[Translation]
SECURITIES REGISTRATION STATEMENT
for NAV Sale
Annual Securities Report
(the Third Term)
From: October 1, 1996
To: September 30, 1997
AMENDMENT TO SECURITIES REGISTRATION STATEMENT
PUTNAM DIVERSIFIED INCOME TRUST
[Translation]
SECURITIES REGISTRATION STATEMENT
for NAV Sale
\
PUTNAM DIVERSIFIED INCOME TRUST
SECURITIES REGISTRATION STATEMENT
To: Minister of Finance
Filing
Date of SRS: February 4, 1998
Name of the Registrant Trust: PUTNAM DIVERSIFIED INCOME
TRUST
Name and Official Title of Trustees: George Putnam
William
F. Pounds
Jameson
A. Baxter
Hans H.
Estin
John A.
Hill
Ronald
J. Jackson
Paul L.
Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H.
Mullin, III
Robert
E. Patterson
Donald
S. Perkins
George
Putnam, III
A.J.C.
Smith
W.
Thomas Stephens
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
Chiyoda-
ku, 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
Chiyoda-
ku, 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 2,754.4 million U.S.
dollars (approximately Yen350
billion).
Note 1: U.S.$ amount is translated into Japanese Yen at the
rate of U.S.$l.00=Yen127.20 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 28th November, 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 28th November, 1997 (U.S.$12.52) 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
8 including front and back pages.)
C O N T E N T S
Japanese This
OriginalEnglish
Translation
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 4 5
3. MANAGEMENT STRUCTURE 4 5
4. INFORMATION CONCERNING THE EXERCISE
OF RIGHTS BY SHAREHOLDERS, ETC. 4
5
5. STATUS OF INVESTMENT FUND 4 5
II. OUTLINE OF THE TRUST 4
5
III. OUTLINE OF THE OTHER RELATED COMPANIES 4 5
IV. FINANCIAL CONDITION OF THE FUND 4
5
V. SUMMARY OF INFORMATION CONCERNING
FOREIGN INVESTMENT FUND SECURITIES 4
5
VI. MISCELLANEOUS 4 5
PART III. SPECIAL INFORMATION 5 7
I. OUTLINE OF THE SYSTEM OF INVESTMENT
TRUSTS IN MASSACHUSETTS 5 7
II. FINANCIAL CONDITIONS OF THE INVESTMENT
MANAGEMENT COMPANY 11 14
III. FORM OF FOREIGN INVESTMENT
FUND SECURITIES 11
14
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 2,754.4 million U.S.
dollars (approximately Yen 350
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 28th November,
1997 ($12.52) by the number of Shares to be offered
(220 million).
Note 2: Dollar amount is translated for convenience at
the rate of $1.00=Yen127.20 (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 28th
November, 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:
Subscription charge applicable
in Japan shall be 3.25% of the
Net Asset Value. (0.25% of the
Net Asset Value divided by (1-
0.0325) and rounded to the
nearest in the three decimal
places shall be retained by
Putnam Mutual Funds Corp. as the
Fund's Principal Underwriter.)
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 February, 1998 (Friday)
To:
19th August, 1998 (Wednesday)
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
Shineiishino Securities Co.,
Ltd.
1-3,
Onogaradori 6-chome, Chuo-ku,
Kobe-shi, Hyogo Prefecture
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 22).
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. 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:
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
(as a percentage of average net assets)
Management fees 0.54%
12b-1 fees 0.50%
Other expenses 0.20%
Total Fund operating expenses 1.24%
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 $71
5 years $98
10 years $178
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
The description in this item is same as the description
in I. DESCRIPTION OF THE FUND of the Securities Report
set forth below (the Securities Report mentioned below,
from page 1 to page 32)
II. OUTLINE OF THE TRUST
The description in this item is same as the description
in II. OUTLINE OF THE TRUST of the Securities Report set
forth below (Ditto, from page 33 to page 67)
III. OUTLINE OF THE OTHER RELATED COMPANIES
The description in this item is same as the description
in III. OUTLINE OF THE OTHER RELATED COMPANIES of the
Securities Report set forth below (Ditto, from page 68 to
page 69)
IV. FINANCIAL CONDITIONS OF THE FUND
The description in this item is same as the description
in IV. FINANCIAL CONDITIONS OF THE FUND of the Securities
Report set forth below (Ditto, from page 70 to page 183)
V. SUMMARY OF INFORMATION CONCERNING THE EXERCISE OF RIGHTS
BY HOLDERS OF FOREIGN INVESTMENT FUND SECURITIES
The description in this item is same as the description
in V. SUMMARY OF INFORMATION CONCERNING THE EXERCISE OF
RIGHTS BY HOLDERS OF FOREIGN INVESTMENT FUND SECURITIES
of the Securities Report set forth below (Ditto, page
207)
VI. MISCELLANEOUS
(1) The following documents in connection with the Fund were
filed with MOF.
