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[Translation]
SECURITIES REGISTRATION
STATEMENT for NAV
Sale
PUTNAM DIVERSIFIED INCOME
TRUST SECURITIES REGISTRATION
STATEMENT
To: Minister of Finance
Filing Date of SRS: August
4, 1997
Name of the Registrant Trust: PUTNAM DIVERSIFIED
INCOME TRUST
Name and Official Title of Trustees: George Putnam
Willi
am
F. Pounds
Jameson A. Baxter
Hans
H. Estin
John
A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W.
Nicholas Thorndike
Address of Principal Office: One Post Office
Square
Boston, Massachusetts 02109
U. S.
A.
Name and Title of Registration Agent: Harume Nakano
Attorney-at-Law
Signature [Harume Nakano]
(Seal)
Ken
Miura
Attorney-at-Law
Signature [Ken Miura]
(Seal)
Address or Place of Business Kasumigaseki
Building,
25th Floor
2-5,
Kasumigaseki 3-chome
Chiyodaku, Tokyo
Name of Liaison Contact: Harume Nakano
Ken
Miura
Attorneys-at-Law
Place of Liaison Contact: Hamada & Matsumoto
Kasumigaseki Building, 25th
Floor
2-5,
Kasumigaseki 3-chome
Chiyodaku, Tokyo
Phone Number: 03-3580-3377
- ii -
Public Offering or Sale for Registration
Name of the Fund Making Public PUTNAM
DIVERSIFIED
INCOME TRUST
Offering or Sale of Foreign
Investment Fund Securities:
Type and Aggregate Amount of Up to 220 million Class M
Shares
Foreign Investment Fund Securities Up to the total
amount aggregating the
to be Publicly Offered or Sold: amounts calculated
by
multiplying the respective net
asset value per Class M Share
by the respective number of
Class M Shares in respect of
220 million Class M Shares
(The
Maximum amount expected to be
sold is 2,700 million U.S.
dollars (Yen310.2 billion).
Note 1: U.S.$ amount is translated into Japanese Yen at
the
rate of U.S.$l.00=Yen114.35 the mean of the exchange
rate quotations by The Bank of Tokyo-Mitsubishi, Ltd.
for buying and selling spot dollars by telegraphic
transfer against yen on 30th June, 1997.
Note 2: The maximum amount expected to be sold is an
amount
calculated by multiplying the net asset value per Class
M Share as of 30th June, 1997 (U.S.$120.33) by 220
million Class M Shares for convenience.
Places where a copy of this Securities Registration
Statement is available for Public Inspection
Not applicable.
(Total number of pages of this Securities Registration
Statement in Japanese is
112 including front and back pages.)
C O N T E N T S
Japanese This
OriginalEnglish
Translati
on
PART I. INFORMATION CONCERNING SECURITIES 1 1
PART II. INFORMATION CONCERNING ISSUER 4 5
I. DESCRIPTION OF THE FUND 4
5
l. GENERAL INFORMATION 4
5
2. INVESTMENT POLICY 9
10
3. MANAGEMENT STRUCTURE 20
27
4. INFORMATION CONCERNING THE EXERCISE
OF RIGHTS BY SHAREHOLDERS, ETC.
29
40
5. STATUS OF INVESTMENT FUND 32
45
II. OUTLINE OF THE TRUST
36
48
III. OUTLINE OF THE OTHER RELATED COMPANIES 70
78
IV. FINANCIAL CONDITION OF THE FUND 72
80
V. SUMMARY OF INFORMATION CONCERNING
FOREIGN INVESTMENT FUND SECURITIES
190
85
VI. MISCELLANEOUS 190 85
PART III. SPECIAL INFORMATION 191 86
I. OUTLINE OF THE SYSTEM OF INVESTMENT
TRUSTS IN MASSACHUSETTS 191 86
II. FINANCIAL CONDITIONS OF THE INVESTMENT
ADVISER AND MANAGEMENT COMPANY 197 92
III. FORM OF FOREIGN INVESTMENT
FUND SECURITIES 219
92
PART I. INFORMATION CONCERNING
SECURITIES
1. NAME OF FUND:
PUTNAM
DIVERSIFIED INCOME TRUST
(hereinafter referred to as the
"Fund")
2. NATURE OF FOREIGN Four
classes of shares (Class A
shares,
INVESTMENT FUND SECU- Class
B
shares, Class M Shares and
Class Y
RITIES CERTIFICATES:
Shares)
Registered share certificate
without par value
In
Japan, Class M Shares
(hereinafter referred to as
the "Shares") are for public
offering. No rating has been
acquired.
3. NUMBER OF SHARES TO Up to
220 million Shares
BE OFFERED FOR SALE
(IN JAPAN)
4. TOTAL AMOUNT OF Up to
the total amount aggregating
the OFFERING PRICE:
amounts calculated by
multiplying the respective net
asset value per Share by the
respective number of Shares in
respect of 220 million Shares
(The
maximum amount expected to be
sold is 2,700 million U.S.
dollars (Yen 310.2 billion).
Note 1: The maximum amount expected to be sold is the
amount calculated, for convenience, by multiplying
the net asset value per Share as of 30th June,
1997 ($12.33) by the number of Shares to be
offered (220 million).
Note 2: Dollar amount is translated for convenience at
the rate of $1.00=Yen 114.35 (the mean of the
exchange rate quotations by The Bank of Tokyo
Mitsubishi, Ltd. for buying and selling spot
dollars by telegraphic transfer against yen on
30th June, 1997). The same applies hereinafter.
Note 3: In this document, money amounts and
percentages have been rounded. Therefore, there
are cases in which the amount of the "total
column" is not equal to the aggregate amount.
Also, translation into yen is made simply by
multiplying the corresponding amount by the
conversion rate specified and rounded up when
necessary. As a result, in this document, there
are cases in which Japanese yen figures for the
same information differ from each other.
5. ISSUE PRICE: The
Net
Asset Value per Share next
calculated on a Fund Business
Day after the application for
purchase is received by the
Fund.
Note:A "Fund Business Day" means a day on which the New
York Stock Exchange is open for business.
6. SALES CHARGE: Sales
charge (in Japan) is 3.25% of
the Subscription Amount
Note:3.00% will be retained by the Distributor in Japan
and 0.25% by Putnam Mutual Funds Corp.
7. MINIMUM AMOUNT OR The
minimum amount for purchase of
NUMBER OF SHARES
Shares
is 300 shares and in integral
FOR SUBSCRIPTION:
multiples of 10 shares.
8. PERIOD OF SUBSCRIPTION: From:
20th August, 1997 (Wednesday)
To:
19th February, 1998 (Thursday)
Provided that the subscription
is handled only on a Fund
Business Day and a business
day when securities companies
are open for business in
Japan.
9. DEPOSIT FOR SUBSCRIPTION:
None.
10. PLACE OF SUBSCRIPTION:
Yamatane Securities Co., Ltd.
(hereinafter referred to as
"Yamatane")
7-12,
Nihonbashi-Kabuto-cho, Chuo-
ku, Tokyo
Note:The subscription is handled at the head office and
the branch offices in Japan of the above-mentioned
securities company.
11. DATE AND PLACE
Investors shall pay the Issue
Price and Sales
OF PAYMENT:
Charge
to Yamatane within 4 business
days in Japan from the day
when Yamatane confirms the
execution of the order (the
"Trade Day") (see page 25).
The
total issue price for each
Application Day will be
transferred by Yamatane to the
account of the Fund at Putnam
Fiduciary Trust Company, the
transfer agent, within 3 Fund
Business Days (hereinafter
referred to as "Payment Date")
from (and including) the
Application Day.
12. OUTLINE OF UNDERWRITING, ETC.:
(A) Yamatane undertakes to make a public offering of 31.78
million Shares in accordance with an agreement dated
19th May, 1997 with Putnam Mutual Funds Corp.
(hereinafter referred to as the "Fund") in connection
with the sale of the Shares in Japan.
(B) During the public offering period, Yamatane will
execute or forward the purchase orders and repurchase
requests of the Shares received directly or indirectly
through other Handling Securities Companies to the
Fund.
(C) The Fund has appointed Yamatane as the Agent Securities
Company in Japan.
Note:"The Agent Securities Company" shall mean a
securities company which, under a contract made
with a foreign issuer of investment securities,
makes public the net asset value per Share and
submits or forwards the financial reports or other
documents to the Japan Securities Dealers
Association ("JSDA") and other handling securities
companies (the "Handling Securities Companies")
rendering such other services.
13. MISCELLANEOUS:
(A) Method of Subscription:
Investors who subscribe to Shares on and before
30th May, 1997 shall submit to a Handling Securities
Company an Agreement Concerning the Opening of a
Foreign Securities Transactions Account ("Account
Agreement") or, in case of investors who shall not
entrust the custody of Shares with a Handling
Securities Company shall submit to it an Agreement
Concerning Foreign Securities Transactions
("Transactions Agreement"). Investors who subscribe to
Shares on and after 1st June, 1997 shall enter into
with a Handling Securities Company an agreement
concerning transactions of foreign securities. A
Handling Securities Company shall provide to the
investors a Contract Concerning a Foreign Securities
Transactions Account ("Contract") and the investors
submit to the Handling Securities Company an
application for requesting the opening of a
transactions account under the Contract. The
subscription amount shall be paid in yen in principle
and the yen exchange rate shall be, in the case of
subscriptions on and before 30th May,
1997, the forward cable exchange rate for each Payment
Date in Tokyo as of the Trade Day or, in the case of
subscriptions on and after 1st June, 1997, the exchange
rate which shall be based on the foreign exchange rate
quoted in the Tokyo Foreign Exchange Market on the
Trade Day of each subscription and which shall be
determined by such Handling Securities Company.
The subscription amount shall be paid in dollars
to the account of the Fund with Putnam Fiduciary Trust
Company as transfer agent for the Fund by Yamatane on
the Payment Date.
(B) Expenses summary:
Expenses are one of several factors to consider
when investing. The following table summarizes your
maximum transaction costs from investing in class M
shares of the Fund and expenses incurred in respect of
class M shares in the most recent fiscal year. The
example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in class M shares over
the specified periods.
Shareholder transaction expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
3.25%
Deferred sales charge
None
Annual Fund operating expenses
Management fees
0.55%
12b-1 fees
0.50%
Other expenses
0.23%
Total Fund operating expenses
1.28%
The table is provided to help you understand the
expenses of investing in class M shares of the Fund and
of your share of the operating expenses the Fund
incurs. The expenses shown in the table do not reflect
the application of credits related to expense offset
arrangements that reduce certain Fund expenses.
Example
An investment of $1,000 would incur the following
expenses, assuming 5% annual return and redemption at
the end of each period.
One year $45
3 years
$72
5 years
$100
10 years
$182
The example does not represent past or future
expense levels. Actual expenses may be greater or
less than those shown. Federal regulations require
the example to assume a 5% annual return, but actual
annual return varies.
(C) Offerings other than in Japan:
Shares are simultaneously offered in the United
States of America.
PART II. INFORMATION CONCERNING ISSUER
I. DESCRIPTION OF THE FUND
1. GENERAL INFORMATION
(A) Outline of Laws Regulating the Fund in the
Jurisdiction Where Established:
(1) Name of the Fund: Putnam Diversified Income Trust
(the "Fund")
(2) Form of the Fund
Putnam Diversified Income Trust is a Massachusetts
business trust organized on August 11, 1988. A copy of the
Agreement and Declaration of Trust, which is governed by
Massachusetts law, is on file with the Secretary of State
of The Commonwealth of Massachusetts.
The Fund is an open-end, diversified management
investment company with an unlimited number of authorized
shares of beneficial interest. The Trustees may, without
shareholder approval, create two or more series of shares
representing separate investment portfolios. Any such
series of shares may be further divided without
shareholder approval into two or more classes of shares
having such preferences and special or relative rights and
privileges as the Trustees determine. The Fund's shares
are not currently divided into any series, but are divided
into four classes. Only the Fund's class M shares are
currently offered in Japan. The Fund also offers in the
United States of America other classes of shares with
different sales charges and expenses. Because of these
different sales charges and expenses, the investment
performance of the classes will vary.
Each share has one vote, with fractional shares
voting proportionally. Shares of all classes will vote
together as a single class except when otherwise required
by law or as determined by the Trustees. Shares are
freely transferable, are entitled to dividends as declared
by the Trustees, and, if the Fund were liquidated, would
receive the net assets of the Fund. The Fund may suspend
the sale of shares at any time and may refuse any order to
purchase shares. Although the Fund is not required to
hold annual meetings of its shareholders, shareholders
holding at least 10% of the outstanding shares entitled to
vote have the right to call a meeting to elect or remove
Trustees, or to take other actions as provided in the
Agreement and Declaration of Trust.
If a shareholder owns fewer shares than the minimum
set by the Trustees (presently 20 shares), the Fund may
choose to redeem the shareholders' shares. Shareholders
will receive at least 30 days' written notice before the
Fund redeems shareholders' shares, and shareholders may
purchase additional shares at any time to avoid a
redemption. The Fund may also redeem shares if
shareholders own shares above a maximum amount set by the
Trustees. There is presently no maximum, but the Trustees
may establish one at any time, which could apply to both
present and future shareholders.
(3) Governing Laws
The Fund was created under, and is subject to, the
laws of the Commonwealth of Massachusetts. The sale of the
Fund's shares is subject to, among other things, the
Securities Act of 1933, as amended, and certain state
securities laws. The Fund also attempts to qualify each
year and elect to be taxed as a regulated investment
company under the United States Internal Revenue Code of
1986, as amended.
The following is a broad outline of certain of the
principal statutes regulating the operations of the Fund
in the U.S.:
a. Massachusetts General Laws, Chapter 182 -
Voluntary Associations and Certain Trusts
Chapter 182 provides in part as follows:
A copy of the declaration of trust must be filed
with the Secretary of State of the Commonwealth of
Massachusetts and with the Clerk of the City of
Boston. Any amendment of the declaration of trust
must be filed with the Secretary and the Clerk within
thirty days after the adoption of such amendment.
A trust must annually file with the Secretary of
State on or before June 1 a report providing the name
of the trust, its address, number of shares
outstanding and the names and addresses of its
trustees.
Penalties may be assessed against the trust for
failure to comply with certain of the provisions of
Chapter 182.
b. Investment Company Act of 1940
The Investment Company Act of 1940, as amended
(the "1940 Act"), in general, requires investment
companies to register as such with the U.S.
Securities and Exchange Commission (the "SEC"), and
to comply with a number of substantive regulations of
their operations. The 1940 Act requires an investment
company, among other things, to provide periodic
reports to its shareholders.
c. Securities Act of 1933
The Securities Act of 1933, as amended (the "1933
Act"), regulates many sales of securities. The Act,
among other things, imposes various registration
requirements upon sellers of securities and provides
for various liabilities for failures to comply with
its provisions or in respect of other specified
matters.
d. Securities Exchange Act of 1934
The Securities Exchange Act of 1934, as amended
(the "1934 Act"), regulates a variety of matters
involving, among other things, the secondary trading
of securities, periodic reporting by the issuers of
securities, and certain of the activities of transfer
agents and brokers and dealers.
e. The Internal Revenue Code
The Fund intends to qualify as a "regulated
investment company" for federal income tax purposes
and to meet all other requirements that are necessary
for it to be relieved of federal taxes on income and
gains it distributes to shareholders. f. Other laws
The Fund is subject to the provisions of other
laws, rules, and regulations applicable to the Fund or its
operations, such as, for example, various state laws regarding
the sale of the Fund's shares.
(B) Outline of the Supervisory Authorities
Among the regulatory authorities having jurisdiction
over the Fund or certain of its operations are the SEC and
state regulatory agencies or authorities.
a. The SEC has broad authority to oversee the
application and enforcement of the federal securities
laws, including the 1940 Act, the 1933 Act, and the
1934 Act, among others, to the Fund. The 1940 Act
provides the SEC broad authority to inspect the
records of investment companies, to exempt investment
companies or certain practices from the provisions of
the Act, and otherwise to enforce the provisions of
the Act.
b. State authorities typically have broad
authority to regulate the offering and sale of
securities to their residents or within their
jurisdictions and the activities of brokers,
dealers, or other persons directly or indirectly
engaged in related activities.
(C) Objects and Basic Nature of the Fund:
The Fund seeks high current income consistent with
the preservation of capital. The Fund is not intended to
be a complete investment program, and there is no
assurance it will achieve its objective.
(D) History of the Fund:
August 11, 1988:
Organization of the Fund as a
Massachusetts business trust.
Adoption of the Agreement and
Declaration of Trust.
September 7, 1988:
Adoption of the Amended and
Restated Agreement and
Declaration of Trust.
(E) Affiliated Companies of the Fund:
Names and related business of the affiliated
companies of the Fund are as follows:
(1) Putnam Investment Management, Inc. ("Investment
Management Company") renders investment management
services to the Fund.
(2) Putnam Fiduciary Trust Company (the "Custodian"
and "Investor Servicing Agent") acts as Custodian and
Investor Servicing Agent.
(3) Putnam Mutual Funds Corp. ("Principal
Underwriter") engages in providing marketing services
to the Fund.
(4) Yamatane Securities Co., Ltd. ("Distributor in
Japan" and "Agent Securities Company") engages in
forwarding the purchase or repurchase orders for the
Shares in Japan and also acts as the agent securities
company.
2. INVESTMENT POLICY
(A) Basic Policy for Investment and Objects of Investment: The
Fund seeks high current income consistent with
preservation of capital. The Fund is not intended to be a
complete investment program, and there is no assurance it
will achieve its objective.
Basic investment strategy
The Fund will allocate 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 fixedincome
securities; and
an International Sector, consisting of obligations
of foreign governments, their agencies and
instrumentalities, and other fixed-income securities
denominated in foreign currencies.
Investment Management Company believes that
diversifying the Fund's investments among these sectors,
as opposed to investing 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
issuers outside the U.S. 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 benefited from increased eco nomic
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 issuers outside the U.S.
held by U.S. investors have generally benefited from such
decline. Investment Management Company 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.
Investment Management Company 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, Investment Management Company
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. Although there are no
fixed limits on allocations among sectors, including
investments in the High Yield Sector, Investment
Management Company will continuously review this
allocation of assets and make such adjustments as it deems
appropriate. Because of the importance of sector
diversification to the Fund's investment policies,
Investment Management Company expects that a substantial
portion of the Fund's assets will normally be invested in
each of the three market sectors. See "Defensive
strategies." The Fund's assets allocated to each of these
market sectors will be managed in accordance with
particular investment policies, which are described below.
At times, the Fund may hold a portion of its assets in
cash and money market instruments.
U.S. Government Sector
The Fund will invest assets allocated to the U.S.
Government Sector primarily in U.S. government securities.
"U.S. government securities" are debt securities issued or
guaranteed by the U.S. government, by various of its
agencies, or by various instrumentalities established or
sponsored by the U.S. government. Some of these
obligations are supported by the full faith and credit of
the United States. These obligations include U.S.
Treasury bills, notes and bonds, mortgage participation
certificates guaranteed by the Government National
Mortgage Association ("Ginnie Mae"), and Federal Housing
Administration debentures.
Other U.S. government securities issued or
guaranteed by federal agencies or government-sponsored
enterprises are not supported by the full faith and
credit of the United States. These securities include
obligations supported by the right of the issuer to
borrow from the U.S. Treasury, such as obligations of
Federal Home Loan Banks, and obligations supported only
by the credit of the instrumentality, such as Federal
National Mortgage Association ("Fannie Mae") bonds.
In purchasing securities for the U.S. Government
Sector, Investment Management Company 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 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 and include:
Certain securities 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; and
Securities issued by private issuers that represent
an interest in or are secure 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 loans. The Fund may invest assets allocated to
the U.S. Government Sector in both the interest-only or
"IO" class and the principal-only or "PO" class. See "Risk
factors" below.
The Fund may also invest assets allocated to the
U.S. Government Sector in asset-backed securities. 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.
