939
<ACCUMULATED-NII-CURRENT> 13,978,178
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,478,735
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 61,489,937
<NET-ASSETS> 535,666,380
<DIVIDEND-INCOME> 6,364,299
<INTEREST-INCOME> 12,885,472
<OTHER-INCOME> 0
<EXPENSES-NET> 3,873,244
<NET-INVESTMENT-INCOME> 15,376,527
<REALIZED-GAINS-CURRENT> 30,375,882
<APPREC-INCREASE-CURRENT> 56,425,021
<NET-CHANGE-FROM-OPS> 102,177,430
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,825,970)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,576,518
<NUMBER-OF-SHARES-REDEEMED> (2,388,987)
<SHARES-REINVESTED> 572,911
<NET-CHANGE-IN-ASSETS> 121,443,586
<ACCUMULATED-NII-PRIOR> 8,082,455
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (5,525,272)
<GROSS-ADVISORY-FEES> 3,253,739
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,922,467
<AVERAGE-NET-ASSETS> 464,933,972
<PER-SHARE-NAV-BEGIN> 13.19
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> 2.74
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.25)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.15
<EXPENSE-RATIO> .84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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 Capital Manager Trust PCM Global Growth Fund AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST > 0
<INVESTMENTS-AT-VALUE> 833,215,989
<RECEIVABLES> 11,724,577
<ASSETS-OTHER> 1,117,873
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 846,058,439
<PAYABLE-FOR-SECURITIES> 12,751,440
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,713,982
<TOTAL-LIABILITIES> 14,465,422
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 695,127,895
<SHARES-COMMON-STOCK> 54,791,007
<SHARES-COMMON-PRIOR> 49,694,917
<ACCUMULATED-NII-CURRENT> 9,392,474
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31,000,126
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 96,072,522
<NET-ASSETS> 831,593,017
<DIVIDEND-INCOME> 15,039,547
<INTEREST-INCOME> 2,071,812
<OTHER-INCOME> 0
<EXPENSES-NET> 5,284,914
<NET-INVESTMENT-INCOME> 10,726,278
<REALIZED-GAINS-CURRENT> 27,182,770
<APPREC-INCREASE-CURRENT> 70,328,980
<NET-CHANGE-FROM-OPS> 108,238,028
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,241,911)
<DISTRIBUTIONS-OF-GAINS> (12,181,203)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,808,443
<NUMBER-OF-SHARES-REDEEMED> (9,069,293)
<SHARES-REINVESTED> 1,356,940
<NET-CHANGE-IN-ASSETS> 161,772,186
<ACCUMULATED-NII-PRIOR> 4,411,370
<ACCUMULATED-GAINS-PRIOR> 10,166,269
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,329,841
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,427,031
<AVERAGE-NET-ASSETS> 721,185,850
<PER-SHARE-NAV-BEGIN> 13.48
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> 1.85
<PER-SHARE-DIVIDEND> .11
<PER-SHARE-DISTRIBUTIONS> .24
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.18
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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 Capital Manager Trust PCM Growth & Income Fund AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST > 0
<INVESTMENTS-AT-VALUE> 3,324,653,224
<RECEIVABLES> 12,778,464
<ASSETS-OTHER> 37,377
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,337,469,065
<PAYABLE-FOR-SECURITIES> 20,804,169
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,358,792
<TOTAL-LIABILITIES> 25,162,961
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,572,199,799
<SHARES-COMMON-STOCK> 154,278,978
<SHARES-COMMON-PRIOR> 116,012,107
<ACCUMULATED-NII-CURRENT> 82,592,880
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 136,639,048
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 520,874,377
<NET-ASSETS> 3,312,306,104
<DIVIDEND-INCOME> 83,313,636
<INTEREST-INCOME> 14,613,507
<OTHER-INCOME> 0
<EXPENSES-NET> 13,799,524
<NET-INVESTMENT-INCOME> 84,127,619
<REALIZED-GAINS-CURRENT> 149,378,098
<APPREC-INCREASE-CURRENT> 540,953,657
<NET-CHANGE-FROM-OPS> 774,459,374
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (61,294,430)
<DISTRIBUTIONS-OF-GAINS> (34,820,960)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34,911,574
<NUMBER-OF-SHARES-REDEEMED> (2,229,560)
<SHARES-REINVESTED> 5,584,857
<NET-CHANGE-IN-ASSETS> 1,404,925,751
<ACCUMULATED-NII-PRIOR> 60,139,264