May 12, 1997: Securities Registration
Statement
May 22, 1997: Amendment to Securities
Registration Statement
August 4, 1997: Securities Registration
Statement
January 5, 1998: Amendment to Securities
Registration Statement
(2) The ornamental design is used in cover page of the
Japanese Prospectus.
(3) 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.
(4) 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.
(a) The content of the summarized Preliminary
Prospectus may be publicized by leaflets, pamphlets,
direct mails (post cards and mails in envelopes) or at
newspapers, magazines and other books.
(b) The layout, quality of papers, priting colour,
design etc. of the Summarized Preliminary Prospectus
may varyetc. of the Summarized Prelimin ary Prospectus
may vary depending on manner of usage. Photos and
illustrations set forth in the attached may be used.
(c) For information of the Fund's achievements, the
changes of the net asset value per share and
thefluctuation rates since the establishment of the
Fund or for the latest 3 months, 6 months, one year,
two years, three years or five years may be set out in
the figures or graphs. Such information regarding the
Fund's achievement may be converted into and presented
in yen.
(d) An example of dividend receivable corresponding
to a certain amount of purchase may be mentioned on
the basis of historical performance of the Fund. Such
amount of dividend and purchase may be described
converted to Japanese yen may be described as well.
(e) An example of delivery amount corresponding to a
certain number of shares applied may be mentioned on
the basis of the historical Net Asset Value. Such
amount of delivery may be described converted to
Japanese yen may be described as well.
PART III. SPECIAL INFORMATION
I. OUTLINE OF THE SYSTEM OF INVESTMENT TRUSTS IN
MASSACHUSETTS
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 entirety 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-to-
day 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 activities of brokers, dealers, or
other persons directly or indirectly engaged in
activities related to the offering and sale of
securities to their residents or within their
jurisdictions.
C. 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 1940 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.
D. 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 p.m., New York time) 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 certain securities loans, and gains from the sale
of stock, securities and foreign currencies, or other income
(including but not limited to gains from options, futures, or
forward contracts) derived with respect to its business of
investing in such stock, securities, or currencies; (b)
distribute with respect to each taxable year at least 90% of
the sum of its taxable net investment income, its net tax-
exempt income, and the excess, if any, of its net short-term
capital gains over net long-term capital losses for such year;
(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, securities of other regulated investment companies
and other securities limited generally with respect to any one
issuer to not more than 5% of the total assets of the 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 (other than those of the U.S.
Government or other regulated investment companies) of any one
issuer or of two or more issuers which the Fund controls and
which are engaged in the same, similar or related trades or
businesses.
In addition, until the start of the Fund's first tax year
beginning after August 5, 1997, the Fund must derive less than
30% of its gross income from the sale or other disposition of
certain assets (including stock or securities and certain
options, futures contracts, forward contracts and foreign
currencies) held for less than three months in order to
qualify as a regulated investment company.
If the Fund qualifies as a regulated investment company
that is accorded special tax treatment, the Fund will not be
subject to federal income tax on income paid to its
shareholders in the form of dividends (including capital gain
dividends).
If the Fund failed to qualify as a regulated investment
company accorded special tax treatment in any taxable year,
the Fund would be subject to tax on its taxable income at
corporate rates, and all distributions from earnings and
profits, including any distributions of net tax-exempt income
and net long-term capital gains, would be taxable to
shareholders as ordinary income. In addition, the Fund could
be required to recognize unrealized gains, pay substantial
taxes and interest and make substantial distributions before
requalifying as a regulated investment company that is
accorded special tax treatment.