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 BBB or Baa by nationally recognized
securities rating agencies such as Standard & Poor's
("S&P") and Moody's Investor Services, Inc. ("Moody's"), or
in unrated securities that Investment Management Company
determines are of comparable quality. The Fund will not
necessarily dispose of a security if its rating is reduced
below these levels, although Investment Management Company
will monitor the investment to determine whether continued
investment in the security will assist in meeting the
Fund's investment objective. To the extent a security is
assigned a different rating by one or more of the various
ratings agencies, Investment Management Company will use
the highest rating assigned by any agency.
Risk Factors
Market risk. U.S. government securities are
considered among the safest of fixed income investments,
but their values, like those of other debt securities,
will fluctuate with changes in interest rates. Changes in
the value of portfolio securities will not affect interest
income from those securities but will be reflected in the
Fund's net asset value. 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 Fund shares will generally
decline. The magnitude of these fluctuations will
generally be greater for securities with longer
maturities, and the Fund expects that its portfolio will
normally be weighted towards longer maturities. Because
of their added safety, the yields available from U.S.
government securities are generally lower than the yields
available from comparable corporate debt securities.
Default risk. 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. These risk factors include the creditworthiness
of the issuer and, in the case of mortgage-backed and
asset-backed securities, the ability of the underlying
mortgagors or other borrowers to meet their obligations.
Prepayment risk. 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 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.
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 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, subjecting them to a greater risk of decline
in market value in response to rising interest rates than
traditional debt securities, and, therefore, potentially
increasing the volatility of the Fund.
Prepayments may cause losses in securities purchased
at a premium. At times, some of the mortgage-backed and
asset-backed securities in which the 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. CMOs are issued with a number of classes or
series that 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
would have the same effect as the prepayment of mortgages
underlying other mortgage-backed securities. Conversely,
slower than anticipated prepayments can extend the
effective maturities of CMOs, subjecting them to a greater
risk of decline in market value in response to rising
interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of the
Fund.
Stripped mortgage-backed securities. The yield to
maturity on an IO or PO 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 the Fund's yield
to maturity to the extent it invests in IOs. If the
assets underlying the IOs 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.
In either event, the secondary market for stripped
mortgage-backed securities may be more volatile and less
liquid than that for other mortgage-backed securities,
potentially limiting the Fund's ability to buy or sell
these securities at any particular time.
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 fixed-income securities,
including debt securities, convertible securities and
preferred stocks. As described 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 Investment Management Company's opinion
the differences in yield are not sufficient to justify the
higher risks involved.
Differing yields on fixed-income securities of the
same maturity are a function of several factors, including
the relative financial strength of the issuers. Higher
yields are generally available from securities in the
lower categories of recognized rating agencies, such as:
Baa or lower by Moody's, or BBB or lower by S&P.
Securities rated below Caa or CCC are of poor standing and
may be in default. To the extent a security is
assigned a different rating by one or more of the various
ratings agencies, Investment Management Company will use
the highest rating assigned by any agency.
The Fund may invest assets allocated to the High
Yield Sector in lower-rated securities of foreign
corporate issuers denominated either in U.S. dollars or in
foreign currencies. For a discussion of the risks
associated with foreign investing, see "International
Sector" below.
Risk Factors
The values of fixed-income securities fluctuate in
response to changes in interest rates. A decrease in
interest rates will generally result in an increase in the
value of the Fund assets. Conversely, during periods of
rising interest rates, the value of the Fund assets will
generally decline. The magnitude of these fluctuations
generally is greater for securities with longer
maturities. However, the yields on suchsecurities are
also generally higher. In addition, the values of fixed-
income securities are affected by changes in general
economic and business conditions affecting the specific
industries of their issuers.
Changes by recognized rating services in their
ratings of a 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 the Fund's net asset value.
The Fund will not necessarily dispose of a security
when its rating is reduced below its rating at the time of
purchase. However, Investment Management Company will
monitor the investment to determine whether continued
investment in the security will assist in meeting the
Fund's investment objective.
Investors should carefully consider their ability to
assume the risks of owning shares of a mutual fund that
invests in lower-rated securities before making an
investment.
The lower ratings of certain securities held in the
High Yield Sector reflect a greater possibility that
adverse changes in the financial condition of the issuer
or in general economic conditions, or both, or an
unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and
principal.
The inability (or perceived inability) of issuers to
make timely payments of interest and principal would
likely make the values of securities held by the Fund more
volatile and could limit the Fund's ability to sell its
securities at prices approximating the values placed on
such securities. In the absence of a liquid trading
market for its portfolio securities, the Fund at times may
be unable to establish the fair value of such securities.
The rating assigned to a security by a rating agency
does not reflect an assessment of the volatility of the
security's market value or of the liquidity of an
investment in the security.
The table below shows the percentages of Fund assets
invested during fiscal 1996 in securities assigned to the
various rating categories by S&P, or, if unrated by S&P,
assigned to comparable rating categories by another rating
agency, and in unrated securities determined by Investment
Management Company to be of comparable quality:
Rated securities, Unrated securities
Rating as percentage of of comparable
net assets quality, as
percentage of net assets
"AAA" 44.71' 0.18'
"AA" 10.24'
-
"A" 0.03' 0.03'
"BBB" 0.90'
-
"BB" 10.07' 1.67'
"B" 22.14' 0.76'
"CCC" 2.41' 0.13'
"CC"
- -
"C"
- -
"D"
- -
Total 90.50' 2.77'
Investment Management Company seeks to minimize the
risks of investing in lower-rated securities through
careful investment analysis. When the Fund invests in
securities in the lower rating categories, the achievement
of the Fund's goals is more dependent on Investment
Management Company's ability than would be the case if the
Fund were investing in securities in the higher rating
categories.
Investment Management Company 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 U.S. securities laws. As a
result of illiquidity, the Fund may not be able to sell
these securities when Investment Management Company
considers it desirable to do so or may have to sell them
at less than fair market value.
At times, a substantial portion of the Fund assets
allocated to the High Yield Sector may be invested in
securities as to which the Fund, by itself or together
with other Funds and accounts managed by Investment
Management Company and its affiliates, holds all or a
major portion. Under adverse market or economic
conditions or in the event of adverse changes in the
financial condition of the issuer, it may be more
difficult to sell these securities when Investment
Management Company 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 the Fund's
net asset value.
In order to enforce its rights in the event of a
default of these securities, the Fund may be required to
participate in various legal proceedings or take
possession of and manage assets securing the issuer's
obligations on the securities. This could increase the
Fund's operating expenses and adversely affect its net
asset value.
Certain securities held by the Fund may permit the
issuer at its option to "call," or redeem, its securities.
If an issuer were to redeem securities held by the Fund
during a time of declining interest rates, the Fund may
not be able to reinvest the proceeds in
securities providing the same investment return as the
securities redeemed.
The Fund at times may invest assets allocated to the
High Yield Sector in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount and pay
interest only at maturity rather than at intervals during
the life of the security. Payment-in-kind bonds allow the
issuer, at its option, to make current interest payments on
the bonds either in cash or in additional bonds. Both zero-
coupon bonds and payment-in-kind bonds allow an issuer to
avoid the need to generate cash to meet current interest
payments. Accordingly, such bonds may involve greater
credit risks than bonds paying interest in cash currently.
The values of zero-coupon bonds and payment-in-kind bonds
are also subject to greater fluctuation in response to
changes in market interest rates than bonds that pay
interest in cash currently.
Even though such bonds do not pay current interest in
cash, the Fund nonetheless is required to accrue interest
income on these investments and to distribute the interest
income on a current basis. Thus, the Fund could be
required at times to liquidate other investments in order
to satisfy its distribution requirements.
The Fund may invest 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. Participations and
assignments involve the additional risk that an
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.
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 non-U.S.,
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 non-U.S. 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 ratings agencies or unrated securities that
Investment Management Company determines are of comparable
quality. To the extent a security is assigned a different
rating by one or more ratings agencies, Investment
Management Company will use the highest rating assigned by
any agency. The Fund may, however, make investments in non-
U.S. 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 Investment Management Company 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. Investment Management Company will consider
expected changes in non-U.S. currency exchange rates in
determining the anticipated returns of securities
denominated in non-U.S. currencies.
The obligations of non-U.S. governmental entities,
including supranational issuers, have various kinds of
government support. Obligations of non-U.S. 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
non-U.S. 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.
Foreign currency exchange transactions. The Fund may
engage in foreign currency exchange transactions to protect
against uncertainty in the level of future exchange rates.
Investment Management Company may engage in foreign
currency exchange transactions in connection with the
purchase and sale of portfolio securities ("transaction
hedging") and to protect the value of specific portfolio
positions ("position hedging").
The Fund may engage in "transaction hedging" to
protect against a change in the foreign currency exchange
rate between the date on which the Fund contracts to
purchase or sell the 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
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.
If conditions warrant, for transaction hedging
purposes 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 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. In addition, for transaction hedging
purposes the Fund may also purchase exchangelisted and over-
the-counter call and put options on foreign currency
futures contracts and on foreign currencies.
The Fund may engage in "position hedging" to protect
against a decline in the value relative to the U.S. dollar
of the currencies in which its portfolio securities are
denominated or quoted (or an increase in the value of the
currency in which the securities the Fund intends to buy
one denominated, when the Fund holds cash and 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 on
exchanges or in over-the-counter markets. In connection
with position hedging, the Fund may also purchase or sell
foreign currencies 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. Investment Management Company will engage in
such "cross hedging" activities when it believes that such
transactions provide significant hedging opportunities for
the Fund. Cross hedging transactions by the Fund involve
the risk of imperfect correlation between changes in the
value of the currencies to which such transactions relate
and changes in the value of the currency or other asset or
liability which is the subject of the hedge.
The decision as to whether and to what extent the
Fund will engage in foreign currency exchange transactions
will depend on a number of factors, including prevailing
market conditions, the composition of the Fund's portfolio
and the availability of suitable transactions.
Accordingly, there can be no assurance that the Fund will
engage in foreign currency exchange transactions at any
given time or form time to time.
For a further discussion of the risks associated
with purchasing and selling futures contracts and options,
see "Financial futures and options."
Risk factors. Foreign investments involve certain
risks that are not present with respect to domestic
securities. Because the Fund intends to purchase
securities for the International Sector that are
denominated in non-U.S. currencies, a change in the value
of any such currency against the U.S. dollar will result in
a change in the U.S. dollar value of the Fund's assets and
the Fund's income available for distribution. In addition,
although a portion of the Fund's investment income may be
received or realized in such currencies, the Fund will be
required to compute and distribute its income in U.S.
dollars. Therefore, if the exchange rate for any such
currency declines after the Fund's income has been earned
and translated into U.S. dollars but before payment, the
Fund could be required to liquidate portfolio securities to
make such distributions.
The values of foreign investments and the investment
income derived from them may also be affected favorably or
unfavorably by exchange control regulations. Although the
Fund will invest only in securities denominated in foreign
currencies that are fully exchangeable into U.S. dollars
without legal restriction at the time of investment, there
is no assurance that currency controls will not be imposed
subsequently. In addition, the values of foreign fixed-
income investments will fluctuate in response to changes in
U.S. and foreign interest rates.
There may be less information publicly available
about a non-U.S. issuer than about a U.S. issuer, and non-
U.S. issuers are not generally subject to accounting,
auditing, and financial reporting standards and practices
comparable with those in the United States. The
securities of some non-U.S. issuers are less liquid and at
times more volatile than securities of comparable U.S.
issuers. Non-U.S. brokerage commissions and other fees
are also generally higher than those in the United States.
Non-U.S. settlement procedures and trade regulations may
involve certain risks (such as delay in payment or
delivery of securities or in the recovery of Fund assets
held abroad) and expenses not present in the settlement of
U.S. investments.
In addition, there may be a possibility of
nationalization or expropriation of assets, 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 are typically increased
for investments in securities principally traded in, or
issued by issuers located in, underdeveloped and
developing nations, which are sometimes referred to as
"emerging markets."
Income received by the Fund from sources within
foreign countries may be reduced by withholding and other
taxes imposed by such countries. Tax conventions between
certain countries and the United States may reduce or
eliminate such taxes. Any such taxes paid by the Fund
will reduce its net income available for distribution to
shareholders.
Defensive strategies
At times, Investment Management Company may judge
that conditions in the securities markets make pursuing
the Fund's basic investment strategy inconsistent with the
best interests of its shareholders. At such times,
Investment Management Company may temporarily use
alternative strategies, primarily designed to reduce
fluctuations in the value of the Fund's assets. In
implementing these "defensive" strategies, depending on
the circumstances, the Fund may shift its portfolio
emphasis to higher-rated securities in the High Yield
Sector, hedge currency risks in the International Sector,
reduce the average maturity of its holdings in any or all
of the Sectors, or invest in any other securities which
Investment Management Company considers consistent with
such defensive strategies. Under unusual market
conditions, the Fund could invest up to 100% of its assets
in short-term U.S. government securities when the risks of
investing in the other Sectors are perceived to outweigh
the possible benefits of sector diversification. The Fund
may also increase the portion of its assets invested in
cash or money market instruments for such defensive
purposes or for liquidity purposes. 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 its portfolio turnover rate may be higher than
that of other mutual funds.
Portfolio turnover generally involves some expense,
including 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.
Financial futures and options
The Fund may buy and sell futures contracts on U.S.
government securities, foreign fixed-income securities and
on foreign currencies. A futures contract is a contract
to buy or sell a certain amount of a particular U.S.
government security, foreign fixed-income security or
foreign currency at an agreed price on a specified future
date. Depending on the change in the value of the
security or currency between the time the Fund enters into
and terminates a futures contract, the Fund realizes a
gain or loss. The Fund may purchase and sell call and put
options on futures contracts or on securities it is
permitted to purchase in addition to or as an alternative
to purchasing and selling futures contracts. The Fund may
engage in futures and options transactions for hedging
purposes and for nonhedging purposes, such as to adjust
its exposure to relevant markets or as a substitute for
direct investment.
The use of futures and options involves certain
special risks. Futures and options transactions involve
costs and may result in losses.
The successful use of futures and related options
will usually depend on Investment Management Company's
ability to forecast interest rate and market movements
correctly. The use of futures and options strategies also
involves the risk of imperfect correlation between
movements in the prices of futures and options and
movements in the prices of the underlying securities or
currencies or in the values of the securities or
currencies that are the subject of a hedge. The
successful use of futures and options also depends on the
availability of a liquid secondary market to enable the
Fund to close its positions on a timely basis. There can
be no assurance that such a market will exist at a
particular time. The Fund's ability to terminate option
positions established 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 would fail to meet
their obligations to the Fund.
Because the markets for futures and options on
foreign fixed-income securities and foreign currencies are
relatively new and still developing and are subject to
certain regulatory constraints, the Fund's ability to
engage in such transactions may be limited. The use of
futures and options transactions for purposes other than
hedging entails greater risks. Certain provisions of the
Internal Revenue Code and certain regulatory requirements
may limit the Fund's ability to engage in futures and
options transactions.
Investments in premium securities
At times, the Fund may invest in securities bearing
coupon rates higher than prevailing market rates. Such
"premium" securities are typically purchased at prices
greater than the principal amounts payable on maturity.
The Fund does not amortize the premium paid for such
securities in calculating its net investment income. As a
result, the purchase of premium securities provides the
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 risk of capital loss if such securities are held to
maturity (or first call date).
During a period of declining interest rates, many of
the Fund's portfolio investments will likely bear coupon
rates that are higher than the current market rates,
regardless of whether 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 shares. As a result, an
investor who purchases shares of the Fund during such
periods would initially receive higher taxable monthly
distributions (derived from the higher coupon rates
payable on the Fund's investments) than might be available
from alternative investments bearing current market
interest rates, but the investor may face an increased
risk of capital loss as these higher coupon securities
approach maturity (or first call date). In evaluating the
potential performance of an investment in the Fund,
investors may find it useful to compare the Fund's current
dividend rate with the "yield," which is computed on a
yield-to-maturity basis in accordance with SEC regulations
and which reflects amortization of market premiums.
Other investment practices
The Fund may also engage in the following investment
practices, each of which involves certain special risks.
Options. The Fund may seek to increase its current
return by writing covered call and put options on U.S.
government securities, foreign fixed-income securities and
foreign currencies. The Fund receives a premium from
writing a call or put option, which increases the Fund's
return if the option expires unexercised or is closed out
at a net profit.
When the Fund writes a call option, it gives up the
opportunity to profit from any increase in the price of a
security or currency above the exercise price of the
option; when it writes a put option, it takes the risk
that it will be required to purchase a security or
currency from the option holder at a price above the
current market price of the security or currency. The
Fund may terminate an option that it has written prior to
its expiration by entering into a closing purchase
transaction in which it purchases an option having the
same terms as the option written.
The Fund may also buy and sell put and call options
including combinations of put and call options on the same
underlying security or currency. Because the markets for
options on foreign fixed-income securities and foreign
currencies are relatively new and still developing and are
subject to certain regulatory constraints, the Fund's
ability to engage in such transactions may be limited.
The aggregate value of the securities and foreign
currencies underlying the options may not exceed 25' of
the Fund's assets. The use of these strategies may be
limited by applicable law.
Securities loans, repurchase agreements and forward
commitments. The Fund may lend portfolio securities
amounting to not more than 25' of its assets to broker
dealers and may enter into repurchase agreements on up to
25' of its assets. These transactions must be fully
collateralized at all times. The Fund may also purchase
securities for future delivery, which may increase its
overall investment exposure and involves a risk of loss if
the value of the securities declines prior to the
settlement date. These transactions involve some risk if
the other party should default on its obligation and the
Fund is delayed or prevented from recovering the
collateral or completing the transaction.
Derivatives
Certain of the instruments in which the Fund may
invest, such as futures contracts, options, 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.
(B) Restrictions of Investment:
As fundamental investment restrictions, which may not
be changed without a vote of a majority of the outstanding
voting securities, the Fund may not and will not:
(1) With respect to 75' of its total assets, invest in
the securities of any issuer if, immediately after such
investment, more than 5' of the total assets of the Fund
(taken at current value) would be invested in the
securities of such issuer; provided that this limitation
does not apply to obligations issued or guaranteed as to
interest or principal by the U.S. government or its
agencies or instrumentalities.
(2) With respect to 75' of its total assets, acquire more
than 10' of the outstanding voting securities of any
issuer.
(3) Borrow money, except that the Fund may borrow amounts
not exceeding 15' of the value (taken at the lower of cost
or current value) of its total assets (not including the
amount borrowed) at the time the borrowing is made for
temporary purposes (including repurchasing its shares
while effecting an orderly liquidation of portfolio
securities) or for emergency purposes.
(4) Issue any class of securities which is senior to the
Fund's shares of beneficial interest, except for permitted
borrowings.
(5) Make loans, except by purchase of debt obligations
in which the Fund may invest consistent with its
investment policies, by entering into repurchase
agreements, or by lending its portfolio securities.
(6) Purchase or sell real estate, although it may
purchase securities of issuers which deal in real estate,
securities which are secured by interests in real estate,
and securities which represent interests in real estate,
and it may acquire and dispose of real estate or interests
in real estate acquired through the exercise of its rights
as a holder of debt obligations secured by real estate or
interests therein.
(7) Purchase or sell commodities or commodity contracts,
except that the Fund may purchase and sell financial
futures contracts and options and may enter into foreign
exchange contracts and other financial transactions not
involving physical commodities.
(8) 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 the federal securities laws.
(9) Invest more than 25' of the value of its total assets
in any one industry. (Securities of the U.S. Government,
its agencies, or instrumentalities, or of any non-U.S.
government, its agencies, or instrumentalities, securities
of supranational entities, and securities backed by the
credit of a governmental entity are not considered to
represent industries.)
It is contrary to the Fund's present policy, which
may be changed without shareholder approval, to:
(1) Invest in (a) securities which are not readily
marketable, (b) securities restricted as to resale
(excluding securities determined by the Trustees of the
Fund (or the person designated by the Trustees of the Fund
to make such determinations) to be readily marketable),
and (c) repurchase agreements maturing in more than seven
days, if, as a result, more 15% of the Fund's net assets
(taken at current value) would be invested in securities
described in (a), (b) and (c) above.