<ACCUMULATED-GAINS-PRIOR> 21,926,977
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,096,405
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14,304,850
<AVERAGE-NET-ASSETS> 2,518,154,242
<PER-SHARE-NAV-BEGIN> 16.44
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> 5.31
<PER-SHARE-DIVIDEND> (.51)
<PER-SHARE-DISTRIBUTIONS> (.30)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.47
<EXPENSE-RATIO> .57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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 Capital Manager Trust PCM High Yield Fund AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST > 467,339,884
<INVESTMENTS-AT-VALUE> 477,923,815
<RECEIVABLES> 21,451,997
<ASSETS-OTHER> 4,264
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 499,380,076
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 912,924
<TOTAL-LIABILITIES> 912,924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 457,264,171
<SHARES-COMMON-STOCK> 40,303,807
<SHARES-COMMON-PRIOR> 28,534,560
<ACCUMULATED-NII-CURRENT> 37,603,875
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6,984,825)
<ACCUM-APPREC-OR-DEPREC> 10,583,931
<NET-ASSETS> 498,467,152
<DIVIDEND-INCOME> 681,702
<INTEREST-INCOME> 41,645,420
<OTHER-INCOME> 0
<EXPENSES-NET> 3,158,540
<NET-INVESTMENT-INCOME> 39,168,582
<REALIZED-GAINS-CURRENT> (3,056,512)
<APPREC-INCREASE-CURRENT> 32,473,048
<NET-CHANGE-FROM-OPS> 68,585,118
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (32,248,315)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,402,208
<NUMBER-OF-SHARES-REDEEMED> (11,586,104)
<SHARES-REINVESTED> 2,953,143
<NET-CHANGE-IN-ASSETS> 171,347,731
<ACCUMULATED-NII-PRIOR> 30,924,066
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,628,915)
<GROSS-ADVISORY-FEES> 2,909,080
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,290,354
<AVERAGE-NET-ASSETS> 415,814,370
<PER-SHARE-NAV-BEGIN> 11.46
<PER-SHARE-NII> .91
<PER-SHARE-GAIN-APPREC> 1.05
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.37
<EXPENSE-RATIO> .79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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 Capital Manager Trust PCM Money Market Fund AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST > 260,840,036
<INVESTMENTS-AT-VALUE> 260,840,036
<RECEIVABLES> 2,737,916
<ASSETS-OTHER> 12,321
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 263,590,273
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 376,974
<TOTAL-LIABILITIES> 376,974
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263,213,299
<SHARES-COMMON-STOCK> 263,213,299
<SHARES-COMMON-PRIOR> 244,063,943
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 263,213,299
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,132,558
<OTHER-INCOME> 0
<EXPENSES-NET> 1,331,327
<NET-INVESTMENT-INCOME> 12,801,231
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 12,801,231
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,801,231)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 386,282,399
<NUMBER-OF-SHARES-REDEEMED> (379,375,602)
<SHARES-REINVESTED> 12,242,559
<NET-CHANGE-IN-ASSETS> 19,149,356
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,061,046
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,331,358
<AVERAGE-NET-ASSETS> 235,639,642
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .0533
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.0533)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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 Capital Manager Trust PCM New Opportunities Fund AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST > 0
<INVESTMENTS-AT-VALUE> 517,895,901
<RECEIVABLES> 1,616,637
<ASSETS-OTHER> 60,496
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 519,573,034
<PAYABLE-FOR-SECURITIES> 3,637,598
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 826,812
<TOTAL-LIABILITIES> 4,464,410
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 423,796,282
<SHARES-COMMON-STOCK> 32,946,981
<SHARES-COMMON-PRIOR> 6,339,364
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,236,510)
<ACCUM-APPREC-OR-DEPREC> 93,548,852
<NET-ASSETS> 515,108,624
<DIVIDEND-INCOME> 282,790
<INTEREST-INCOME> 1,475,975
<OTHER-INCOME> 0