If the Fund fails to distribute in a calendar year
substantially all of its ordinary income for such year and
substantially all of its capital gain net income for the one-
year period ending October 31 (or later if the Fund is
permitted so to elect and so elects), plus any retained amount
from the prior year, the Fund will be subject to a 4% excise
tax on the undistributed amounts. A dividend paid to
shareholders by the Fund in January of a year generally is
deemed to have been paid by the Fund on December 31 of the
preceding year, if the dividend was declared and payable to
shareholders of record on a date in October, November or
December of that preceding year. The Fund intends generally
to make distributions sufficient to avoid imposition of the 4%
excise tax.
Fund distributions will be taxable to shareholders as
ordinary income, except that any distributions designated by
the Fund as deriving from net gains on securities held for
more than one year but not more than 18 months and from net
gains on securities held for more than 18 months 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 or 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
wilful 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), the possibility that a non-U.S. investor
may be subject to U.S. tax on capital gain distributions and
gains realized upon the sale of fund shares if the investor is
present in the United States for more than 182 days during the
taxable year (and certain other conditions apply), or the
possibility that a non-U.S. investor may be subject to U.S.
tax on income from the fund that is "effectively connected"
with a U.S. trade or business carried on by such an investor.
Shareholders residing in Japan should consult "Tax Treatment
of Shareholders in Japan"on page 38 of the Annual Report.
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 principal 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 CONDITION OF THE INVESTMENT MANAGEMENT COMPANY
The description in this item is same as the description
in II. FINANCIAL CONDITION OF THE INVESTMENT MANAGEMENT
COMPANY of the Securities Report set forth below (Ditto,
from page 184 to page 205)
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
[Translation]
Annual Securities Report
(the Third Term)
From: October 1, 1996
To: September 30, 1997
PUTNAM DIVERSIFIED INCOME TRUST
Annual Securities Report
(the Third Term)
From: October 1, 1996
To: September 30, 1997
To: Minister of Finance Filing Date of
SRS: February 4, 1998
Name of the Registrant Trust: PUTNAM DIVERSIFIED INCOME
TRUST
Name and Official Title of Trustees: George Putnam
William
F. Pounds
Jameson
A. Baxter
Hans H.
Estin
John A.
Hill
Ronald
J. Jackson
Paul L.
Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H.
Mullin, III
Robert
E. Patterson
Donald
S. Perkins
George
Putnam, III
A.J.C.
Smith
W.
Thomas Stephens
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
Chiyoda-
ku, 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
Chiyoda-
ku, Tokyo
Phone Number: 03-3580-3377
- ii -
Places where a copy of this Annual Securities Report
is available for Public Inspection
Not applicable.
(Total number of pages of this Annual Securities Report in
Japanese is
106 including front and back pages.)
C O N T E N T S
Japanese This
OriginalEnglish
Translation
I. DESCRIPTION OF THE FUND 1 1
l. GENERAL INFORMATION 1
1
2. INVESTMENT POLICY 6 6
3. MANAGEMENT STRUCTURE 18 24
4. INFORMATION CONCERNING THE EXERCISE
OF RIGHTS BY SHAREHOLDERS, ETC. 26
36
5. STATUS OF INVESTMENT FUND 29 41
II. OUTLINE OF THE TRUST 33
44
III. OUTLINE OF THE OTHER RELATED COMPANIES 68 76
IV. FINANCIAL CONDITION OF THE FUND 70
78
V. FINANCIAL CONDITIONS OF THE INVESTMENT
MANAGEMENT COMPANY 184 84
VI. SUMMARY OF INFORMATION CONCERNING
FOREIGN INVESTMENT FUND SECURITIES 207
85
VII. REFERENCE INFORMATION 207 85
Note 1: U.S.$ amount is translated into Japanese
Yen at the rate of U.S.$l.00 = Yen127.20 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 28th
November, 1997.
Note 2: In this report, money amounts and
percentages have been rounded. Therefore, there
are cases in which the amount for the "total"
column is not equal to the aggregate amount. Also,
conversion into other currencies is done simply by
multiplying the corresponding amount by the
conversion rate specified and rounded up when
necessary. As a result, in this report, there are
cases in which figures for the same information
differ from each other.
Note 3: In this report, "fiscal year" refers to a
year from October 1 to September 30 of the
following year.
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. 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, shareholders 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 at any time, establish one, 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 U.S. 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 of 1986
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 activities of brokers,
dealers, or other persons directly or indirectly
engaged in activities related to the offering and
sale of securities to their residents or within
their jurisdictions.