In addition, the Fund will, so long as shares of the
Fund are being offered for sale by the Fund in Japan,
comply with the following standards of selection of the
Japan Securities Dealers Association.
1. The Fund may not make short sales of securities or
maintain a short position for the account of the Fund
unless at all times when a short position is open it owns
an equal amount of such securities or owns securities
which, without payment of any further consideration, are
convertible into or exchangeable for securities of the
same issue as, and equal in amount to, the securities sold
short;
2. The Fund may not borrow money in excess of 10' of
the value (taken at current value) of its total assets
(not including the amount borrowed) at the time the
borrowing is made and then only for temporary purposes (
including repurchasing its shares while effecting an
orderly liquidation of portfolio securities) or for
emergency purposes;
3. The Fund may not invest in securities of any issuer
if, immediately after such investment, more than 5' of the
total assets of the Fund (taken at current value) would be
invested in the securities of such issuer, provided that
this limitation does not apply to obligations issued or
guaranteed as to interest or principal by the U.S. or
other sovereign government or its agencies or
instrumentalities;
4. The Fund may not acquire more than 10' of the
outstanding voting securities of any issuer or may not
acquire more than 15' of the outstanding voting securities
of any issuer together with other mutual funds managed by
Investment Management Company;
5. The Fund may not invest in the securities of other
registered open-end investment funds or companies, except
as they may be acquired as part of a merger, consolidation
or acquisition of assets;
6. The Fund may not invest more than 10' of the net
assets of the Fund in securities which are not traded on
an official stock exchange or other regulated market,
operating regularly and being recognized and open to the
public (which shall include, without limitation, the
National Association of Securities Dealers Automated
Quotation System). This restriction shall not be
applicable to bonds determined by Investment Management
Company to be liquid and for which a market price
(including a dealer quotation) is generally obtainable or
determinable.
If any violation of the foregoing three standards
occurs, the Fund will, promptly after discovery of the
violation, take such action as may be necessary to cause
the violation to cease, which shall be the only
obligation of the Fund and the only remedy in respect of
the violation.
Although certain of the Fund's fundamental
investment restrictions permit the Fund to borrow money
to a limited extent, the Fund does not currently intend
to do so and did not do so last year.
All percentage limitations on investments (other
than those contained in nonfundamental investment
restriction number (1) above) will apply at the time of
the making of an investment and shall not be considered
violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The Investment Company Act of 1940 provides that a
"vote of a majority of the outstanding voting securities"
of the Fund means the affirmative vote of the lesser of
(1) more than 50' of the outstanding shares of the Fund,
or (2) 67' or more of the shares present at a meeting if
more than 50' of the outstanding shares are represented at
the meeting in person or by proxy.
The Fund may invest up to 80' of its assets in
securities of non-U.S. issuers, although the Fund has not
historically invested that high a percentage of its assets
in non-U.S. securities.
(C) Distribution Policy:
The Fund distributes net investment income and any
net realized short-term capital gains at least monthly.
Distributions from any net realized long-term capital
gains are made at least annually after applying any
available capital loss carryovers. The Fund normally pays
distributions on the 20th day of each month to Japanese
investors who hold shares as of 10th day of each month.
3. MANAGEMENT STRUCTURE
(A) Outline of Management of Assets, etc.:
A. Valuation of assets:
The Fund determines the net asset value per share of
each class of shares once each day the New York Stock
Exchange (the "Exchange") is open. Currently, the
Exchange is closed Saturdays, Sundays and the following
U.S. holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving and Christmas. The Fund determines net asset
value as of the close of regular trading on the Exchange,
currently 4:00 p.m. However, equity options held by the
Fund are priced as of the close of trading at 4:10 p.m.,
and futures contracts on U.S. government and other fixed-
income securities and index options held by the Fund are
priced as of their close of trading at 4:15 p.m.
Securities for which market quotations are readily
available are valued at prices which, in the opinion of
Investment Management Company, most nearly represent the
market values of such securities. Currently, such prices
are determined using the last reported sale price or, if
no sales are reported (as in the case of some securities
traded over-the-counter), the last reported bid price,
except that certain securities are valued at the mean
between the last reported bid and asked prices. Shortterm
investments having remaining maturities of 60 days or less
are valued at amortized cost, which approximates market
value. All other securities and assets are valued at
their fair value procedures approved by the Trustees.
Liabilities are deducted from the total, and the resulting
amount is divided by the number of shares of the class
outstanding.
Reliable market quotations are not considered to be
readily available for long-term corporate bonds and notes,
certain preferred stocks, tax-exempt securities, and
certain foreign securities. These investments are valued
at fair value on the basis of valuations furnished by
pricing services, which determine valuations for normal,
institutional-size trading units of such securities using
methods based on market transactions for comparable
securities and various relationships between securities
which are generally recognized by institutional traders.
If any securities held by the Fund are restricted as
to resale, Investment Management Company determines their
fair value procedures approved by the Trustees. The fair
value of such securities is generally determined as the
amount which the Fund could reasonably expect to realize
from an orderly disposition of such securities over a
reasonable period of time. The valuation procedures
applied in any specific instance are likely to vary from
case to case. However, consideration is generally given
to the financial position of the issuer and other
fundamental analytical data relating to the investment and
to the nature of the restrictions on disposition of the
securities (including any registration expenses that might
be borne by the Fund in connection with such disposition).
In addition, specific factors are also generally
considered, such as the cost of the investment, the market
value of any unrestricted securities of the same class,
the size of the holding, the prices of any recent
transactions or offers with respect to such securities and
any available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as
foreign securities) is substantially completed each day at
various times prior to the close of the Exchange. The
values of these securities used in determining the net
asset value of the Fund's shares are computed as of such
times. Also, because of the amount of time required to
collect and process trading information as to large
numbers of securities issues, the values of certain
securities (such as convertible bonds, U.S. government
securities, and tax-exempt securities) are determined
based on market quotations collected earlier in the day at
the latest practicable time prior to the close of the
Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close
of the Exchange which will not be reflected in the
computation of the Fund's net asset value. If events
materially affecting the value of such securities occur
during such period, then these securities will be valued
at their fair value procedures approved by the Trustees.
B. Management Fee, etc.:
(1) Management Fee:
(a) Management and Agent Securities Company Fees
Under a Management Contract dated January 20,
1997, the Fund pays a quarterly fee to Investment
Management Company based on the average net assets of
the Fund, as determined at the close of each business
day during the quarter, at an annual rate of 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, 0.440' of the next "5 billion and 0.430'
thereafter.
For the fiscal years ending on September 30,
1996, 1995 and 1994 the Fund paid "20,286,489,
"17,596,123 and "14,880,234, respectively as a
management fee.
(b) Custodian Fee and Charges of the Investor
Servicing Agent
Putnam Fiduciary Trust Company, the Fund's
Custodian, shall be entitled to receive, out of the
assets of the Fund, reasonable compensation for its
services and expenses as Custodian, as agreed from
time to time between the Fund and the Custodian, not
including fees paid by the Custodian to any sub
custodian, payable monthly based on the average daily
total net assets of the Fund during the relevant
month. Any reasonable disbursements and out-of-
pocket expenses (including without limitation
telephone, telex, cable and postage expenses)
incurred by the Custodian, and any custody charges of
banks and financial institutions to whom the custody
of assets of the Fund is entrusted, will be borne by
the Fund.
The Fund will pay to Putnam Investor Services, a
division of Putnam Fiduciary Trust Company, the
Fund's Investor Servicing Agent, such fee, out of the
assets of the Fund, as is mutually agreed upon in
writing from time to time, in the amount, at the time
and in the manner of payment mutually agreed.
For the fiscal year ending on September 30,
1996, the Fund paid "6,086,760 as a custodian fee and
investor servicing agent fee.
(c) Fee on Class M Distribution Plan
The Class M distribution plan provides for
payments by the Fund to Putnam Mutual Funds at the
annual rate of up to 1.00' of average net assets
attributable to Class M shares. The Trustees
currently limit payments under the Class M plan to
the annual rate of 0.50' of such assets.
Payments under the plans are intended to
compensate Putnam Mutual Funds Corp. for services
provided and expenses incurred by it as principal
underwriter of Fund's shares, including the payments
to dealers mentioned below. Payments to dealers are
subject to the continuation of the class M
distribution plan and the terms of an agreement
between Yamatane and Putnam Mutual Funds Corp.
The payments to dealers are based on the average
net asset value of Class M shares attributable to
shareholders for whom Yamatane and other dealers are
designated as the dealer of record. Putnam Mutual
Funds Corp. makes the payments quarterly at an annual
rate of 0.25' of such average net asset value of
Class M shares.
Putnam Mutual Funds Corp. also pays to Yamatane
and other dealers, as additional compensation with
respect to the sale of Class M shares, 0.15' of such
average net asset value of Class M shares. For Class
M shares, the total annual payment to Yamatane and
other dealers equals 0.40' of such average net asset
value. Putnam Mutual Funds Corp. makes quarterly
payments to qualifying dealers.
For the fiscal year ending on September 30,
1996, the Fund paid the fees on the distribution
plan of "4,242,445 for Class A shares, "19,804,746
for Class B shares and "153,347 for the Class M
shares, respectively.
(d) Other Expenses:
The Fund pays all expenses not assumed by
Investment Management Company, including Trustees'
fees, auditing, legal, custodial, investor servicing
and shareholder reporting expenses, and payments
under its distribution plans (which are in turn
allocated to the relevant class of shares). The Fund
also reimburses Investment Management Company for the
compensation and related expenses of certain Fund
officers and their staff who provide administrative
services. The total reimbursement is determined
annually by the Trustees and was "42,088 for Fiscal
1996.
Each Trustee receives a fee for his or her
services. Each Trustee also receives fees for
serving as Trustee of other Putnam funds. The
Trustees periodically review their fees to assure
that such fees continue to be appropriate in light of
their responsibilities as well as in relation to fees
paid to trustees of other mutual fund complexes. The
Trustees meet monthly over a two-day period, except
in August. The Compensation Committee, which
consists solely of Trustees not affiliated with the
Investment Management Company and is responsible for
recommending Trustee compensation, estimates that
Committee and Trustee meeting time together with the
appropriate preparation requires the equivalent of at
least three business days per Trustee meeting. The
following table shows the year each Trustee was first
elected a Trustee of the Putnam funds, the fees paid
to each Trustee by the fund for fiscal 1996 and the
fees paid to each Trustee by all of the Putnam funds
during calendar 1996:
COMPENSATION TABLE
Pension on Estimated Total
Aggregate retirement annual benefits
compensation
compensation benefits accruedfrom
all from all
from the as part of Putnam funds Putnam
Trustees/Year fund (1) fund expenses (2) upon
retirement (3) funds (4)
Jameson A. Baxter/1994 (5)"5,313 "0 "76,499 "172,291
Hans H. Estin/1972 5,282 0 77,333 171,291
John A. Hill/1985 (5) 5,270 0 77,416 170,791
Ronald J. Jackson/1996 (5)(6) 1,678 0 77,333
94,807
Elizabeth T. Kennan/19925,282 0 76,999 171,291
Lawrence J. Lasser/19925,236 0 77,083 169,791
Robert E. Patterson/19845,601 0 79,999 182,291
Donald S. Perkins/19825,250 0 76,833 170,291
William F. Pounds/1971 (7)5,948 0 81,833 197,292
George Putnam/1957 5,282 0 77,333 171,291
George Putnam, III/19845,282 0 77,333 171,291
A.J.C. Smith/1986 5,236 0 76,249 169,791
W. Nicholas Thorndike/19925,576 0 79,833 181,291
(1) Includes an annual retainer and an attendance fee
for each meeting attended.
(2) The Trustees approved a Retirement Plan for Trustees
of the Putnam funds on October 1, 1996. Prior to
that date, voluntary retirement benefits were paid to
certain retired Trustees.
(3) Assumes that each Trustee retires at the normal
retirement date. Estimated benefits for each Trustee
are based on Trustee fee rates in effect during
calendar 1996.
(4) As of December 31, 1996, there were 96 funds in the
Putnam family.
(5) Includes compensation deferred pursuant to a Trustee
Compensation Deferral Plan. The total amounts of
deferred compensation payable by the fund to Mr. Hill
and Mr. Jackson as of September 30, 1996 were "6,969
and "1,757, respectively. The total amounts of
deferred compensation payable by the Putnam funds to
Ms. Baxter, Mr. Hill and Mr. Jackson as of December
31, 1996 were "54,002, "205,377 and "75,102,
respectively, including income earned on such
amounts.
(6) Elected as a Trustee in May 1996.
(7) Includes additional compensation for service as Vice
Chairman of the Putnam funds.
Under a Retirement Plan for Trustees of the
Putnam funds (the "Plan") each Trustee who retires
with at least five years of service as a Trustee of
the funds is entitled to receive an annual retirement
benefit equal to one-half of the average annual
compensation paid to such Trustee for the last three
years of service prior to retirement. This retirement
benefit is payable during a Trustee's lifetime,
beginning the year following retirement, for a number
of years equal to such Trustee's years of service. A
death benefit is also available under the Plan which
assures that the Trustee and his or her beneficiaries
will receive benefit payments for the lesser of an
aggregate period of (i) ten years or (ii) such
Trustee's total years of service.
The Plan Administrator (a committee comprised of
Trustees that are not "interested persons" of the
fund, as defined in the Investment Company Act of
1940) may terminate or amend the Plan at any time,
but no termination or amendment will result in a
reduction in the amount of benefits (i) currently
being paid to a Trustee at the time of such
termination or amendment, or (ii) to which a current
Trustee would have been entitled to receive had he or
she retired immediately prior to such termination or
amendment.
Investment Management Company places all orders
for purchases and sales of Fund securities. In
selecting broker-dealers, Investment Management
Company may consider research and brokerage services
furnished to it and its affiliates. Subject to
seeking the most favorable price and execution
available, Investment Management Company may consider
sales of Fund shares (and, if permitted by law, of
the other Putnam Funds) as a factor in the selection
of broker-dealers. During fiscal 1994, 1995 and
1996, the Fund paid "451,354, "683,248 and "124,214
in brokerage commissions, respectively. During fiscal
1996 the Fund paid "104,117 on transactions with an
aggregate principal value of "307,445,042 (43.16' of
transactions) to brokers and dealers to recognize
research, statistical and quotation services provided
to Investment Management
Company and its affiliates.
For the fiscal year ending on September 30,
1996, the Fund paid "26,510,414 in total other
expenses, including payments under its distribution
plans, but excluding management fees, investor
servicing agent expenses and custodian expenses.
C. Sales, Repurchases and Custody:
(1) Sales of Shares:
a. Sales in the United States
Investors residing in the United States can open
a Fund account with as little as "500 and make
additional investments at any time with as little as
"50. They can buy Fund shares three ways - through
most investment dealers, through Putnam Mutual Funds
Corp. or through a systematic investment plan.
Buying shares through Putnam Mutual Funds Corp.
Complete an order form and write a check for the
amount shareholders wish to invest, payable to the
Fund. Return the completed form and check to Putnam
Mutual Funds Corp., which will act as investor's
agent in purchasing shares through investor's
designated investment dealer.
Buying shares through systematic investing.
Investors can make regular investments of "25 or more
per month through automatic deductions from
investor's bank checking or savings account.
Application forms are available from investor's
investment dealer or through Investor Servicing
Agent.
Shares are sold at the public offering price
based on the net asset value next determined after
Investor Servicing Agent receives shareholders'
order. In most cases, in order to receive that day's
public offering price, Investor Servicing Agent must
receive shareholders' order before the close of
regular trading on the New York Stock Exchange. If
shareholders buy shares through their investment
dealer, the dealer must receive the shareholders'
order before the close of regular trading on the New
York Stock Exchange to receive that day's public
offering price.
U.S. Offering Price and Sales Charges
The public offering price of class M shares is
the net asset value plus a sales charge that varies
depending on the size of investor's purchase. The
Fund receives the net asset value. The sales charge
is allocated between an investor's investment dealer
and Putnam Mutual Funds Corp. as shown in the
following table, except when Putnam Mutual Funds
Corp., and its discretion, allocates the entire
amount to the investor's investment dealer.
Sales charge as
Amount of sales
a percentage of:
charge reallowed
Net to dealers as
a
Amount of transactionamount Offering percentage
of
at offering price ($) invested price
offering price
Under 50,000 3.36 ` 3.25 `
3.00 `
50,000 but under 100,000 2.30 ` 2.25 ` 2.00 `
100,000 but under 250,000 1.52 ` 1.50 ` 1.25 `
250,000 but under 500,000 1.01 ` 1.00 ` 1.00 `
500,000 and above None None None
An investor may be eligible to buy class M
shares at reduced sales charges.
Sales charges will not apply to class M shares
purchased with redemption proceeds received within
the prior 90 days from non-Putnam mutual funds on
which the investor paid a front-end or a contingent
deferred sales charge or to class M shares purchased
by participant-directed qualified retirement plans
with at least 50 eligible employees. The Fund may
also sell class M shares at net asset value to
members of qualified groups.
b. Sales in Japan
In Japan, Shares of the Fund are offered on any
Business Day and any business day of securities
company in Japan during the Subscription Period
mentioned in "8. Period of Subscription, Part I
Information concerning Securities" of a securities
registration statement pursuant to the terms set
forth in "Part I. Information concerning Securities"
of the relevant securities registration statement.
Investors shall submit an Account Agreement or
Transaction Agreement (together with the Account
Agreement referred to herein as the "Agreements").
Provided, however, that on and after June 1, 1997, a
Handling Securities Company shall provide to the
investors a Contract Concerning a Foreign Securities
Transactions Account (the "Contract") and receive
from such investors an application for requesting the
opening of a transactions account under the Contract.
The purchase shall be made in the minimum investment
amount of 300 shares and in integral multiples of 10
shares.
The issue price for Shares during the
Subscription period shall be, in principle, the Net
Asset Value per Share next calculated on the day on
which the Fund has received such application. The
Trade Day in Japan is the day when the Handling
Securities Company confirms the execution of the
order (ordinarily the business day in Japan next
following the placement of orders), and the payment
and delivery shall be made on the fourth Business Day
after and including the Trade Day. The sales charge
shall be 3.25' of the amount of subscriptions, of
which 3.00' may be retained by the distributor in
Japan and 0.25' may be retained by the Principal
Underwriter. For fiscal 1995 and 1996, Putnam Mutual
Funds Corp. received "230,128 and "450,874,
respectively, in sales charges for Class M shares, of
which it retained "17,388 and "43,472, respectively.
The Investors having entrusted a Handling
Securities Company with safekeeping of the
certificates for Fund shares will receive a
certificate of safekeeping in exchange for the
purchase price. In such case payment shall be made
in yen in principle and the applicable exchange rate
shall be, in the case of subscriptions on and before
30th May, 1997, the forward cable exchange rate for
each Payment Day in Tokyo as of the Trade Day or, in
the case of subscriptions on and after 1st June,
1997, the exchange rate which shall be based on the
foreign exchange rate quoted in the Tokyo Foreign
Exchange Market on the Trade Day and which shall be
determined by such Handling Securities Company. The
payment may be made in dollars to the extent that the
Handling Securities Companies can agree.
In addition, Handling Securities Companies in
Japan who are members of the Japan Securities
Dealers' Association cannot continue sales of the
Shares in Japan when the net assets of the Fund are
less than Yen 500,000,000 or the Shares otherwise
cease to comply with the "Standards of Selection of
Foreign Investment Fund Securities" established by
the Association.
(2) Repurchase of Shares:
a. Repurchase in the United States
A shareholders can sell his shares to the Fund
any day the New York Stock Exchange is open, either
directly to the Fund or through his investment
dealer. The Fund will only redeem shares for which it
has received payment.