<EXPENSES-NET> 1,822,259
<NET-INVESTMENT-INCOME> (63,494)
<REALIZED-GAINS-CURRENT> 2,173,197
<APPREC-INCREASE-CURRENT> 90,775,571
<NET-CHANGE-FROM-OPS> 88,538,880
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,784)
<DISTRIBUTIONS-OF-GAINS> (208,404)
<DISTRIBUTIONS-OTHER> (137,365)
<NUMBER-OF-SHARES-SOLD> 29,068,100
<NUMBER-OF-SHARES-REDEEMED> (2,490,522)
<SHARES-REINVESTED> 30,039
<NET-CHANGE-IN-ASSETS> 446,516,628
<ACCUMULATED-NII-PRIOR> 7,145
<ACCUMULATED-GAINS-PRIOR> 208,404
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,618,748
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,944,385
<AVERAGE-NET-ASSETS> 230,279,362
<PER-SHARE-NAV-BEGIN> 10.82
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 4.84
<PER-SHARE-DISTRIBUTIONS> (.02)
<RETURNS-OF-CAPITAL> .01
<PER-SHARE-NAV-END> 15.63
<EXPENSE-RATIO> .84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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 Capital Manager Trust PCM U.S. Government & High
Quality Bond Fund AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST > 692,241,678
<INVESTMENTS-AT-VALUE> 736,711,798
<RECEIVABLES> 11,801,266
<ASSETS-OTHER> 700
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 748,513,764
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,489,650
<TOTAL-LIABILITIES> 1,489,650
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 668,141,850
<SHARES-COMMON-STOCK> 54,370,263
<SHARES-COMMON-PRIOR> 52,428,374
<ACCUMULATED-NII-CURRENT> 44,995,834
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (10,350,821)
<ACCUM-APPREC-OR-DEPREC> 44,237,251
<NET-ASSETS> 747,024,114
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 46,633,096
<OTHER-INCOME> 0
<EXPENSES-NET> 4,523,874
<NET-INVESTMENT-INCOME> 42,109,222
<REALIZED-GAINS-CURRENT> 20,343,716
<APPREC-INCREASE-CURRENT> 62,812,274
<NET-CHANGE-FROM-OPS> 125,265,212
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (42,687,165)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,879,875
<NUMBER-OF-SHARES-REDEEMED> (10,513,126)
<SHARES-REINVESTED> 3,575,140
<NET-CHANGE-IN-ASSETS> 106,566,519
<ACCUMULATED-NII-PRIOR> 42,245,471
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (27,366,231)
<GROSS-ADVISORY-FEES> 4,133,901
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,718,909
<AVERAGE-NET-ASSETS> 676,995,229
<PER-SHARE-NAV-BEGIN> 12.22
<PER-SHARE-NII> .81
<PER-SHARE-GAIN-APPREC> 1.56
<PER-SHARE-DIVIDEND> (.85)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.74
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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 Capital Manager Trust PCM Utilities Growth & Income
Fund AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST > 477,652,519
<INVESTMENTS-AT-VALUE> 533,564,617
<RECEIVABLES> 5,624,579
<ASSETS-OTHER> 654
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 539,189,850
<PAYABLE-FOR-SECURITIES> 7,874,627
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 854,537
<TOTAL-LIABILITIES> 8,729,164
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 459,084,843
<SHARES-COMMON-STOCK> 39,959,075
<SHARES-COMMON-PRIOR> 35,972,992
<ACCUMULATED-NII-CURRENT> 20,548,328
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (5,084,797)
<ACCUM-APPREC-OR-DEPREC> 55,912,312
<NET-ASSETS> 530,460,686
<DIVIDEND-INCOME> 18,192,954
<INTEREST-INCOME> 5,653,409
<OTHER-INCOME> 0
<EXPENSES-NET> 2,882,561
<NET-INVESTMENT-INCOME> 20,963,802
<REALIZED-GAINS-CURRENT> 8,862,877
<APPREC-INCREASE-CURRENT> 90,894,818
<NET-CHANGE-FROM-OPS> 120,721,497
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,768,768)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,530,720
<NUMBER-OF-SHARES-REDEEMED> (3,483,831)
<SHARES-REINVESTED> 1,939,194
<NET-CHANGE-IN-ASSETS> 146,291,363
<ACCUMULATED-NII-PRIOR> 20,383,278
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14,133,263)
<GROSS-ADVISORY-FEES> 2,666,363
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,035,706
<AVERAGE-NET-ASSETS> 440,080,599
<PER-SHARE-NAV-BEGIN> 10.68
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> 2.65
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.58)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.28
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