(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 and Investment Grade Sector,
consisting primarily of debt obligations of the U.S.
government, its agencies and instrumentalities;
a High Yield Sector, consisting of high yielding,
lower-rated, higher risk U.S. and foreign fixed-
income securities; 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 benefitted 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 benefitted 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 and Investment Grade Sector
The Fund will invest assets allocated to the U.S.
Government and Investment Grade 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. The Fund
may also invest assets allocated to the U.S. Government
and Investment Grade Sector in other type of debt
securities
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 and
Investment Grade 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 and Investment Grade Sector will be invested
in U.S. government securities.
The Fund may invest assets allocated to the U.S.
Government and Investment Grade Sector in mortgage-backed
securities, including collateralized mortgage obligations
("CMOs") and certain stripped mortgage-backed securities.
CMOs and other mortgage-backed securities represent
participations in, or are secured by, mortgage loans and
include:
Yen Certain securities issued or guaranteed by the U.S.
government or one of its agencies or
instrumentalities;
Yen 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
Yen Securities issued by private issuers that represent
an interest in or are secured by mortgage loans or
mortgage-backed securities without a government
guarantee but usually having some form of private
credit enhancement.
Stripped mortgage-backed securities are usually
structured with two classes that receive
different portions of the interest and principal
distributions on a pool of mortgage 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 such
items as 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.
Investment in the U.S. Government and Investment
Grade Sector may include privately issued debt securities
that are rated at least BBB or Baa by a nationally
recognized securities rating agency such as Standard &
Poor's ("S&P") or Moody's Investors Service, Inc.
("Moody's") , or, if unrated, are determined by the
Investment Management Company to be 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 rating
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 fund shares. 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 on 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. The
Fund may invest assets allocated to the High Yield Sector
in any security which is rated, at the time of purchase,
at least Caa by Moody's or CCC by any rating agency or in
any unrated security which Investment Management Company
determines is of comparable quality and may invest up to
5% of the net assets of the Fund in securities rated
below such quality, or in unrated securities which the
Investment Management Company determines all of
comparable quality. No more than 5% of the net assets of
the Fund, regardless of whether they are allocated to the
High Yield Sector or the International Sector, may be
invested in securities that are rated below Caa or CCC by
a nationally recognized securities rating agency, or, if
unrated, are determined by the Investment Management
Company to be of comparable quality. Securities rated
below Caa by Moody's or CCC by S&P are of poor standing
and may be in default. To the extent a security is
assigned a different rating by one more of the various
ratings agencies, the 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 such-
securities 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 1997 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
as percentage of of comparable
Rating net assets quality, as
percentage of net
asssets
"AAA" 49.84% -
"AA" 0.44% -
"A" 0.33% -
"BBB" 2.72% -
"BB" 9.66% 0.17%
"B" 19.89% 5.75%
"CCC" 2.86% 0.07%
"CC" 0.23% -
"C" - -
"D" 0.02% -
Total 85.99% 5.99%
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 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 the
Fund 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:
Yen debt obligations issued or guaranteed by non-U.S.,
national, provincial, state, or other governments
with taxing authority, or by their agencies or
instrumentalities;
Yen debt obligations of supranational entities
(described below); and
Yen debt obligations and other fixed-income securities
of non-U.S. and U.S. corporate issuers.
Investments in the International Sector are not
subject to any limitation based on securities ratings
(other than the limitation set forth below) and may be
denominated in any currency, including the U.S. dollar.
To the extent a security is assigned a different rating
by one or more rating agencies, Investment Management
Company will use the highest rating assigned by any
agency. No more than 5% of the net assets of the Fund
regardless of whether they are allocated to the High
Yield Sector or the International Sector, may be invested
in securities that are rated below Caa or CCC by a
nationally recognized securities rating agency, or, if
unrated, are determined by the Investment Management
Company to be of comparable quality. Investments in
fixed income securities of non-U.S. governments and
supranational entities will be allocated to the
International Sector. The High Yield Sector and the
International Sector may each make investments in non
U.S. corporate fixed income securities.
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 against changes in
the value of specific portfolio positions ("position
hedging").