Selling shares directly to the Fund. A
shareholder must send a signed letter of instruction
or stock power form to Investor Servicing Agent,
along with any certificates that represent shares a
shareholder wants to sell. The price a shareholder
will receive is the next net asset value calculated
after the Fund receives a shareholder's request in
proper form. In order to receive that day's net
asset value, Investor Servicing Agent must receive a
shareholder's request before the close of regular
trading on the New York Stock Exchange.
If a shareholder sells shares having a net asset
value of "100,000 or more, the signatures of
registered owners or their legal representatives must
be guaranteed by a bank, broker-dealer or certain
other financial institutions.
If a shareholder wants his redemption proceeds
sent to an address other than his address as it
appears on records of the Investor Servicing Agent, a
signature guarantee is required. Investor Servicing
Agent usually requires additional documentation for
the sale of shares by a corporation, partnership,
agent or fiduciary, or a surviving joint owner.
The Fund generally sends shareholders payment
for shareholders' shares the business day after
shareholders' request is received. Under unusual
circumstances, the Fund may suspend repurchase, or
postpone payment for more than seven days, as
permitted by U.S. securities law.
A shareholder may use Investor Servicing Agent's
Telephone Redemption Privilege to redeem shares
valued up to "100,000 from his account unless he has
notified Investor Servicing Agent of an address
change within the preceding 15 days. Unless an
investor indicates otherwise on the account
application, Investor Servicing Agent will be
authorized to act upon redemption and transfer
instructions received by telephone from a
shareholder, or any person claiming to act as his
representative, who can provide Investor Servicing
Agent with his account registration and address as it
appears on Investor Servicing Agent's records.
Investor Servicing Agent will employ these and
other reasonable procedures to confirm that
instructions communicated by telephone are genuine;
if it fails to employ reasonable procedures, Investor
Servicing Agent may be liable for any losses due to
unauthorized or fraudulent instructions.
During periods of unusual market changes and
shareholder activity, a shareholder may experience
delays in contacting Investor Servicing Agent by
telephone. In this event, the shareholder may wish
to submit a written redemption request, as described
above, or contact shareholders' investment dealer.
The Telephone Redemption Privilege is not available
if the shareholder was issued certificates for shares
that remain outstanding. The Telephone Redemption
Privilege may be modified or terminated without
notice.
Selling shares through investment dealers. A
shareholder's dealer must receive shareholders'
request before the close of regular trading on the
New York Stock Exchange to receive that day's net
asset value. A shareholder's dealer will be
responsible for furnishing all necessary
documentation to Investor Servicing Agent, and may
charge a shareholder for its services.
b. Repurchase in Japan
Shareholders in Japan may at any time request
repurchase of their Shares. Repurchase requests in
Japan may be made to Investor Servicing Agent through
the Handling Securities Company on a Fund Business
Day that is business day of securities companies in
Japan without a contingent deferred sales charge.
The repurchase shall be made is integral multiples of
10 shares.
The price a shareholder in Japan will receive is
the next net asset value calculated after the Fund
receives the repurchase request from Yamatane,
provided the request is received before the close of
regular trading on the New York Stock Exchange. The
payment of the price shall be made in yen through the
Handling Securities Companies pursuant to the
Agreements (on and after June 1, 1997, the Contracts)
or, if the Handling Securities Companies agree, in
dollars. The payment for repurchase proceeds shall
be made on the fourth business day of securities
companies in Japan after and including the Trade Day.
(3) Suspension of Repurchase:
The Fund may suspend shareholders' right of
redemption, or postpone payment for more than seven
days, if the New York Stock Exchange is closed for
other than customary weekends or holidays, or if
permitted by the rules of the Securities and Exchange
Commission during periods when trading on the
Exchange is restricted or during any emergency which
makes it impracticable for the Fund to dispose of its
securities or to determine fairly the value of its
net assets, or during any other period permitted by
order of the Commission for protection of investors.
(4) Custody of Shares:
Share certificates shall be held by Shareholders
at their own risk.
The custody of the Share certificates (if issued)
sold to Japanese Shareholders shall, unless otherwise
instructed by the Shareholder, be held, in the name
of the custodian, by the custodian of Yamatane.
Certificates of custody for the Shares shall be
delivered by the Handling Securities Companies to the
Japanese Shareholders.
D. Miscellaneous:
(1) Duration and Liquidation:
Unless terminated, the Fund shall continue
without limitation of time. The Fund may be
terminated at any time by vote of Shareholders
holding at least 66 2/3' of the Shares entitled to
vote or by the Trustees of the Fund by written notice
to the Shareholders.
(2) Accounting Year:
The accounts of the Fund will be closed each year
on 30th September.
(3) Authorized Shares:
There is no prescribed authorized number of
Shares, and Shares may be issued from time to time.
(4) Agreement and Declaration of Trust:
Originals or copies of the Agreement and
Declaration of Trust, as amended, are maintained in
the office of the Trust and are made available for
public inspection for the Shareholders. Originals or
copies of the Agreement and Declaration of Trust, as
amended, are on file in the United States with the
Secretary of State of the Commonwealth of
Massachusetts and with the Clerk of the City of
Boston.
The Agreement and Declaration of Trust may be
amended at any time by an instrument in writing
signed by a majority of the then Trustees when
authorized to do so by vote of Shareholders holding a
majority of the Shares entitled to vote, except that
an amendment which shall affect the holders of one or
more series or classes of Shares but not the holders
of all outstanding series and classes shall be
authorized by vote of the Shareholders holding a
majority of the Shares entitled to vote of each
series and class affected and no vote of Shareholders
of a series or class not affected shall be required.
Amendments having the purpose of changing the name of
the Trust or of supplying any omission, curing any
ambiguity or curing, correcting or supplementing any
defective or inconsistent provision contained herein
shall not require authorization by Shareholder vote.
In Japan, material changes in the Agreement and
Declaration of Trust shall be published or notice
thereof shall be sent to the Japanese Shareholders.
(5) Issue of Warrants, Subscription Rights, etc.:
The Fund may not grant privileges to purchase
shares of the Fund to shareholders or investors by
issuing warrants, subscription rights or options, or
other similar rights.
(6) How Performance Is Shown:
Fund advertisements may, from time to time,
include performance information. "Yield" is
calculated by dividing the annualized net investment
income per share during a recent 30-day period by the
maximum public offering per share on the last day of
that period.
For purposes of calculating yield, net
investment income is calculated in accordance with
U.S. Securities and Exchange Commission regulations
and may differ from net investment income as
determined for financial reporting purposes. U.S.
Securities and Exchange Commission regulations
require that net investment income be calculated on a
"yield-to- maturity" basis, which has the effect of
amortizing any premiums or discounts in the current
market value of fixed-income securities.
The current dividend rate is based on net investment income as
determined for tax purposes, which may not reflect amortization
in the same manner. Yield is based on the price of the shares,
including the maximum initial sales charge.
"Total return" for the one-, five- and ten-year
periods (or for the life of class M, if shorter)
through the most recent calendar quarter represents
the average annual compounded rate of return on an
investment of "1,000 in the Fund invested at the
maximum public offering price. Total return may also
be presented for other periods or based on investment
at reduced sales charge levels. Any quotation of
investment performance not reflecting the maximum
initial sales charge or contingent deferred sales
charge would be reduced if the sales charge were
used. For the one-year period ended September 30,
1996 and the period since the inception of Class M
shares (December 1, 1994) through September 30, 1996,
the average annual total return for Class M shares of
the Fund was 6.56' and 10.63', respectively. The 30-
day yield for Class M shares of the Fund for the
period ended September 30, 1996 was 6.79'.
All data are based on past investment results and
do not predict future performance. Investment
performance, which will vary, is based on many
factors, including market conditions, portfolio
composition, Fund operating expenses and the class of
shares the investor purchases. Investment
performance also often reflects the risks associated
with the Fund's investment objective and policies.
These factors should be considered when comparing the
Fund's investment results with those of other mutual
Funds and other investment vehicles.
Quotations of investment performance for any
period when an expense limitation was in effect will
be greater than if the limitation had not been in
effect. Fund performance may be compared to that of
various indexes.
(B) Outline of Disclosure System:
(1) Disclosure in U.S.A.:
(i) Disclosure to shareholders
In accordance with the Investment Company Act of
1940, the Fund is required to send to its
shareholders annual and semi-annual reports
containing financial information.
(ii)Disclosure to the SEC
The Fund has filed a registration statement with
the SEC on Form N-1A; the Fund updates that
registration statement periodically in accordance
with the Investment Company Act of 1940.
(2) Disclosure in Japan:
a. Disclosure to the Supervisory Authority:
When the Fund intends to offer the Shares
amounting to more than 500 million yen in Japan, it
shall submit to the Minister of Finance of Japan
securities registration statements together with the
copies of the Agreement and Declaration of Trust and
the agreements with major related companies as
attachments thereto. The said documents are made
available for public inspection for the investors and
any other persons who desire at the Ministry of
Finance.
The Handling Securities Companies of the Shares
shall deliver to the investors prospectuses the
contents of which are substantially identical with
Part I and Part II of the securities registration
statements. For the purpose of disclosure of the
financial conditions, etc., the Trustees shall submit
to the Minister of Finance of Japan securities
reports within 6 months of the end of each fiscal
year, semi-annual reports within 3 months of the end
of each semi-annual period and extraordinary reports
from time to time when changes occur as to material
subjects of the Fund. These documents are available
for public inspection for the investors and any other
persons who desire at the Ministry of Finance.
b. Disclosure to Japanese Shareholders:
The Japanese Shareholders will be notified of the
material facts which would change their position,
including material amendments to the Agreement and
Declaration of Trust of the Fund, and of notices from
the Trustees, through the Handling Securities
Companies.
The financial statements shall be sent to the
Japanese Shareholders through the Handling Securities
Companies or the summary thereof shall be carried in
daily newspapers.
(C) Restrictions on Transactions with Interested Parties:
Portfolio securities of the Fund may not be
purchased from or sold or loaned to any Trustee of the
Fund, Putnam Investment Management, Inc., acting as
investment adviser of the Fund, or any affiliate thereof
or any of their directors, officers, or employees, or any
major shareholder thereof (meaning a shareholder who holds
to the actual knowledge of Investment Management Company,
on his own account whether in his own or other name (as
well as a nominee's name), 10' or more of the total issued
outstanding shares of such a company) acting as principal
or for their own account unless the transaction is made
within the investment restrictions set forth in the Fund's
prospectus and statement of additional information and
either (i) at a price determined by current publicly
available quotations (including a dealer quotation) or
(ii) at competitive prices or interest rates prevailing
from time to time on internationally recognized securities
markets or internationally recognized money markets
(including a dealer quotation).
4. INFORMATION CONCERNING THE EXERCISE OF RIGHTS BY
SHAREHOLDERS, ETC.
(A) Rights of Shareholders and Procedures for Their Exercise:
The Shareholders shall be registered in order to
exercise directly the rights of their Shares. Therefore,
the Shareholders in Japan who entrust the custody of their
Shares to the Handling Securities Company cannot exercise
directly their rights, because they are not registered.
Shareholders in Japan may have the Handling Securities
Companies exercise their rights on their behalf in
accordance with the Account Agreement with the
Handling Securities Companies.
The Shareholders in Japan who do not entrust the
custody of their Shares to the Handling Securities
Companies may exercise their rights in accordance with
their own arrangement under their own responsibility.
The major rights enjoyed by the investors are as
follows:
(i) Voting rights
Each share has one vote, with fractional shares
voting proportionally. Shares of each class will
vote together as a single class except when otherwise
required by law or as determined by the
Trustees. Although the Fund is not required to hold
annual meetings of its shareholders, shareholders holding
at least 10% of the outstanding shares entitled to vote
have the right to call a meeting to elect or remove
Trustees, or to take other actions as provided in the
Agreement and Declaration of Trust.
(ii)Repurchase rights
Shareholders are entitled to request repurchase
of Shares at their Net Asset Value at any time. (iii)
Rights to receive dividends
Shareholders are entitled to receive any
distribution from net investment income and any net
realized short-term capital gains at least monthly
and any net realized long-term capital gains at least
annually after applying any available capital loss
carryovers. Distributions from capital gains are
made after applying any available capital loss
carryovers.
Shareholders may choose three distribution
options, though investors in Japan may only choose
the last alternative.
- Reinvest all distributions in additional shares
without a sales charge;
- Receive distributions from net investment
income in cash while reinvesting capital gains
distributions in additional shares without a sales
charge; or
- Receive all distributions in cash.
(iv)Right to receive distributions upon
dissolution Shareholders of a fund are entitled
to receive
distributions upon dissolution in proportion to the
number of shares then held by them, except as
otherwise required.
(v) Right to inspect accounting books and the like
Shareholders are entitled to inspect the
Agreement and Declaration of Trust, the accounting
books at the discretion of the Court and the minutes
of the shareholders' meeting.
(vi)Right to transfer shares
Shares are transferable without restriction except
as limited by applicable law.
(vii) Rights with respect to the U.S. registration
statement
If, under the 1933 Act, there is any false
statement concerning any important matter in the U.S.
Registration Statement, or any omission of any
statement of important matters to be stated therein or
not to cause any misunderstanding, shareholders are
entitled to institute a lawsuit, against the person who
had signed the relevant Registration Statement, the
trustee of the issuer (or any person placed in the same
position) at the time of filing such Statement, any
person involved in preparing
such Statement or any subscriber of the relevant
shares.
(B) Tax Treatment of Shareholders in Japan:
The tax treatment of Shareholders in Japan shall be
as follows:
(1) The distributions to be made by the Fund will be
treated as distributions made by a domestic investment
trust.
a. The distributions to be made by the Fund to
Japanese individual shareholders will be subject to
separate taxation from other income (i.e. withholding
of income tax at the rate of 15' and withholding of
local taxes at the rate of 5' in Japan). In this
case, no report concerning distributions will be
filed with the Japanese tax authorities.
b. The distributions to be made by the Fund to
Japanese corporate shareholders will be subject to
withholding of income tax at the rate of 15% and to
withholding of local taxes at the rate of 5% in
Japan. In certain cases, the Handling Securities
Companies will prepare a report concerning
distributions and file such report with the Japanese
tax authorities.
c. Net investment returns such as dividends, etc.
and distributions of short-term net realized capital
gain, among distributions on Shares of the Fund, will
be, in principle, subject to withholding of U. S.
federal income tax at the rate of 15% and the amount
obtained after such deduction will be paid in Japan.
Distributions of long-term net realized capital
gain will not be subject to withholding of U. S.
federal income tax and the full amount thereof will
be paid in Japan. The amount subject to withholding
of U. S. federal income tax may be deducted from the
tax levied on a foreign entity in Japan.
The Japanese withholding tax imposed on
distributions as referred to in a. and b. above will
be collected by way of so-called "difference
collecting method". In this method only the
difference between the amount equivalent to 20% of
the distributions before U.S. withholding tax and the
amount of U.S. withholding tax withheld in the U.S.
will be collected in Japan.
(2) The provisions of Japanese tax laws giving the
privilege of a certain deduction from taxable income to
corporations, which may apply to dividends paid by a
domestic corporation, shall not apply.
(3) Capital gains and losses arising from purchase and
repurchase of the Shares shall be treated in the same way
as those arising from purchase and sale of a domestic
investment trust. The distribution of the net liquidation
assets shall be also treated in the same way as those
arising from liquidation of a domestic investment trust.
(4) The Japanese securities transaction tax will not be
imposed so far as the transactions concerned are conducted
outside Japan. Such tax, however, is applicable to
dealers' transactions for their own account and to
privately negotiated transactions conducted in Japan.
(C) Foreign Exchange Control in U.S.A.:
In U.S.A., there are no foreign exchange control
restrictions on remittance of dividends, repurchase money,
etc. of the Shares to Japanese Shareholders.
(D) Agent in Japan:
Hamada & Matsumoto
Kasumigaseki Building, 25th Floor
2-5, Kasumigaseki 3-chome Chiyoda-
ku, Tokyo
The foregoing law firm is the true and lawful agent
of the Fund to represent and act for the Fund in Japan
for the purpose of;
(1) the receipt of any and all communications, claims,
actions, proceedings and processes as to matters
involving problems under the laws and the rules and
regulations of the JSDA and
(2) representation in and out of court in connection
with any and all disputes, controversies or differences
regarding the transactions relating to the public
offering, sale and repurchase in Japan of the Shares of
the Fund.
The agent for the registration with the Japanese
Minister of Finance of the initial public offering
concerned as well as for the continuous disclosure is
each of the following persons:
Harume Nakano
Ken Miura
Attorneys-at-law
Hamada & Matsumoto
Kasumigaseki Building, 25th Floor
2-5, Kasumigaseki, 3-chome
Chiyoda-ku, Tokyo
(E) Jurisdiction:
Limited only to litigation brought by Japanese
investors regarding transactions relating to (D)(2) above,
the Fund has agreed that the following court has
jurisdiction over such litigation and the Japanese law is
applicable thereto:
Tokyo District Court
1-4, Kasumigaseki 1-chome
Chiyoda-ku, Tokyo
(B) Results of Past Operations
(1) Record of Changes in Net Assets (Class M Shares)
Record of changes in net assets at the end of the
following fiscal years and at the end of each month within
one year prior to the end of June, 1997 is as follows:
(Note) Operations of Class M Shares were commenced on
December 1, 1994.
(2) Record of Distributions Paid
Amount of
Dividend
Period paid per Share
1st Fiscal Year
(12/1/94 - 9/30/95) "0.65 (Yen80.67)
2nd Fiscal Year
(10/1/95/-9/30/96 "0.87 (Yen107.97)
5. STATUS OF INVESTMENT FUND
(A) Diversification of Investment Fund
(As of the end of June,
1997)
Types of Assets Name of Total U.S. Investme
Country Dollars nt Ratio
(`)
Corporate Bonds U.S.A. 1,233,030, 26.83
093
Mexico 63,663,415 1.39
Germany 51,094,895 1.11
Indonesi 34,268,637 0.75
a
Canada 29,869,788 0.65
Luxembou 17,950,700 0.39
rg
U.K. 15,818,913 0.34
Denmark 15,059,083 0.33
Netherla 14,592,625 0.32
nds
Bermuda 11,442,750 0.25
Australi 10,140,700 0.22
a
Columbia 8,804,000 0.19
Brazil 8,579,280 0.19
China 7,711,750 0.17
Greece 6,842,750 0.15
India 4,735,375 0.10
Argentin 3,386,700 0.07
a
Ireland 1,936,000 0.04
Ecuador 1,445,000 0.03
Sub-total 1,540,372, 33.52
454
US Government U.S.A. 1,351,282, 29.41
Obligations 691
Foreign Government U.K. 282,065,62 6.14
1
Italy 146,935,23 3.20
0
France 127,067,95 2.77
9
Germany 110,437,59 2.40
1
Spain 86,536,808 1.88
Australi 68,619,816 1.49
a
Denmark 48,170,759 1.05
Russia 44,898,246 0.98
Canada 31,533,056 0.69
Sweden 29,812,639 0.65
South 7,918,378 0.17
Africa
Sub-total 983,996,10 21.42
3 Short-term
U.S.A. 139,028,09 3.03
9 Short-term
(Short-term Paper)
(Repurchase
Agreement)
Sub-total 139,028,09 3.03
9
Brady Bonds Mexico 110,361,02 2.40
0 Argentin
88,325,154 1.92
a
Brazil 75,170,272 0.63
Venezuel 33,576,563 0.73
a
Bulgaria 23,715,360 0.52
Equador 9,509,025 0.20
Sub-total 340,657,39 7.41
4 Preferred
stock U.S.A. 97,302,063 2.12
Units U.S.A. 45,733,401 1.00
U.K. 10,656,750 0.23
Australi 2,131,200 0.05
a
Sub-total 58,521,351 1.27
Common stock U.S.A. 45,533,372 0.99
Asset-Backed U.S.A. 41,000,638 0.89
Securities
Collateralized U.S.A. 28,288,015 0.62
Mortgage
Obligations
Convertible bonds U.S.A. 23,750,035 0.52
Convertible U.S.A. 1,565,000 0.03
Preferred Stocks
Warrants U.S.A. 4,645,509 0.10
Ireland 64,000 0.00
Sub-total 4,709,509 0.10
Options, Futures Japan 9,281,458 0.20
and
Other Derivatives U.S.A. 4,070,545 0.09
Germany 7,070 0.00
Sub-total 13,359,073 0.29
Cash, Deposit and - -1.62
Other Assets (After 74,639,930 deduction
of
liabilities)
Total 4,594,725, 100.00
867
(Net Asset (Yen525,40
Value) 7 million)
N
Note: Investment ratio is calculated by dividing each asset at
its market value by the total Net Asset Value of the Fund.
The same applies hereinafter.
(Note) Record of distribution paid from October 1996 to
June 1997 are as follows:
(C) Record of Sales and Repurchases
Record of sales and repurchases during the following
fiscal years and number of outstanding Shares of the Fund as of
the end of such Fiscal Years are as follows:
Number of Number of Number of
Shares Sold Shares Outstanding
Repurchased Shares
1st Fiscal 1,363,277 131,265 1,232,012
Year (0) (0) (0)
(12/1/94-
9/30/95)
2nd Fiscal 3,470,806 925,979 3,776,839
Year (0) (0) (0)
(10/1/95-
9/30/96)
Note: The number of Shares sold, repurchased and
outstanding in the parentheses represents those sold,
repurchased and outstanding in Japan. The Share will be sold
in Japan from May 28, 1997.
II. OUTLINE OF THE TRUST
1. Trust
(A) Law of Place of Incorporation
The Trust is a Massachusetts business trust
organized in Massachusetts, U.S.A. on August 11, 1988.
Chapter 182 of the Massachusetts General Laws
prescribes the fundamental matters in regard to the
operations of certain business trusts constituting
voluntary associations under that chapter.
The Trust is an open-end, diversified management
company under the Investment Company Act of 1940.
(B) Outline of the Supervisory Authority
Refer to I - l (B) Outline of the Supervisory
Authority.
(C) Purpose of the Trust
The purpose of the Trust is to provide investors a
managed investment primarily in securities, debt
instruments and other instruments and rights of a
financial character.
(D) History of the Trust
August 11, 1988:
Organization of the Fund as a
Massachusetts business trust.
Adoption of the Agreement and
Declaration of Trust.
September 7, 1988:
Adoption of the Amended and
Restated Agreement and
Declaration of Trust.
(E) Amount of Capital Stock
Not applicable.
(F) Structure of the management of the Trust
The Trustees are responsible for generally overseeing
the conduct of the Fund's business. The Agreement and
Declaration of Trust provides that they shall have all
powers necessary or convenient to carry out that
responsibility. The number of Trustees is fixed by the
Trustees and may not be less than three. A Trustee may be
elected either by the Trustees or by the shareholders. At
any meeting called for the purpose, a Trustee may be
removed by vote of two-thirds of the outstanding shares of
the Trust. Each Trustee elected by the Trustees or the
shareholders shall serve until he or she retires, resigns,
is removed, or dies or until the next meeting of
shareholders called for the purpose of electing Trustees
and until the election and qualification of his or her
successor.
The Trustees of the Trust are authorized by the
Agreement and Declaration of Trust to issue shares of the
Trust in one or more series, each series being preferred
over all other series in respect of the assets allocated
to that series. The Trustees may, without shareholder
approval, divide the shares of any series into two or more
classes, with such preferences and special or
relative rights and privileges as the Trustees may
determine.
Under the Agreement and Declaration of Trust the
shareholders shall have power, as and to the extent
provided therein, to vote only (i) for the election of
Trustees, to the extent provided therein (ii) for the
removal of Trustees, to the extent provided therein (iii)
with respect to any investment adviser, to the extent
provided therein (iv) with respect to any termination of
the Trust, to the extent provided therein (v) with respect
to certain amendments of the Agreement and Declaration of
Trust, (vi) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a
court action, proceeding, or claim should or should not be
brought or maintained derivatively or as a class action on
behalf of the Trust or the shareholders, and (vii) with
respect to such additional matters relating to the Trust
as may be required by the Agreement and Declaration of
Trust, the Bylaws of the Trust, or any registration of the
Trust with the Securities and Exchange Commission (or any
successor agency) or any state, or as the Trustees may
consider necessary or desirable. Certain of the foregoing
actions may, in addition, be taken by the Trustees without
vote of the shareholders of the Trust.
On any matter submitted to a vote of shareholders,
all shares of the Trust then entitled to vote are voted in
the aggregate as a single class without regard to series
or classes of shares, except (1) when required by the
Investment Company Act of 1940, as amended, or when the
Trustees hall have determined that the matter affects one
or more series or classes of shares materially
differently, share are voted by individual series or
class; and (2) when the Trustees have determined that the
matter affects on the interests of one or more series or
classes, then only shareholders of such series or classes
are entitled to vote thereon. There is no cumulative
voting.
Meetings of shareholders may be called by the Clerk
whenever ordered by the Trustees, the Chairman of the
Trustees, or requested in writing by the holder or holders
of at least one-tenth of the outstanding shares entitled
to vote at the meeting. Written notice of any meeting of
shareholders must be given by mailing the notice at least
seven days before the meeting. Thirty percent of shares
entitled to vote on a particular matter is a quorum for
the transaction of business on that matter at a
shareholders' meeting, except that, where any provision of
law or of the Agreement and Declaration of Trust permits
or requires that holders of any series or class vote as an
individual series or class, then thirty percent of the
aggregate number of shares of that series or class
entitled to vote are necessary to constitute a quorum for
the transaction of business by that series or class. For
the purpose of determining the shareholders of any class
or series of shares who are entitled to vote or act at any
meeting, or who are entitled to receive payment of any
dividend or other distribution, the Trustees are
authorized to fix record dates, which may not be more then
90 days before the date of any meeting of shareholders or
more than 60 days before the date of payment of any
dividend or other distribution.
The Trustees are authorized by the Agreement and
Declaration of Trust to adopt Bylaws not inconsistent with
the Agreement and Declaration of Trust providing for the
conduct of the business of the Trust. The Bylaws
contemplate that the Trustees shall elect a Chairman of
the Trustees, the President, the Treasurer, and the Clerk
of the Trust, and that other officers, if any, may be
elected or appointed by the Trustees at any time. The
Bylaws may be amended or repealed, in whole or in part, by
a majority of the Trustees then in office at any meeting
of the Trustees, or by one or more writings signed by such
a majority.
Regular meetings of the Trustees may be held without
call or notice at such places and at such times as the
Trustees may from time to time determine. It shall be
sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by
telegram at least twenty-four hours before the meeting or
to give notice to him or her in person or by telephone at
least twenty-four hours before the meeting.
At any meeting of Trustees, a majority of the
Trustees then in office shall constitute a quorum. Except
as otherwise provided in the Agreement and Declaration of
Trust or Bylaws, any action to be taken by the Trustees
may be taken by a majority of the Trustees present at a
meeting (a quorum being present), or by written consents
of a majority of the Trustees then in office.
Subject to a favorable majority shareholder vote (as
defined ^ in the Agreement and Declaration of Trust), the
Trustees may contract for exclusive or nonexclusive
advisory and/or management services with any corporation,
trust, association, or other organization.
The Agreement and Declaration of Trust contains
provisions for the indemnification of Trustees, officers,
and shareholders of the Trust under the circumstances and
on the terms specified therein.
The Trust may be terminated at any time by vote of
shareholders holding at least two-thirds of the shares
entitled to vote or by the trustees by written notice to
the shareholders. Any series of shares may be terminated
at any time by vote of shareholders holding at least two
thirds of the shares of such series entitled to vote or by
the Trustees by written notice to the shareholders of such
series.
The foregoing is a general summary of certain
provisions of the Agreement and Declaration of Trust and
Bylaws of the Trust, and is qualified in its entirety by
reference to each of those documents.
(G) Information Concerning Major Shareholders
Not applicable.
(H) Information Concerning Directors, Officers and Employees
(1)^ Trustees and Officers of the Trust
Shares
Name Office and Resume Owned
Title
George Putnam Chairman and present: Chairman and Class A
President Director of
Putnam Management 5,197
and Putnam Mutual Funds
Corp.
Director, Marsh & McLennan
Companies, Inc.
William F. Vice present: Professor of Class A
Pounds Chairman Management, 887
Alfred P. Sloan
School of Management,
Massachusetts
Institute of
Technology
Jameson Adkins Trustee present: President, Class A
Baxter Baxter 361
Associates, Inc.
Hans H. Estin Trustee present: Vice Chairman, Class A
North American 213
Management Corp.
John A. Hill Trustee present: Chairman and Class A
Managing 1,267
Director, First
Reserve
Corporation
Ronald J. Trustee present: Former Class A
Jackson Chairman, 437
President and
Chief Executive
Officer of FisherPrice,
Inc.,
Director of
Safety 1st, Inc., Trustee
of Salem Hospital and the
Peabody Essex
Museum
Elizabeth T. Trustee present: President Class A
Kennan Emeritus and 276
Professor, Mount
Holyoke College
Lawrence J. Trustee and present: President, Class A
Lasser Vice Chief Executive 129
President Officer and
Director of Putnam
Investments, Inc. and
Putnam Management Director,
Marsh & McLennan Companies,
Inc.
Robert E. Trustee present: Executive Vice Class A
Patterson President and 508
Director of
Acquisitions,
Cabot Partners
Limited
Partnership
Donald S. Trustee present: Director of Class A
Perkins various ^ 3,035
corporations,
including Cummins
Engine Company,
Lucent
Technologies,
Inc., Springs Industries,
Inc.
and Time Warner
Inc.
George Putnam, Trustee present: President, New Class A
III Generation 2,618
Research, Inc.
A.J.C. Smith Trustee present: Chairman and Class A
Chief Executive 208
Officer, Marsh & McLennan
Companies, Inc.
W. Nicholas Trustee present: Director of Class A
Thorndike various 139
corporations and charitable
organizations,
including Data
General
Corporation,
Bradley Real
Estate, Inc. and Providence
Journal Co.
Trustee of
Massachusetts
General Hospital
and Eastern
Utilities
Associations
Charles E. Executive present: Managing 0
Porter Vice Director of
President Putnam
Investments, Inc.
and Putnam
Management
Patricia C. Senior Vice present: Senior Vice ^ 0
Flaherty President President of
Putnam
Investments, Inc.
and Putnam
Management
William N. Vice present: Director and 1,194
Shiebler President Senior Managing
Director of
Putnam
Investments, Inc. President
and
Director of
Putnam Mutual
Funds
Gordon H. Vice present: Director and Class A
Silver President Senior Managing 0
Director of
Putnam
Investments, Inc.
and Putnam
Management
Paul M. O'Neil Vice present: Vice President 0
President of Putnam
Investments, Inc.
and Putnam
Management
John D. Hughes Vice present Senior Vice Class A
President President of 0
and Putnam Management
Treasurer
Beverly Marcus Clerk and N/A Class A
Assistant ^ 0
Treasurer
Gary N. Coburn Vice present Senior Class A
President Managing Director 15,024
of Putnam
Investments, Inc.
and Putnam
Management
John R. Verani Vice present Senior Vice Class A
President President of 0
Putnam
Investment, Inc.
and Putnam
Management
Gail S. Vice present Senior Vice Class A
Attridge President President of 0
Putnam
Investments, Inc.
and Putnam
Management
Kenneth J. Vice present Senior Vice Class A
Taubes President President of 0
Putnam
Investments, Inc.
and Putnam
Management
Michael Vice present Managing Class A
Martino President Director of 0
Putnam
Investments, Inc.
and Putnam
Management.
Jin W. Ho Vice present Managing Class A
President Director of 0
Putnam
Investments, Inc.
and Putnam
Management
William J. Vice present Managing Class A
Curtin President Director of 0
Putnam
Investments, Inc.
and Putnam
Management
(2) Employees of the Trust
The Trust does not have any employees.
(I) Description of Business and Outline of Operation
The Trust may carry out any administrative and
managerial act, including the purchase, sale,
subscription and exchange of any securities, and the
exercise of all rights directly or indirectly pertaining
to the Fund's assets. The Trust has ^ retained Putnam
Investment Management, Inc., the investment adviser, to
render investment advisory services^ and Putnam
Fiduciary Trust Company, to hold the assets of the Fund
in custody and act as Investor Servicing Agent.
(J) Miscellaneous
(1) Changes of Trustees and Officers
Trustees may be removed or replaced by, among
other things, a resolution adopted by a vote of two
thirds of the outstanding shares at a meeting called
for the purpose. In the event of vacancy, the
remaining Trustees may fill such vacancy by
appointing for the remaining term of the predecessor
Trustee such other person as they in their discretion
shall see fit. The Trustees may add to their number
as they consider appropriate. The Trustees may elect
and remove officers as they consider appropriate.
(2) Amendment to the Agreement and Declaration of Trust
Generally, approval of shareholders is required
to amend the Agreement and Declaration of Trust,
except for certain matters such as change of name,
curing any ambiguity or curing any defective or
inconsistent provision.
(3) Litigation and Other Significant Events
Nothing which has or which would have a material
adverse effect on the Trust has occurred which has
not been disclosed. The fiscal year end of the Trust
is September 30. The Trust is established for an
indefinite period and may be dissolved at any time by
vote of the shareholders holding at least two-thirds
of the shares entitled to vote or by the Trustees by
written notice to shareholders.
2. Putnam Investment Management, Inc. (Investment Management
Company)
(A) Law of Place of Incorporation
Putnam is incorporated under the General Corporation Law
of The Commonwealth of Massachusetts, U.S.A. Its
investment advisory business is regulated under the
Investment Advisers Act of 1940.
Under the Investment Advisers Act of 1940, an investment
adviser means, with certain exceptions, any person who,
for compensation, engages in the business of advising
others, either directly or through publications or
writings, as to the value of securities or as to the
advisability of investing in, purchasing or selling
securities, or who, for compensation and as part of a
regular business, issues analyses or reports concerning
securities. Investment advisers under the Act may not
conduct their business unless they are registered with the
SEC.
(B) Outline of the Supervisory Authority
Investment Management Company is registered as an
investment adviser under the Investment Advisers Act of
1940.
(C) Purpose of the Company
Investment Management Company's sole business is
investment management, which includes the buying, selling,
exchanging and trading of securities of all descriptions
on behalf of mutual funds in any part of the world.
(D) History of the Company
Investment Management Company is one of America's oldest
and largest money management firms. Investment Management
Company's staff of experienced portfolio managers and
research analysts selects securities and constantly
supervises the fund's portfolio. By pooling an investor's
money with that of other investors, a greater variety of
securities can be purchased than would be the case
individually: the resulting diversification helps reduce
investment risk Investment Management Company has been
managing mutual funds since 1937. Today, the firm serves
as the Investment Management Company for the funds in the
Putnam Family, with over "[139] billion in assets in
nearly [8] million shareholder accounts at the end of
June, 1997. An affiliate, The Putnam Advisory Company,
Inc., manages domestic and foreign institutional accounts
and mutual funds, including the accounts of many Fortune
500 companies. Another affiliate, Putnam Fiduciary Trust
Company, provides investment advice to institutional
clients under its banking and fiduciary powers as well as
shareholder and custody services to the Putnam Funds.
Putnam Investment Management Inc., Putnam Mutual Funds and
Putnam Fiduciary Trust Company are subsidiaries of
Putnam Investments, Inc., which is 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.
(E) Amount of Capital Stock (as of the end of June, 1997)
1. Amount of Capital (issued capital stock at par
value):
Common Stock 1,000 shares at "1 par value
2. Number of authorized shares of capital stock:
Common Stock 1,000 shares
3. Number of outstanding shares of capital stock:
Common Stock 1,000 shares
4. Amount of capital (for the purposes of this Item,
"Amount of Capital" means total stockholders' equity
for the past five years:
Amount of Capital
Year (Total Stockholders' Equity)
End of 1992 "42,618,341
End of 1993 "49,847,760
End of 1994 "48,149,491
End of 1995 "45,521,351
End of 1996 "45,817,658
(F) Structure of the Management of the Company
Investment Management Company is ultimately managed by its
Board of Directors, which is elected by its shareholders.
Each Fund managed by Investment Management Company is
managed by one or more portfolio managers. These
managers, in coordination with analysts who research
specific securities and other members of the relevant
investment group (in the case of the Fund, Investment
Management Company's High Yield Securities Taxable
Investment Grade and Global Fixed Income Group), provide a
continuous investment program for the Fund and place all
orders for the purchase and sale of portfolio securities.
The investment performance and portfolio of each Fund is
overseen by its Board of Trustees, a majority of whom are
not affiliated with Investment Management Company. The
Trustees meet 11 times a year and review the performance
of each fund with its manager at least quarterly.
In selecting portfolio securities for the Fund, Investment
Management Company looks for securities that represent
attractive values based on careful issue-byissue credit
analysis and hundreds of onsite visits and other contacts
with issuers every year. Investment Management Company is
one of the largest managers of high yield and other debt
securities in the United States.
The following officers of Investment Management Company
have had primary responsibility for the day-to-day
management of the Fund's portfolio since the years stated
below:
Names Yea Business Experience
r (at least 5 years)
Jin W. Ho 199 Employed as an investment professional by
Managing 6 Putnam Investment Management, Inc. since
Director 1983.
D. William 199 Employed as an investment professional by
Kohli 4 Putnam Investment Management, Inc. since
Managing 1994.
Director Prior to September, 1994, Mr. Kohli was
Executive Vice President and Co-Director of
Global Bond Management and, prior to October,
1993, Senior Portfolio Manager at Franklin
Advisors/Templeton Investment Counsel.
Michael Martino 199 Employed as an investment professional by
Managing 4 Putnam Investment Management, Inc. since
Director 1994.
Prior to January, 1994, Mr. Martino was
employed by Back Bay Advisors as Executive
Vice President and Chief Investment Officer.
Gail S. 199 Employed as an investment professional by
Attridge 7 Putnam Investment Management, Inc. since
Senior Vice 1993.
President Prior to November, 1993, Ms. Attridge was an
Analyst at Keystone Custody International.
Kenneth J. 199 Employed as an investment professional by
Taubes 7 Putnam Investment Management, Inc. since
Senior Vice 1991.
President
(G) Information Concerning Major Stockholders
As of the end of June, 1997, all the outstanding shares of
capital stock of Investment Management Company were owned by
Putnam Investments, Inc. See subsection D above.
(H) Information Concerning Officers and Employees
The following table lists the names of various officers and
directors of Investment Management Company and their
respective positions with Investment Management Company. For
each named individual, the table lists: (i) any other
organizations (excluding other Investment Management
Company's funds) with which the officer and/or director has
recently had or has substantial involvement; and (ii)
positions held with such organization:
List of Officers and Directors of Putnam Investment
Management, Inc. (^as of June 30, 1997 )
Position with
Putnam
Name Investment Other Business Affiliation
Management,
Inc.
Putnam, Chairman Chairman of Putnam Mutual
George Funds Corp.
Lasser, President and
Lawrence Director
J.
Silver, Director and Putnam Fiduciary Trust
Gordon H. Senior Company
Managing Senior Administrative
Director Officer and Director of
Putnam Mutual Funds Corp.
Jamieson, Director and Treasurer of Putnam Mutual
Douglas Senior Funds Corp.
B. Managing
Director
Moran, Managing Treasurer, Director and
Timothy Director Security Officer of Putnam
P. Fiduciary Trust Company
Burke, Director and Senior Managing Director of
Robert W. Senior Putnam Mutual Funds Corp.
Managing
Director
Carman, Director and
Peter Senior
Managing
Director
Coburn, Senior
Gary N. Managing
Director
Ferguson, Senior
Ian C. Managing
Director
Spiegel, Director and Senior Managing Director of
Steven Senior Putnam Mutual Funds Corp.