The Fund may engage in "transaction hedging" to
protect against a change in foreign currency exchange
rates between the date on which the Fund contracts to
purchase or sell a security and the settlement date, or
to "lock in" the U.S. dollar equivalent of a dividend or
interest payment in a foreign currency. The Fund may
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 or sell
exchange-listed 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 are denominated, when the Fund holds
cash or short-term investments). For position hedging
purposes, the Fund may purchase or sell foreign currency
futures contracts, foreign currency forward contracts and
options on foreign currency futures contracts and on
foreign currencies 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 values of the currencies to which
such transactions relate and changes in the value of the
currency or other asset or liability which is the subject
of the hedge.
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 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 Fund shares. As a result, an
investor who purchases Fund shares 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 its "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 Fund 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) Investment Restrictions:
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 than 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 six 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, Martin Luther King, Jr.
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., New
York time. However, equity options held by the Fund are
priced as of the close of trading at 4:10 p.m., New York
time, 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., New York time.
Investments for which market quotations are readily
available are stated 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.
Short-term investments having remaining maturities of 60
days or less are valued at amortized cost, which
approximates market value. Other investments are valued
at their fair market value following procedures approved
by the Trustees. Liabilities are deducted from the total
value of assets, and the resulting amount is divided by
the number of shares of the class outstanding to
determine net asset value per share.
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 market value on the basis of valuations
furnished by a pricing service, approved by the Trustee,
or dealers, 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
that 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 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 year ending on September 30, 1997
the Fund paid $23,670,233 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,
1997, the Fund paid $7,401,942 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,
1997, the Fund paid fees under the distribution plan
of $735,698 for the Class M shares.
(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 $37,743
for Fiscal 1997.
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
1997 and the fees paid to each Trustee by all of the
Putnam funds during calendar 1997:
COMPENSATION TABLE
Pension on Estimated Total
Aggregate retirement annual benefits
compensation
compensation benefits accruedfrom
all from all
from the as part of fund Putnam
funds Putnam
Trustees/Year fund (1) expenses (2) upon retirement (3)
funds (4)
Jameson A. Baxter/1994 (4)$4,552$1,364 $87,500 $176,000
Hans H. Estin/1972 4,501 4,305 87,500 175,000
John A. Hill/1985 (4) 4,527 1,611 87,500 175,000
Ronald J. Jackson/1996 (4)4,552 275 87,500 176,000
Paul L. Joskow/1997(7)* - - - 25,500
Elizabeth T. Kennan/19924,,504 2,731 87,500 174,000
Lawrence J. Lasser/1992*4,457 2,049 87,500 172,000
John H. Mullin III/1997(7)- - - 25,500
Robert E. Patterson/19844,552 1,290 87,500 176,000
Donald S. Perkins/1982*4,552 4,682 87,500 176,000
William F. Pounds/1971 (5)5,3394,459 98,000 201,000
George Putnam/1957* 4,528 4,937 87,500 175,000
George Putnam, III/1984*4,505 849 87,500 174,000
A.J.C. Smith/1986* 4,406 2,883 87,500 170,000
W. Thomas Stephens/1997(4)(6) 355 - -
58,000
W. Nicholas Thorndike/19924,5523,925 87,500 176,000
(1) Includes an annual retainer and an attendance fee
for each meeting attended.
(2) 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 1997.
(3) As of December 31, 1997, there were 101 funds in the
Putnam family.
(4) Includes compensation deferred pursuant to a Trustee
Compensation Deferral Plan. The total amounts of
deferred compensation payable by the fund to Ms.
Baxter, Mr. Hill, Mr. Jackson and Mr. Stephens as of
September 30, 1997 were $3,888, 13,709, 7,374 and
$307, respectively, including income earned on such
amounts.
(5) Includes additional compensation for service as Vice
Chairman of the Putnam funds.
(6) Elected as a Trustee in September 1997.
(7) Elected as a Tustee in November 1997.
* Is or may be deemed to be an "interested person"
as defined in the Invesment Company Act of 1940 of
the Fund, the Investment Management Company or
Putnam Mutual Funds Corp.
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 1995,
1996 and 1997, the Fund paid $683,248, $124,214 and
$138,679 in brokerage commissions, respectively.
During fiscal 1997 the Fund paid $7,042 on
transactions with an aggregate principal value of
$5,193,460 (0.39% 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,
1997, the Fund paid $29,478,668 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.
("PMF") 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 $25 or
more per month through automatic deductions from the
investor's bank checking or savings account.