Managing
Director
Anderson, Managing
Blake E. Director
Bankart, Managing
Alan J. Director
Bogan, Managing
Thomas Director
Browchuk, Managing
Brett Director
Collman, Managing Managing Director of Putnam
Kathleen Director Mutual Funds Corp.
M.
Curtin, Managing
William Director
J.
D'Alelio, Managing
Edward H. Director
DeTore, Managing Managing Director of Putnam
John A. Director Fiduciary Trust Company
Durgarian Managing Director and Managing
, Karnig Director Director of Putnam Fiduciary
H. Trust Company
Esteves, Senior
Irene M. Managing
Director
Ho, Jin Managing
W. Director
Hurley, Managing Managing Director of Putnam
William Director Mutual Funds Corp.
J.
Jacobs, Managing
Jerome J. Director
Kearney, Managing Managing Director of Putnam
Mary E. Director Mutual Funds Corp.
Kohli, D. Managing
William Director
Kreisel, Managing
Anthony Director
I.
Landes, Managing
William Director
J.
Maloney, Managing
Kevin J. Director
Martino, Managing
Michael Director
Maxwell, Managing
Scott M. Director
McGue, Managing
William Director
F.
McMullen, Managing
Carol C. Director
Miller, Managing
Daniel L. Director
Montgomer Managing
y, Director
Kenneth
Morgan Managing Managing Director of Putnam
Jr., John Director Fiduciary Trust Company
J.
Mullaney, Managing
Michael Director
A.
O'Donnell Managing
Jr., C. Director
Patrick
Peacher, Managing
Stephen Director
C.
Porter, Managing
Charles Director
E.
Reilly, Managing
Thomas V. Director
Scott, Managing Managing Director of Putnam
Justin M. Director Fiduciary Trust Company
Talanian, Managing Managing Director of Putnam
John C. Director Mutual Funds Corp.
Woolverto Managing Managing Director of Putnam
n, Director Mutual Funds Corp.
William
H.
Asher, Senior Vice Senior Vice President of
Steven E. President Putnam Mutual Funds Corp.
Baumback, Senior Vice
Robert K. President
Beck, Senior Vice
Robert R. President
Bousa, Senior Vice
Edward P. President
Bresnahan Senior Vice Senior Vice President of
, Leslee President Putnam Mutual Funds Corp.
R.
Burns, Senior Vice
Cheryl A. President
Cassaro, Managing
Joseph A. Director
Chapman, Senior Vice
Susan President
Cotner, Senior Vice
Beth C. President
Curran, Senior Vice Senior Vice President of
J. Peter President Putnam Mutual Funds Corp.
Dalferro, Senior Vice
John R. President
Daly, Senior Vice Senior Vice President of
Kenneth President Putnam Mutual Funds Corp.
L.
England, Senior Vice
Richard President
B.
Fitzgeral Senior Vice
d, President
Michael
T.
Flaherty, Senior Vice Senior Vice President of
Patricia President Putnam Mutual Funds Corp.
C.
Francis, Senior Vice
Jonathan President
H.
Frucci, Senior Vice Senior Vice President of
Richard President Putnam Fiduciary Trust
M. Company
Fullerton Senior Vice Senior Vice President of
, Brian President Putnam Mutual Funds Corp.
J.
Gillis, Managing
Roland Director
Goodwin, Senior Vice
Kim C. President
Grant, J. Senior Vice Senior Vice President of
Peter President Putnam Fiduciary Trust
Company
Grim, Senior Vice
Daniel J. President
Haagensen Senior Vice
, Paul E. President
Halperin, Senior Vice
Matthew President
C.
Han, Senior Vice
Billy P. President
Healey, Senior Vice
Deborah President
R.
Joseph, Senior Vice
Joseph P. President
Joyce, Senior Vice Senior Vice President of
Kevin M. President Putnam Mutual Funds Corp.
Kamshad, Senior Vice
Omid President
Kay, Senior Vice Clerk, Director and Senior
Karen R. President Vice President of Putnam
Fiduciary Trust Company
King, Managing
David L. Director
Kirson, Senior Vice
Steven L. President
Leichter, Senior Vice
Jennifer President
E.
Lindsey, Senior Vice
Jeffrey President
R.
Lukens, Senior Vice
James W. President
Manning, Senior Vice
Howard K. President
Matteis, Senior Vice
Andrew S. President
McAuley, Senior Vice
Alexander President
J.
McDonald, Senior Vice
Richard President
E.
Meehan, Senior Vice
Thalia President
Mikami, Senior Vice
Darryl President
Mockard, Senior Vice
Jeanne L. President
Morgan, Senior Vice
Kelly A. President
Mufson, Senior Vice
Michael President
J.
Mullin, Senior Vice
Hugh H. President
Netols, Senior Vice Senior Vice President of
Jeffrey President Putnam Fiduciary Trust
W. Company
Nguyen, Senior Vice
Triet M. President
Paine, Senior Vice
Robert M. President
Pohl, Senior Vice
Charles President
G.
Pollard, Senior Vice
Mark D. President
Powers, Senior Vice
Neil J. President
Quinton, Senior Vice
Keith P. President
Ray, Senior Vice
Christoph President
er A.
Reeves, Senior Vice
William President
H.
Regan, Senior Vice
Anthony President
W.
Rosalanko Senior Vice
, Thomas President
J.
Ruys de Senior Vice Senior Vice President of
Perez, President Putnam Fiduciary Trust
Charles Company
A.
Schwister Senior Vice Senior Vice President of
, Jay E. President Putnam Fiduciary Trust
Company
Senter, Senior Vice Senior Vice President of
Max S. President Putnam Fiduciary Trust
Company
Silver, Managing Senior Vice President of
Jennifer Director Putnam Fiduciary Trust
K. Company
Simon, Senior Vice
Sheldon President
N.
Smith Senior Vice
Jr., Leo President
J.
Smith, Senior Vice
Margaret President
D.
Soja, Senior Vice
Joanne President
Storkerso Senior Vice Senior Vice President of
n, John President Putnam Fiduciary Trust
K. Company
Strumpf, Senior Vice
Casey President
Sullivan, Senior Vice
Roger R. President
Swanberg, Senior Vice
Charles President
H.
Swift, Senior Vice
Robert President
Taubes, Senior Vice Senior Vice President of
Kenneth President Putnam Fiduciary Trust
J. Company
Thomas, Senior Vice
David K. President
Thomsen, Senior Vice Senior Vice President of
Rosemary President Putnam Fiduciary Trust
H. Company
Tibbetts, Senior Vice Senior Vice President of
Richard President Putnam Mutual Funds Corp.
B.
Till, Senior Vice
Hilary F. President
Van Senior Vice
Vleet, President
Charles
C.
Verani, Senior Vice Senior Vice President of
John R. President Putnam Fiduciary Trust
Company
Weinstein Senior Vice
, Michael President
R.
Weiss, Senior Vice
Man President
^uel
Schultz, Senior Vice
Mitchell President
D.
Wheeler, Senior Vice
Diane President
D.F.
Wyke, Senior Vice
Richard President
P.
Zukowski, Senior Vice
Gerald S. President
Haslett, Managing
Thomas R. Director
Zieff, Managing
William Director
Svensson, Senior Vice
Lisa A. President
(I) Summary of Business Lines and Business Operation
Investment Management Company is engaged in the business
of providing investment management and investment
advisory services to mutual funds. As of ^ the end of
June, 1997, Investment Management Company managed,
advised, and/or administered the following ^101 funds and
fund portfolios (having an aggregate net
asset value of approximately "^159 billion):
(As of the end of June, 1997)
Month/D Principa Total Net
Name ate/Yea l Net Asset
r Characte Asset Value
Establi ristics Value per
shed (" share
millio (")
n)
The George Putnam Fund 11/5/37 Open/Equ 2,377. 18.06
of Boston; A ity 9
The George Putnam Fund 4/24/92 Open/Equ 820.1 17.95
of Boston; B ity
The George Putnam Fund 12/1/94 Open/Equ 169.0 17.94
of Boston; M ity
The George Putnam Fund 1/1/94 Open/Equ 362.8 18.08
of Boston; Y ity
Putnam Arizona Tax 1/30/91 Open/Bon 122.8 9.09
Exempt Income Fund; A d
Putnam Arizona Tax 7/15/93 Open/Bon 28.5 9.07
Exempt Income Fund; B d
Putnam Arizona Tax 7/3/95 Open/Bon 0.6 9.10
Exempt Income Fund; M d
Putnam American 3/1/85 Open/Bon 1,592. 8.54
Government Income Fund; d 2
A
Putnam American 5/20/94 Open/Bon 28.7 8.50
Government Income Fund; d
B
Putnam American 2/14/95 Open/Bon 1.2 8.54
Government Income Fund; d
M
Putnam Asia Pacific 2/20/91 Open/Equ 493.0 14.27
Growth Fund; A ity
Putnam Asia Pacific 6/1/93 Open/Equ 227.7 14.04
Growth Fund; B ity
Putnam Asia Pacific 2/1/95 Open/Equ 11.5 14.16
Growth Fund; M ity
Putnam Asset Allocation: 2/7/94 Open/Bal 572.5 11.55
Balanced Portfolio; A anced
Putnam Asset Allocation: 2/11/94 Open/Bal 390.0 11.49
Balanced Portfolio; B anced
Putnam Asset Allocation: 9/1/94 Open/Bal 58.9 11.45
Balanced Portfolio; C anced
Putnam Asset Allocation: 2/6/95 Open/Bal 35.4 11.54
Balanced Portfolio; M anced
Putnam Asset Allocation: 7/14/94 Open/Bal 217.9 11.55
Balanced Portfolio; Y anced
Putnam Asset Allocation: 2/7/94 Open/Bal 279.3 10.16
Conservative Portfolio; anced
A
Putnam Asset Allocation: 2/18/94 Open/Bal 125.9 10.13
Conservative Portfolio; anced
B
Putnam Asset Allocation: 9/1/94 Open/Bal 26.1 10.11
Conservative Portfolio; anced
C
Putnam Asset Allocation: 2/7/95 Open/Bal 10.9 10.14
Conservative Portfolio; anced
M
Putnam Asset Allocation: 7/14/94 Open/Bal 17.9 10.17
Conservative Portfolio; anced
Y
Putnam Asset Allocation: 2/8/94 Open/Bal 385.7 12.64
Growth Portfolio; A anced
Putnam Asset Allocation: 2/16/94 Open/Bal 309.6 12.50
Growth Portfolio; B anced
Putnam Asset Allocation: 9/1/94 Open/Bal 54.9 12.42
Growth Portfolio; C anced
Putnam Asset Allocation: 2/1/95 Open/Bal 28.5 12.51
Growth Portfolio; M anced
Putnam Asset Allocation: 7/14/94 Open/Bal 213.9 12.70
Growth Portfolio; Y anced
Putnam Balanced 4/19/85 Open/Bal 567.4 11.17
Retirement Fund; A anced
Putnam Balanced 2/1/94 Open/Bal 68.4 11.09
Retirement Fund; B anced
Putnam Balanced 3/17/95 Open/Bal 6.4 11.13
Retirement Fund; M anced
Putnam California Tax 4/29/83 Open/Bon 3,084. 8.54
Exempt Income Fund; A d 1
Putnam California Tax 1/4/93 Open/Bon 556.2 8.53
Exempt Income Fund; B d
Putnam California Tax 2/14/95 Open/Bon 13.1 8.53
Exempt Income Fund; M d
Putnam VT Asia Pacific 5/1/95 Open/Equ 151.3 11.51
Growth Fund ity
Putnam VT Diversified 9/15/93 Open/Bon 549.0 10.78
Income Fund d
Putnam VT Global Growth 5/1/90 Open/Equ 1,643. 18.62
Fund ity 1
Putnam VT Global Asset 2/1/88 Open/Bal 883.4 17.72
Allocation Fund anced
Putnam VT Growth and 2/1/88 Open/Bal 7,349. 26.41
Income Fund anced 8
Putnam VT High Yield 2/1/88 Open/Bon 873.3 12.61
Fund d
Putnam VT Money Market 2/1/88 Open/Bon 498.7 1.00
Fund d
Putnam VT New 5/2/94 Open/Equ 2,075. 18.95
Opportunities Fund ity 7
Putnam VT U.S. 2/1/88 Open/Bon 758.6 12.70
Government and High d
Quality Bond Fund
Putnam VT Utilities 5/1/92 Open/Bal 699.3 14.41
Growth and Income Fund anced
Putnam VT Voyager Fund 2/1/88 Open/Equ 3,832. 34.46
ity 9
Putnam Capital 8/5/93 Open/Equ 586.7 19.71
Appreciation Fund; A ity
Putnam Capital 11/2/94 Open/Equ 613.3 19.52
Appreciation Fund; B ity
Putnam Capital 1/22/96 Open/Equ 40.1 19.55
Appreciation Fund; M ity
Putnam Convertible 6/29/72 Open/Bal 1,076. 22.12
Income-Growth Trust; A anced 6
Putnam Convertible 7/15/93 Open/Bal 218.5 21.94
Income-Growth Trust; B anced
Putnam Convertible 3/13/95 Open/Bal 12.5 22.00
Income-Growth Trust; M anced
Putnam Diversified 7/1/94 Open/Equ 223.2 13.08
Equity Trust; A ity
Putnam Diversified 7/2/94 Open/Equ 267.8 12.97
Equity Trust; B ity
Putnam Diversified 7/3/95 Open/Equ 18.4 13.01
Equity Trust; M ity
Putnam Diversified 10/3/88 Open/Bon 2,023. 12.36
Income Trust; A d 0
Putnam Diversified 3/1/93 Open/Bon 2,300. 12.31
Income Trust; B d 0
Putnam Diversified 12/1/94 Open/Bon 250.7 12.33
Income Trust; M d
Putnam Diversified 7/11/96 Open/Bon 18.8 12.37
Income Trust ; Y d
Putnam Equity Income 6/15/77 Open/Bal 756.2 15.00
Fund; A anced
Putnam Equity Income 9/13/93 Open/Bal 371.9 14.93
Fund; B anced
Putnam Equity Income 12/2/94 Open/Bal 42.7 14.94
Fund; M anced
Putnam Europe Growth 9/7/90 Open/Equ 321.4 18.96
Fund; A ity
Putnam Europe Growth 2/1/94 Open/Equ 261.5 18.56
Fund; B ity
Putnam Europe Growth 12/1/94 Open/Equ 16.2 18.85
Fund; M ity
Putnam Florida Tax 8/24/90 Open/Bon 238.9 9.23
Exempt Income Fund; A d
Putnam Florida Tax 1/4/93 Open/Bon 60.3 9.22
Exempt Income Fund; B d
Putnam Florida Tax 5/1/95 Open/Bon 1.5 9.22
Exempt Income Fund; M d
Putnam Federal Income 6/2/86 Open/Bon 351.7 9.97
Trust; A d
Putnam Federal Income 6/6/94 Open/Bon 11.8 9.93
Trust; B d
Putnam Federal Income 4/12/95 Open/Bon 0.8 9.97
Trust; M d
Putnam Global 6/1/87 Open/Bon 319.7 13.79
Governmental Income d
Trust; A
Putnam Global 2/1/94 Open/Bon 42.7 13.76
Governmental Income d
Trust; B
Putnam Global 3/17/95 Open/Bon 2.4 13.74
Governmental Income d
Trust; M
Putnam Global Growth 9/1/67 Open/Equ 2,738. 12.49
Fund; A ity 9
Putnam Global Growth 4/27/92 Open/Equ 1,714. 12.12
Fund; B ity 3
Putnam Global Growth 3/1/95 Open/Equ 42.0 12.41
Fund; M ity
Putnam Global Growth 6/15/94 Open/Equ 103.7 12.66
Fund; Y ity
Putnam Growth and Income 1/5/95 Open/Bal 894.1 14.08
Fund II; A anced
Putnam Growth and Income 1/5/95 Open/Bal 1,077. 14.00
Fund II; B anced 8
Putnam Growth and Income 1/5/95 Open/Bal 133.2 14.04
Fund II; M anced
The Putnam Fund for 11/6/57 Open/Bal 15,519 20.62
Growth and Income; A anced .5
The Putnam Fund for 4/27/92 Open/Bal 12,600 20.42
Growth and Income; B anced .4
The Putnam Fund for 5/1/95 Open/Bal 286.0 20.54
Growth and Income; M anced
The Putnam Fund for 6/15/94 Open/Bal 544.9 20.65
Growth and Income; Y anced
Putnam High Yield 3/25/86 Open/Bon 1,237. 9.76
Advantage Fund; A d 0
Putnam High Yield 5/16/94 Open/Bon 881.5 9.72
Advantage Fund; B d
Putnam High Yield 12/1/94 Open/Bon 1,208. 9.75
Advantage Fund; M d 0
Putnam High Yield Trust; 2/14/78 Open/Bon 3,228. 12.68
A d 0
Putnam High Yield Trust; 3/1/93 Open/Bon 1,224. 12.63
B d 0
Putnam High Yield Trust; 7/3/95 Open/Bon 23.6 12.67
M d
Putnam Health Sciences 5/28/82 Open/Equ 1,664. 56.21
Trust; A ity 6
Putnam Health Sciences 3/1/93 Open/Equ 516.2 54.99
Trust; B ity
Putnam Health Sciences 7/3/95 Open/Equ 21.5 56.39
Trust; M ity
Putnam Income Fund; A 11/1/54 Open/Bon 1,171. 6.99
d 4
Putnam Income Fund; B 3/1/93 Open/Bon 374.7 6.96
d
Putnam Income Fund; M 12/14/9 Open/Bon 27.6 6.96
4 d
Putnam Income Fund; Y 2/12/94 Open/Bon 144.7 7.00
d
Putnam Intermediate U.S. 2/16/93 Open/Bon 138.8 4.84
Government Income Fund; d
A
Putnam Intermediate U.S. 2/16/93 Open/Bon 62.7 4.84
Government Income Fund; d
B
Putnam Intermediate U.S. 4/3/95 Open/Bon 4.5 4.85
Government Income Fund; d
M
Putnam International New 1/3/95 Open/Equ 851.6 13.90
Opportunities Fund; A ity
Putnam International New 7/21/95 Open/Equ 1,035. 13.77
Opportunities Fund; B ity 8
Putnam International New 7/21/95 Open/Equ 88.7 13.83
Opportunities Fund; M ity
Putnam Investors Fund; A 12/1/25 Open/Equ 1,626. 10.96
ity 8
Putnam Investors Fund; B 3/1/93 Open/Equ 253.6 10.63
ity
Putnam Investors Fund; M 12/2/94 Open/Equ 20.7 10.84
ity
Putnam Investors Fund; Y 11/30/9 Open/Equ 16.8 10.97
6 ity
Putnam Massachusetts Tax 10/23/8 Open/Bon 280.5 9.38
Exempt Income Fund; A 9 d
Putnam Massachusetts Tax 7/15/93 Open/Bon 87.1 9.37
Exempt Income Fund; B d
Putnam Massachusetts Tax 5/12/95 Open/Bon 2.7 9.37
Exempt Income Fund; M d
Putnam Michigan Tax 10/23/8 Open/Bon 143.0 9.18
Exempt Income Fund; A 9 d
Putnam Michigan Tax 7/15/93 Open/Bon 35.4 9.17
Exempt Income Fund; B d
Putnam Michigan Tax 4/17/95 Open/Bon 0.8 9.18
Exempt Income Fund; M d
Putnam Minnesota Tax 10/23/8 Open/Bon 99.1 9.01
Exempt Income Fund; A 9 d
Putnam Minnesota Tax 7/15/93 Open/Bon 36.0 8.98
Exempt Income Fund; B d
Putnam Minnesota Tax 4/3/95 Open/Bon 1.4 9.00
Exempt Income Fund; M d
Putnam Money Market 10/1/76 Open/Bon 2,201. 1.00
Fund; A d 9
Putnam Money Market 4/27/92 Open/Bon 485.7 1.00
Fund; B d
Putnam Money Market 12/8/94 Open/Bon 55.7 1.00
Fund; M d
Putnam Municipal Income 5/22/89 Open/Bon 806.3 9.04
Fund; A d
Putnam Municipal Income 1/4/93 Open/Bon 480.3 9.03
Fund; B d
Putnam Municipal Income 12/1/94 Open/Bon 12.3 9.03
Fund; M d
Putnam New Jersey Tax 2/20/90 Open/Bon 228.4 9.08
Exempt Income Fund; A d
Putnam New Jersey Tax 1/4/93 Open/Bon 83.9 9.07
Exempt Income Fund; B d
Putnam New Jersey Tax 5/1/95 Open/Bon 0.4 9.08
Exempt Income Fund; M d
Putnam New York Tax 9/2/83 Open/Bon 1,757. 8.87
Exempt Income Fund; A d 7
Putnam New York Tax 1/4/93 Open/Bon 224.3 8.85
Exempt Income Fund; B d
Putnam New York Tax 4/10/95 Open/Bon 1.6 8.87
Exempt Income Fund; M d
Putnam New York Tax 11/7/90 Open/Bon 162.8 8.98
Exempt Opportunities d
Fund; A
Putnam New York Tax 2/1/94 Open/Bon 52.0 8.97
Exempt Opportunities d
Fund; B
Putnam New York Tax 2/10/95 Open/Bon 1.8 8.96
Exempt Opportunities d
Fund; M
Putnam Global Natural 7/24/80 Open/Equ 230.7 21.07
Resources Fund; A ity
Putnam Global Natural 2/1/94 Open/Equ 128.6 20.75
Resources Fund; B ity
Putnam Global Natural 7/3/95 Open/Equ 7.0 20.96
Resources Fund; M ity
Putnam New Opportunities 8/31/90 Open/Equ 7,380. 44.47
Fund; A ity 4
Putnam New Opportunities 3/1/93 Open/Equ 6,361. 43.09
Fund; B ity 5
Putnam New Opportunities 12/1/94 Open/Equ 337.6 43.91
Fund; M ity
Putnam New Opportunities 7/19/94 Open/Equ 253.7 44.82
Fund; Y ity
Putnam Ohio Tax Exempt 10/23/8 Open/Bon 186.2 9.05
Income Fund; A 9 d
Putnam Ohio Tax Exempt 7/15/93 Open/Bon 48.1 9.04
Income Fund; B d
Putnam Ohio Tax Exempt 4/3/95 Open/Bon 1.0 9.05
Income Fund; M d
Putnam OTC & Emerging 11/1/82 Open/Equ 2,037. 14.99
Growth Fund; A ity 6
Putnam OTC & Emerging 7/15/93 Open/Equ 1,018. 14.46
Growth Fund; B ity 6
Putnam OTC & Emerging 12/2/94 Open/Equ 158.4 14.77
Growth Fund; M ity
Putnam OTC & Emerging 7/12/96 Open/Equ 98.4 15.04
Growth Fund; Y ity
Putnam International 2/28/91 Open/Equ 735.7 17.57
Growth Fund; A ity
Putnam International 6/1/94 Open/Equ 480.5 17.32
Growth Fund; B ity
Putnam International 12/1/94 Open/Equ 58.4 17.48
Growth Fund; M ity
Putnam International 7/12/96 Open/Equ 96.2 17.60
Growth Fund; Y ity
Putnam Pennsylvania Tax 7/21/89 Open/Bon 185.8 9.28
Exempt Income Fund; A d
Putnam Pennsylvania Tax 7/15/93 Open/Bon 78.7 9.27
Exempt Income Fund; B d
Putnam Pennsylvania Tax 7/3/95 Open/Bon 0.7 9.29
Exempt Income Fund; M d
Putnam Preferred Income 1/4/84 Open/Bon 112.8 8.83
Fund; A d
Putnam Preferred Income 4/20/95 Open/Bon 7.3 8.81
Fund; M d
Putnam Tax - Free Income 9/20/93 Open/Bon 596.3 14.29
Trust d
Tax - Free High Yield
Fund; A
Putnam Tax - Free Income 9/9/85 Open/Bon 1,408. 14.29
Trust d 1
Tax - Free High Yield
Fund B
Putnam Tax - Free Income 12/29/9 Open/Bon 15.9 14.28
Trust 4 d
Tax - Free High Yield
Fund M
Putnam Tax - Free Income 9/30/93 Open/Bon 196.9 15.11
Trust d
Tax - Free Insured Fund;
A
Putnam Tax - Free Income 9/9/85 Open/Bon 333.5 15.13
Trust d
Tax - Free Insured Fund;
B
Putnam Tax - Free Income 6/1/95 Open/Bon 0.9 15.11
Trust d
Tax - Free Insured Fund;
M
Putnam Tax Exempt Income 12/31/7 Open/Bon 2,041. 8.96
Fund; A 6 d 9
Putnam Tax Exempt Income 1/4/93 Open/Bon 244.0 8.96
Fund; B d
Putnam Tax Exempt Income 2/16/95 Open/Bon 7.3 8.98
Fund; M d
Putnam Tax Exempt Money 10/26/8 Open/Bon 109.1 1.00
Market Fund 7 d
Putnam U.S. Government 2/8/84 Open/Bon 2,200. 12.87
Income Trust; A d 4
Putnam U.S. Government 4/27/92 Open/Bon 1,327. 12.83
Income Trust; B d 9
Putnam U.S. Government 2/6/95 Open/Bon 7.7 12.86
Income Trust; M d
Putnam U.S. Government 4/11/94 Open/Bon 5.4 12.86
Income Trust; Y d
Putnam Utilities Growth 11/19/9 Open/Bal 631.0 11.90
and Income Fund; A 0 anced
Putnam Utilities Growth 4/27/92 Open/Bal 648.8 11.85
and Income Fund; B anced
Putnam Utilities Growth 3/1/95 Open/Bal 7.8 11.90
and Income Fund; M anced
Putnam Vista Fund; A 6/3/68 Open/Equ 2,316. 11.55
ity 2
Putnam Vista Fund; B 3/1/93 Open/Equ 1,089. 11.16
ity 0
Putnam Vista Fund; M 12/1/94 Open/Equ 78.9 11.40
ity
Putnam Vista Fund; Y 3/28/95 Open/Equ 224.6 11.64
ity
Putnam Voyager Fund II; 4/14/93 Open/Equ 430.7 16.91
A ity
Putnam Voyager Fund II; 10/2/95 Open/Equ 396.5 16.69
B ity
Putnam Voyager Fund II; 10/2/95 Open/Equ 45.4 16.78
M ity
Putnam Voyager Fund; A 4/1/96 Open/Equ 10,015 17.95
ity .4
Putnam Voyager Fund; B 4/27/92 Open/Equ 5,153. 17.12
ity 7
Putnam Voyager Fund; M 12/1/94 Open/Equ 181.0 17.71
ity
Putnam Voyager Fund; Y 4/1/94 Open/Equ 1,141. 18.14
ity 4
Putnam California 11/27/9 Closed/B 69.4 15.06
Investment Grade 2 ond
Municipal Trust
Putnam Convertible 6/29/95 Closed/B 100.3 27.09
Opportunities and Income ond
Trust
Putnam Dividend Income 9/28/89 Closed/B 121.5 11.23
Fund ond
Putnam High Income 7/9/87 Closed/B 134.2 10.05
Convertible and Bond ond
Fund
Putnam Intermediate 6/27/88 Closed/B 532.9 8.28
Government Income Trust ond
Putnam Investment Grade 10/26/8 Closed/B 242.6 11.80
Municipal Trust 9 ond
Putnam Investment Grade 11/27/9 Closed/B 186.1 13.94
Municipal Trust II 2 ond
Putnam Investment Grade 11/29/9 Closed/B 52.5 13.10
Municipal Trust III 3 ond
Putnam Managed High 6/25/93 Closed/B 107.0 14.26
Yield Trust ond
Putnam Managed Municipal 2/24/89 Closed/B 450.0 9.84
Income Trust ond
Putnam Master Income 12/28/8 Closed/B 486.2 9.16
Trust 7 ond
Putnam Master 4/29/88 Closed/B 331.2 8.62
Intermediate Income ond
Trust
Putnam Municipal 5/28/93 Closed/B 223.2 13.81
Opportunities Trust ond
Putnam New York 11/27/9 Closed/B 39.2 13.76
Investment Grade 2 ond
Municipal Trust
Putnam Premier Income 2/29/88 Closed/B 1,227. 8.75
Trust ond 8
Putnam Tax - Free Heath 6/29/92 Closed/B 202.4 14.66
Care Fund ond
Putnam American 10/2/95 Open/Equ 4.8 12.24
Renaissance Fund; A ity
Putnam Diversified 2/19/95 Open/Bon 44.0 8.53
Income Trust II; A d
Putnam Diversified 2/19/96 Open/Bon 63.1 8.53
Income Trust II; B d
Putnam Diversified 2/19/96 Open/Bon 7.3 8.53
Income Trust II; M d
Putnam Equity Fund 97 12/30/9 Open/Equ 2.4 8.37
6 ity
Putnam High Yield Total 1/1/97 Open/Bon 9.3 8.72
Return Fund; A d
Putnam High Yield Total 1/1/97 Open/Bon 11.0 8.71
Return Fund; B d
Putnam High Yield Total 1/1/97 Open/Bon 1.3 8.72
Return Fund; M d
Putnam VT International 1/1/97 Open/Bal 109.5 11.57
Growth and Income anced
Putnam VT International 1/1/97 Open/Equ 84.2 11.17
New Opportunities Fund ity
Putnam VT International 1/1/97 Open/Equ 82.3 11.58
Growth Fund ity
Putnam Balanced Fund 10/2/95 Open/Bal 2.5 11.07
anced
Putnam Emerging Markets 10/2/95 Open/Equ 47.1 12.21
Fund; A ity
Putnam Emerging Markets 10/2/95 Open/Equ 34.1 12.16
Fund; B ity
Putnam Emerging Markets 10/2/95 Open/Equ 3.6 12.17
Fund; M ity
Putnam California Tax 10/26/9 Open 34.1 1.00
Exempt Money Market Fund 5
Putnam High Yield 5/25/89 Closed 200.0 9.20
Municipal Trust
Putnam New York Tax 10/26/8 Open 47.0 1.00
Exempt Money Market Fund 7
Putnam International 8/1/96 Open 158.1 10.76
Growth and Income Fund;
A
Putnam International 8/1/96 Open 173.5 10.72
Growth and Income Fund;
B
Putnam International 8/1/96 Open 16.9 10.74
Growth and Income Fund;
M
Putnam Research Fund 10/2/95 Open 10.7 12.48
Putnam New Value Fund; 1/3/95 Open 388.4 14.29
A
Putnam New Value Fund; 2/26/96 Open 368.9 14.17
B
Putnam New Value Fund; 2/26/96 Open 42.4 14.22
M
Putnam Global Growth and 1/3/95 Open 2.7 11.74
Income Fund
Putnam International 12/28/9 Open 3.8 9.99
Fund 5
Putnam Japan Fund 12/28/9 Open 3.3 7.67
5
Putnam International 12/28/9 Open 33.4 11.96
Voyager Fund; A 5
Putnam International 10/30/9 Open 25.3 11.92
Voyager Fund; B 6
Putnam International 10/30/9 Open 3.3 11.93
Voyager Fund; M 6
Putnam VT New Value Fund 1/2/97 Open 113.8 11.19
Putnam VT Vista Fund 1/2/97 Open 90.4 11.04
(J) Miscellaneous
1. Election and Removal of Directors
Directors of Investment Management Company are
elected to office or removed from office by vote of
either stockholders or directors, in accordance with
Articles of Organization and By-Laws of Investment
Management Company.
2. Results of operations
Officers are elected by the Board of Directors. The
Board of Directors may remove any officer without cause.
3. Supervision by SEC of Changes in Directors and
Certain Officers
Putnam files certain reports with the SEC in
accordance with Sections 203 and 204 of the Investment
Advisers Act of 1940, which reports list and provide
certain information relating to directors and officers
of Investment Management Company.
4. Amendment to the Articles of Organization, Transfer
of Business and Other Important Matters.
a. Articles of Organization of Investment
Management Company may be amended, under the
General Corporation Law of The Commonwealth of
Massachusetts, by appropriate
shareholders' vote.
b. Under the General Corporation Law of The
Commonwealth of Massachusetts, transfer of
business requires a vote of 2/3 of the
stockholders entitled to vote thereon.
c. Investment Management Company has no direct
subsidiaries.
5. Litigation, etc.
There are no known facts, such as legal proceedings,
which are expected to materially affect the Fund and/or
Investment Management Company within the six-month period
preceding the filing of this Registration Statement.
III. OUTLINE OF THE OTHER RELATED COMPANIES
(A) Putnam Fiduciary Trust Company (the Transfer Agent,
Shareholder Service Agent and Custodian)
(1) Amount of Capital
U.S."37,984,000 (approximately Yen4.3 billion) as of
the end of June, 1997
(2) Description of Business
Putnam Fiduciary Trust Company is a Massachusetts
trust company and is a wholly-owned subsidiary of
Putnam Investments, Inc., parent of Putnam. Putnam
Fiduciary Trust Company has been providing paying
agent and shareholder service agent services to
mutual funds, including the Fund, since its
inception and custody services since 1990.
(3) Outline of Business Relationship with the Fund
Putnam Fiduciary Trust Company provides transfer
agent services, shareholder services and custody
services to the Fund.
(B) Putnam Mutual Funds Corp. (the Principal Underwriter)
(1) Amount of Capital
U.S."183,055,000 (approximately Yen20.9
billion) as of the end of June, 1997
(2) Description of Business
Putnam Mutual Funds Corp. is the Principal
Underwriter of the shares of Putnam Funds including
the Fund.
(3) Outline of Business Relationship with the Fund
Putnam Mutual Funds Corp. engages in providing
marketing services to the Fund.
(C) Yamatane Securities Co., Ltd. (Distributor in Japan and
Agent Securities Company)
(1) Amount of Capital
Yen51.1 billion as of the end of June, 1997
(2) Description of Business
Yamatane Securities Co., Ltd.is a diversified
securities company in Japan. Also, it engages the
fund units for the investment trust funds of Asahi
Investment Trust Management Co., Ltd., Sakura
Investment Trust Management Co., Ltd., Nissei
Investment Trust Management Co., Ltd., NCG
Investment Trust Management Co., Ltd. and Nomura
Investment Trust Management Co., Ltd., and acts as
the Agent Securities Company and engages in handling
the sales and repurchase for Fidelity Funds
International Fund.
(3) The Company acts as a Distributor in Japan and Agent
Securities Company for the Fund in connection with
the offering of shares in Japan.
(D) Capital Relationships
100% of the shares of Putnam Investment Management,
Inc. are held by Putnam Investments, Inc.
(E) Interlocking Directors and Auditors
Names and functions of officers of the Fund who also
are officers of the related companies are as follows:
(^as of the filing
date)
Name of Investment Transfer Agent
Officer Management and
or Fund Company Shareholder
Trustee Service Agent
George Chairman and Chairman and None
Putnam Trustee Director
Charles Executive Vice Managing None
E. Porter President Director
Patricia Senior Vice Senior Vice None
C. President President
Flaherty
Lawrence Trustee and President and None
J. Lasser Vice President CEO
Gordon H. Vice President Senior Director
Silver Managing
Director
Gary N. Vice President Senior None
Coburn Managing
Director
Jin W. Ho Vice President Managing None
Director
John R. Vice President Senior Vice None
Verani President
Paul M. Vice President Vice President None
O'Neil
Gail S. Vice President Senior Vice None
Attridge President
D. Vice President Managing None
William Director
Kohli
Michael Vice President Managing None
Martino Director
Kenneth Vice President Senior Vice None
J. Taubes President
William Vice President Managing None
J. Curtin Director
David L. Vice President Managing None
Woldman Director
IV. FINANCIAL CONDITION^ OF THE FUND
1. FINANCIAL STATEMENTS
[Omitted, in Japanese version, financial statements of the
Fund and Japanese translations thereof are incorporated
here]
Financial highlights
The following table presents per share financial
information for class M shares. This information has been
audited and reported on by the Fund's independent
accountants. Financial statements included in the Fund's
annual report to shareholders for the 1996 fiscal year are
presented in their entirety on in this SRS. The Fund's
annual report is available without charge upon request.
Financial highlights (for a share outstanding throughout the
period)
For the period
December 1,
1994
(commencement
of
Year ended operations)
to
September 30 September 30
1996 1995
Class M
Net asset value, beginning of period "11.97 "11.34
Investment operations
Net investment income .86 .78
Net realized and unrealized gain (loss) on investments .31.63
Total from investment operations 1.17 1.41
Distributions to shareholders
From net investment income (.87) (.65)
In excess of net investment income _ _
From net realized gain on investments _ _
In excess of net realized gain on investments _
_
Return of Capital _ (.13)
Total distributions (.87) (.78)
Net asset value, end of period "12.27 "11.97
Total investment return at net asset value (`) (a) 10.12
12.90 (b)
Net assets, end of period (in thousands)"46,327 "14,751
Ratio of expenses to average net assets (`) (b) 1.28
1.07 (*)
Ratio of net investment income to average net assets (`) 7.09
6.30 (*)
Portfolio turnover (`) 304.39 235.88
(*) Not annualized.
(a) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for periods
ended on or after September 30, 1995 includes amounts paid
through expense offset arrangements. Prior period ratios
exclude these amounts.
2. CONDITION OF THE FUND
(a) Statement of Net Assets
As of the end of
June, 1997
" Yen
(in thousands)
a. Total Assets
4,936,345,080 564,471,060
b. Total Liabilities
341,619,213 39,064,157
c. Total Net Assets 4,594,725,867
525,406,903 d. Total Number of Shares Class A.
163,622,786 Shares Outstanding
Class B 186,837,326 Shares
Class M. 20,407,292 Shares
Class Y. 1,536,894 Shares
e. Net Asset Value Class A. 12.36
Yen1,413
per Share (c/d) Class B. 12.31
Yen1,408
Class M. 12.33
Yen1,410
Class Y. 12.36
Yen1,413
(As of the end of
June, 1997)
U.S. Inve Dollar st- Inte Par Acquis Current ent
Kind of rest Value ition
Name of Securities Issue Maturity Rate (1,000) curr Cost Value Rati
(`) ency o '
(')
1. GNMA U.S. 2025- 7 232,237, USD 232,90 233,051 5.07
Governme 2027 1/2 161 0,158 ,893
nt
2. FNMA U.S. 2027 7 156,509, USD 155,32 156,850 3.41
Governme 1/2 082 5,803 ,970
nt
3. GNMA U.S. 2025- 7 136,962, USD 134,53 134,346 2.92
Governme 2026 208 5,544 ,589
nt
4. France Treasury Foreign 10/12/01 5 716,495, FRF 136,20 127,067 2.77
Bill Bonds 1/2 000 1,552 ,959
5. United Kingdom Foreign 12/7/06 7 69,575,0 GBP 115,67 118,840 2.59
Treasury Bonds Bonds 1/2 00 0,120 ,397
6. US Treasury Note U.S. 10/15/06 6 111,342, USD 109,90 110,872 2.41
Governme 1/2 000 4,695 ,137
nt
7. United Kingdom Foreign 6/7/02 7 66,697,0 GPB 108,42 110,732 2.41
Treasury Bonds Bonds 00 3,387 ,961
8. US Treasury Bond U.S. 11/25/26 6 116,445, USD 110,00 111,677 2.43
Governme 1/2 000 4,136 ,742
nt
9. Germany (Federal Foreign 1/4/07 6 188,680, DEM 113,04 110,437 2.40
Republic of) Bonds 000 5,968 ,591
10 United Mexican Brady 12/31/19 6 143,326, USD 109,39 110,361 2.40
. States Bonds 1/4 000 8,819 ,020
11 Argentina (Republic Brady 3/31/05 6 93,962,9 USD 87,893 88,325, 1.92
. of) Bonds 5/8 30 ,156 154
12 FHGD U.S. 2026- 8 84,776,8 USD 90,532 88,091, 1.92
. Governme 2027 1/2 27 ,406 207
nt
13 GNMA U.S. 7/18/05 8 82,261,1 USD 83,868 84,158, 1.83.Governme
40 ,778 122
nt
14 US Treasury Bonds U.S. 8/15/19 8 71,655,0 USD 81,477 81,742, 1.78
. Governme 1/8 00 ,923 591
nt
15 Italy (Republic of) Foreign3/1/02 6 130,465, ITL 75,400 77,133, 1.68
. Bonds 1/4 000 ,891 616
610909
80
U.S. Investment
Dollar
Kind of Inte Par Acquis Current Rati
rest Value ition o
Name of Securities Issue Maturity Rate (1,000) curr Cost Value(')
currency
16 Brazil (Republic Brady 4/15/14 4 92,271,0 USD 73,367 74,162,
1.61
. of) Bonds 1/2 82 ,726 882
17 Italy (Republic of) Foreign 9/15/01 7 112,450, ITL 70,384 69,801,
1.52 Bonds 3/4 000 ,171 614
18 FNMA U.S. 2026 8 59,713,4 USD 59,719 61,037,
1.33
. Government 29 ,538 878
19 GNMA U.S. 2026- 8 658,651, USD 60,522 60,941,
1.33
. Governme 2027 1/2 007 ,257 918
nt
20 Spain (Government Foreign 4/30/99 9 7,705,33 ESP 56,855 56,129,
1.22
. of) Bonds 2/5 0,000 ,324 168
21 United Kingdom Foreign 8/10/99 6 32,100,0 GBP 51,045 52,492,
1.14
. Treasury Bonds Bonds 00 ,129 263
22 OBR Unity Fund Corporate 1/21/02 8 78,350,0 USD 51,528 51,095,
1.11
. Bonds 00 ,886 895
23 FNMA U.S. 2024- 7 43,783,6 USD 42,660 42,894,
0.93
. Government 2027 18 ,090 838
24 Australia Foreign 3/15/02 9 50,025,0 AUD 42,875 42,782,
0.93
. (Government of) Bonds 3/4 00 ,990 506
25 US Treasury Notes U.S. 3/31/99 6 39,785,0 USD 39,691 39,921,0.87.
Government 1/4 00 ,754 860
26 FNMA Dwarf U.S. 2011- 6 41,382,7 USD 39,110 39,895, 0.87
. Government 2012 01 ,489 409
27 Bank of Foreig Brady 12/15/20 0 54,916,0 USD 34,497 36,519,0.79
. Economic Affairs of Bonds 00 ,861 140
Russia
28 Venezuela Brady 12/18/07 6 36,250,0 USD 33,388 33,576,0.73.
(Government of) Bonds 3/4 00 ,906 563
29 Canada (Government Foreign 9/1/02 5 44,145,0 CAD 31,537 31,533,0.69 .
of) Bonds 1/2 00 ,649 056
30 Spain (Government Foreign 2/28/02 8 4,091,20 ESP 30,912 30,407,0.66
. of) Bonds 0,000 ,566 639
20
0.00
.
21
0.00
.
V. SUMMARY OF INFORMATION CONCERNING FOREIGN INVESTMENT
TRUST SECURITIES
1. Transfer of the Shares
The transfer agent for the registered share
certificates is Putnam Fiduciary Trust Company, P.O.Box
41203, Providence, RI 02940-1203, U. S. A.
The Japanese investors who entrust the custody of
their shares to a Handling Securities Company shall have
their shares transferred under the responsibility of such
company, and the other investors shall make their own
arrangements.
No fee is chargeable for the transfer of shares. 2.
The Closing Period of the Shareholders' Book
No provision is made.
3. There ^are no annual shareholders' meetings. Special
shareholders' meeting ^may be held from time to time as
required by the Agreement and Declaration of Trust and the
Investment Company Act of 1940.
4. No special privilege is granted to Shareholders.
The acquisition of Shares by any person may be
restricted.
VI. MISCELLANEOUS
(1) The ornamental design is used in cover page of the
Japanese Prospectus.
(2) The following must be set forth in the Prospectus.
Outline of the Prospectus will be included at the
beginning of the Prospectus, summarizing the content of
Part I., Information on the securities, "I. Descriptions
of the Fund", "III. Outline of Other Related Companies"
and "IV. Finanacial Condition of the Fund" in Part II,
Information on the Issuer, of the SRS.
(3) Summarized Preliminary Prospectus will be used. Attached
document (Summarized Preliminary Prospectus) will be used
pursuant to the below, as the document (Summarized
Preliminary Prospectus) as set forth at Item 1.(1)(b), of
Article 12 of the Ordinance Concerning the Disclosure of
the Content, etc. of the Specified Securities.
For information of the achievement, the average of the
annual yield calculated in respect of immediately
preceding seven days and/or any one month may be added in
percentage up to one decimal places (rounding down to
second decimal places).
PART III. SPECIAL INFORMATION
Below is an outline of certain general information about open
end U.S. investment companies. This outline is not intended to
provide comprehensive information about such investment
companies or the various laws, rules or regulations applicable
to them, but provides only a brief summary of certain
information which may be of interest to investors. The
discussion below is qualified in its entirely by the complete
registration statement of the fund and the full text of any
referenced statutes and regulations.
I. Massachusetts Business Trusts
A. General Information
Many investment companies are organized as
Massachusetts business trusts. A Massachusetts business
trust is organized pursuant to a declaration of trust,
setting out the general rights and obligations of the
shareholders, trustees, and other related parties.
Generally, the trustees of the trust oversee its business,
and its officers and agents manage its day-today affairs.
Chapter 182 of the Massachusetts General Laws applies
to certain "voluntary associations", including many
Massachusetts business trusts. Chapter 182 provides for,
among other things, the filing of the declaration of trust
with the Secretary of State of the Commonwealth of
Massachusetts and the filing by the trust of an annual
statement regarding, among other things, the number of its
shares outstanding and the names and addresses of its
trustees.
B. Shareholder Liability
Under Massachusetts law, shareholders could, under
certain circumstances, be held personally liable for the
obligations of a trust. Typically, a declaration of trust
disclaims shareholder liability for acts or obligations of
the trust and provides for indemnification out of trust
property for all loss and expense of any shareholder held
personally liable for the obligations of a trust. Thus,
the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to
circumstances in which a particular trust would be unable
to meet its obligations.
II. United States Investment Company Laws and Enforcement
A. General
In the United States, pooled investment management
arrangements which offer shares to the public are governed
by a variety of federal statutes ant regulations. Most
mutual funds are subject to these laws. Among the more
significant of these statutes are:
1. Investment Company Act of 1940
The Investment Company Act of 1940, as amended
(the "1940 Act"), in general, requires investment
companies to register as such with the U.S.
Securities and Exchange Commission (the "SEC"), and
to comply with a number of substantive regulations of
their operations. The 1940 Act requires an
investment company, among other things, to provide
periodic reports to its shareholders.
2. Securities Act of 1933
The Securities Act of 1933, as amended (the "1933
Act"), regulates many sales of securities. The Act,
among other things, imposes various
registration requirements upon sellers of securities and
provides for various liabilities for failures to comply
with its provisions or in respect of other specified
matters.
3. Securities Exchange Act of 1934
The Securities Exchange Act of 1934, as amended
(the "1934 Act"), regulates a variety of matters
involving, among other things, the secondary trading
of securities, periodic reporting by the issuers of
securities, and certain of the activities of transfer
agents and brokers and dealers.
4. The Internal Revenue Code
An investment company is an entity subject to
federal income taxation under the Internal Revenue
Code. However, under the Code, an investment company
may be relieved of federal taxes on income and gains
it distributes to shareholders if it qualifies as a
"regulated investment company" under the Code for
federal income tax purposes and meets all other
necessary requirements.
5. Other laws
The Fund is subject to the provisions of other
laws, rules, and regulations applicable to the Fund
or its operations, such as, for example, various
state laws regarding the sale of the Fund's shares.
B. Outline of the Supervisory Authorities
Among the regulatory authorities having jurisdiction
over the Fund or certain of its operations are the SEC and
state regulatory agencies or authorities.
1. The SEC has broad authority to oversee the
application and enforcement of the federal securities
laws, including the 1940 Act, the 1933 Act, and the
1934 Act, among others, to the Fund. The 1940 Act
provides the SEC broad authority to inspect the
records of investment companies, to exempt investment
companies or certain practices from the provisions of
the Act, and otherwise to enforce the provisions of
the Act.
2. State authorities typically have broad authority
to regulate the offering and sale of securities to
their residents or within their jurisdictions and the
activities of brokers, dealers, or other persons
directly or indirectly engaged in related activities.
B. Offering Shares to the Public
An investment company ("investment company" or fund)
offering its shares to the public must meet a number of
requirements, including, among other things, registration
as an investment company under the 194O Act; registration
of the sale of its shares under the 1933 Act; registration
of the fund, the sale of its shares, or both, with state
securities regulators; delivery of a current prospectus to
current or prospective investors; and so forth. Many of
these requirements must be met not only at the time of the
original offering of the fund's shares, but compliance
must be maintained or updated from time to time throughout
the life of the fund.
C. Ongoing Requirements
Under U.S. law, a fund is subject to numerous ongoing
requirements, including, but not limited to;
1. Updating its registration statement if it becomes
materially inaccurate or misleading;
2. Annual update of its registration statement;
3. Filing semi-annual and annual financial reports
with the SEC and distributing them to shareholders;
4. Annual trustee approval of investment advisory
arrangements, distribution plans, underwriting
arrangements, errors and omissions/director and
officer liability insurance, foreign custody
arrangements, and auditors;
5. Maintenance of a code of ethics; and
6. Periodic board review of certain fund
transactions, dividend payments, and payments under a
fund's distribution plan.
III. Management of a Fund
The board of directors or trustees of a fund are
responsible for generally overseeing the conduct of a fund's
business. The officers and agents of a fund are generally
responsible for the day-to-day operations of a fund. The
trustees and officers of a fund may or may not receive a fee
for their services.
The investment adviser to a fund is typically responsible
for implementing the fund's investment program. The adviser
typically receives a fee for its services based on a percentage
of the net assets of a fund. Certain rules govern the
activities of investment advisers and the fees they may charge.
In the United States, investment advisers to investment
companies must be registered under the Investment Advisers Act
of 1940, as amended.
IV. Share Information
A. Valuation
Shares of a fund are generally sold at the net asset
value next determined after an order is received by a
fund, plus any applicable sales charges. A fund normally
calculates its net asset value per share by dividing the
total value of its assets, less liabilities, by the number
of its shares outstanding. Shares are typically valued as
of the close of regular trading on the New York Stock
Exchange (4:00) each day the Exchange is open.
B. Redemption
Shareholders may generally sell shares of a fund to
that fund any day the fund is open for business at the net
asset value next computed after receipt of the
shareholders' order. Under unusual circumstances, a fund
may suspend redemptions, or postpone payment for more than
seven says, if permitted by U.S. securities laws. A fund
may charge redemption fees as described in its prospectus.
C. Transfer agency
The transfer agent for a fund typically processes the
transfer of shares, redemption of shares, and payment
and/or reinvestment of distributions.
V. Shareholder Information, Rights and Procedures for the
Exercise of Such Rights
A. Voting Rights
Voting rights vary from fund to fund. In the case of
many funds organized as Massachusetts business trusts,
shareholders are entitled to vote on the election of
trustees, approval of investment advisory agreements,
underwriting agreements, and distribution plans (or
amendments thereto), certain mergers or other business
combinations, and certain amendments to the declaration of
trust. Shareholder approval is also required to modify or
eliminate a fundamental investment policy.
B. Dividends
Shareholders are typically entitled to receive
dividends when and if declared by a fund's trustees. In
declaring dividends, the trustees will normally set a
record date, and all shareholders of record on that date
will be entitled to receive the dividend paid.
C. Dissolution
Shareholders would normally be entitled to receive
the net assets of a fund which were liquidated in
accordance with the proportion of the fund's outstanding
shares he owns.
D. Transferability
Shares of a fund are typically transferable without
restriction.
E. Right to Inspection
Shareholders of a Massachusetts business trust have
the right to inspect the records of the trust as provided
in the declaration of trust or as otherwise provided by
applicable law.
VI. U.S. Tax Matters
The Fund intends to qualify each year as a regulated
investment company under Subchapter M of the United States
Internal Revenue Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its
tax liability determined under Subchapter M, the Fund will not
be subject to U.S. federal income tax on any of its net
investment income or net realized capital gains that are
distributed to its shareholders. In addition, as a
Massachusetts business trust, the Fund under present
Massachusetts law is not subject to any excise or income taxes
in Massachusetts.
In order to qualify as a "regulated investment company",
the Fund must, among other things, (a) derive at least 90' of
its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other
dispositions of stock, securities, or foreign currencies, and
other income (including gains from options, futures, or forward
contracts) derived with respect to its business of investing in
such stock, securities, or currencies; (b) derive less than 30'
of its gross income from the sale or other disposition of
certain assets (including stock and securities) held less than
three months; (c) diversify its holdings so that, at the close
of each quarter of its taxable year, (i) at least 50' of the
value of its total assets consists of cash, cash items, U.S.
Government Securities, and other securities limited generally
with respect to any one issuer to not more than 5' of the total
assets of a fund and not more than 10' of the outstanding
voting securities of such issuer, and (ii) not more than 25 `
of the value of its assets is invested in the securities of any
issuer (other than U.S. Government Securities). In order to
receive the favorable tax treatment accorded regulated
investment companies and their shareholders, moreover, a fund
must in general distribute with respect to each taxable year at
least 90' of the sum of its taxable net investment income, its
net tax-exempt income (if any), and the excess, if any, of its
net short-term capital gains over net long-term capital losses
for such year. To satisfy these requirements, a fund may
engage in investment techniques that affect the amount, timing
and character of its income and distributions.
If the Fund fails to distribute in a calendar year
substantially all of its ordinary income for such year and
substantially all of its capital gain net income for the one
year period ending October 31 (or later if the fund is
permitted so to elect and so elects), plus any retained amount
from the prior year, the fund will be subject to a 4% excise
tax on the undistributed amounts. A dividend paid to
shareholders by the Fund in January of a year generally is
deemed to have been paid by the Fund on December 31 of the
preceding year, if the dividend was declared and payable to
shareholders of record on a date in October, November or
December of that preceding year. The Fund intends generally to
make distributions sufficient to avoid imposition of the 4%
excise tax.
Fund distributions will be taxable to shareholders as
ordinary income, except that any distributions of net longterm
capital gains will be taxable as such, regardless of how long a
shareholder has held shares in the Fund. Distributions will be
taxable as described above whether received in cash or in
shares through the reinvestment of distributions. Shareholders
who are not subject to U.S.
federal income tax on their income generally will not have to
pay such tax on amounts distributed to them.
Distributions from capital gains are made after applying
any available capital loss carryovers.
The Fund's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign
currency options, futures contracts and forward contracts (and
similar instruments) may give rise to ordinary income or loss
to the extent such income or loss results from fluctuations in
the value of the foreign currency concerned.
Investment by the Fund in "passive foreign investment
companies" could subject the Fund to a U.S. federal income tax
or other charge on the proceeds from the sale of its investment
in such a company; however, this tax can be avoided by making
an election to mark such investments to market annually or to
treat the passive foreign investment company as a "qualified
electing fund".
A "passive foreign investment company" is any foreign
corporation: (i) 75 percent of more of the income of which for
the taxable year is passive income, or (ii) the average
percentage of the assets of which (generally by value, but by
adjusted tax basis in certain cases) that produce or are held
for the production of passive income is at least 50 percent.
Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties,
rents, annuities, the excess of gains over losses from certain
property transactions and commodities transactions, and foreign
currency gains. Passive income for this purpose does not
include rents and royalties received by the foreign corporation
from active business and certain income received from related
persons.
The sale, exchange or redemption of Fund shares may give
rise to a gain or loss. In general, any gain or loss realized
upon a taxable disposition of shares will be treated as long
term capital gain or loss if the shares have been held for more
than 12 months, and otherwise as short-term capital gain or
loss. However, any loss realized upon a taxable disposition of
shares held for six months or less will be treated as long-
term, rather than short-term, to the extent of any long-term
capital gain distributions received by the shareholder with
respect to the shares. All or a portion of any loss realized
upon a taxable disposition of Fund shares will be disallowed if
other shares of the Fund are purchased within 30 days before or
after the disposition. In such a case, the basis of the newly
purchased shares will be adjusted to reflect the disallowed
loss.
Special tax ruled apply to investments though defined
contribution plans and other tax-qualified plans. Shareholders
should consult their tax adviser to determine the suitability
of shares of the Fund as an investment through such plans and
the precise effect of an investment on their particular tax
situation.
The Fund generally is required to withhold and remit to
the U.S. Treasury 31% of the taxable dividends and other
distributions paid to any individual shareholder who fails to
furnish the Fund with a correct taxpayer identification number
(TIN), who has under-reported dividends or interest income, or
who fails to certify to the fund that he or she is not subject
to such withholding. Shareholders who fail to furnish their
correct TIN are subject to a penalty of $50 for each such
failure unless the failure is due to reasonable cause and not
willful neglect. An individual's taxpayer identification
number is his or her social security number.
The Fund's investment in securities issued at a discount
and certain other obligations will (and investments in
securities purchased at a discount may) require the Fund to
accrue and distribute income not yet received. In order to
generate sufficient cash to make the requisite distributions,
the Fund may be required to sell securities in its portfolio
that it otherwise would have continued to hold.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and related regulations
currently in effect. For the complete provisions, reference
should be made to the pertinent Code sections and regulations.
The Code and regulations are subject to change by legislative
or administrative actions. Dividends and distributions also
may be subject to state taxes. Shareholders are urged to
consult their tax advisers regarding specific questions as to
U.S. federal, state or local taxes. The foregoing discussion
relates solely to U.S. federal income tax law. Non-U.S.
investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the fund, including the
possibility that distributions may be subject to a 30% United
States withholding tax (or a reduced rate of withholding
provided by treaty). Shareholders residing in Japan should
consult "Tax Treatment of Shareholders in Japan", above.
VII. Important Participants in Offering of Mutual Fund Shares
A. Investment Company
Certain pooled investment vehicles qualify as
investment companies under the 1940 Act. There are open
end investment companies (those which offer redeemable
securities) and closed-end investment companies (any
others).
B. Investment Adviser/Administrator
The investment adviser is typically responsible for
the implementation of an investment company's investment
program. It, or another affiliated or unaffiliated
entity, may also perform certain record keeping and
administrative functions.
C. Underwriter
An investment company may appoint one or more
principal underwriters for its shares. The activities of
such a principally underwriter are generally governed by a
number of legal regimes, including, for example, the 1940
Act, the 1933 Act, the 1934 Act, and state laws.
D. Transfer Agent
A transfer agent performs certain bookkeeping, data
processing, and administrative services pertaining to the
maintenance of shareholder accounts. A transfer agent may
also handle the payment of any dividends declared by the
trustees of a fund.
E. Custodian
A custodian's responsibilities may include, among
other things, safeguarding and controlling a fund's cash
and securities, handling the receipt and delivery of
securities, and collecting interest and dividends on a
fund's investments.
II. FINANCIAL CONDITIONS OF THE INVESTMENT MANAGEMENT COMPANY
[Omitted, in Japanese version, financial statements of the
Investment Management Company and Japanese translations
thereof are incorporated here.]
[Financial Highlights will appear in this section and, in
the Japanese prospectus, at the beginning of such
prospectus as summary of the prospectus.]
III. FORM OF FOREIGN INVESTMENT FUND SECURITIES
Main items to be set forth on the share certificate of
the Fund (if issued) are as follows:-
(1) Front
a. Name of the Fund
b. Number of shares represented
c. Signatures of the Chairman and Transfer Agent
d. Description stating that the Declaration of Trust
applies to shareholders and assignees therefrom
(2) Back
a. Space for endorsement
b. Description concerning delegation of transfer agency