Application forms are available from the investor's
investment dealer or through Investor Servicing
Agent.
Shares are sold at the public offering price
based on the net asset value next determined after
Investor Servicing Agent receives shareholders'
order. In most cases, in order to receive that day's
public offering price, Investor Servicing Agent must
receive shareholders' order before the close of
regular trading on the New York Stock Exchange. If
shareholders buy shares through their investment
dealer, the dealer must receive the shareholders'
order before the close of regular trading on the New
York Stock Exchange to receive that day's public
offering price.
U.S. Offering Price and Sales Charges
The public offering price of class M shares is
the net asset value plus a sales charge that varies
depending on the size of investor's purchase. The
Fund receives the net asset value. The sales charge
is allocated between an investor's investment dealer
and Putnam Mutual Funds Corp. as shown in the
following table, except when Putnam Mutual Funds
Corp., at its discretion, allocates the entire
amount to the investor's investment dealer.
Sales charge as
Amount of sales
a percentage of:
charge reallowed
Net to dealers as
a
Amount of transactionamount Offering percentage
of
at offering price ($) 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.
Class M qualified benefit plans (retirement
plans for which Putnam Fiduciary Trust Company or
its affiliates provide recordkeeping or other
services in connection with the purchase of class M
shares) and members of qualified groups may purchase
class M shares without a selling charge.
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
initial 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 1996 and
1997, Putnam Mutual Funds Corp. received $450,874
and $14,829,676, respectively, in sales charges for
Class M shares, of which it retained $43,472 and
$1,094,426, 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 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 Yen500,000,000 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 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 in
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. 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 tax 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 the Fund, if shorter)
through the most recent calendar quarter represents
the average annual compounded rate of return on an
investment of $1,000 in the Fund 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, five-year period
ended September 30, 1997 and the period since the
inception of the Fund through September 30, 1997,
the average annual total return at public offering
price (POP) for Class M shares of the Fund was
7.01%, 7.87% and 9.36%, respectively. The 30-day
yield for Class M shares of the Fund for the period
ended September 30, 1997 was 6.21%.
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 generally receive distributions
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 and net short-term capital gains in cash
while reinvesting net-long term 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
5. Status of the Investment Fund
(A.)Diversification of Investment Fund
(As
of the end of November, 1997)
Types of Name Total Invest
Assets of U.S. ment
Countr Dollars Ratio
y (%)
U.S. United 1,668,4 32.76
Government States 00,627
Obligations
Corporate United 1,359,7 26.70
Bonds States 34,706
Mexico 64,525, 1.27
176
Indone 47,193, 0.93
sia 749
Canada 31,657, 0.62
494
United 24,065, 0.47
Kingdo 775
m
Luxemb 23,276, 0.46
ourg 100
Nether 13,712, 0.27
lands 550
Bermud 12,167, 0.24
a 458
Austra 11,709, 0.23
lia 661
India 11,382, 0.23
125
Columb 11,023, 0.21
ia 000
Greece 9,247,8 0.18
00
China 7,181,1 0.14
25
Brazil 5,589,2 0.11
50
Argent 3,206,6 0.06
ina 00
Israel 2,535,9 0.05
75
Irelan 2,240,0 0.04
d 00
Switze 2,130,6 0.04
rland 00
Poland 1,990,4 0.04
25
Ecuado 1,360,0 0.03
r 00
Sub-total 1,645,9 32.32
29,569
Foreign France 153,431 3.01
Government ,224
Bonds
German 147,797 2.90
y ,571
United 139,182 2.73
Kingdo ,825
m
Canada 89,045, 1.75
705
New 67,300, 1.32
Zealan 700
d
Russia 52,037, 1.02
610
Denmar 30,736, 0.61
k 335
Argent 18,928, 0.37
ina 421
Peru 10,485, 0.21
150
South 9,704,0 0.19
Africa 09
Poland 9,404,8 0.19
50
Mexico 4,525,9 0.09
01
Ecuado 1,649,9 0.03
r 18
Peru
Sub-total 734,230 14.42
,219
Brady Bonds Mexico 143,714 2.82
,357
Brazil 140,567 2.76
,513
Argent 51,435, 1.01
ina 947
Bulgar 28,192, 0.56
ia 450
Philip 22,431, 0.44
pines 440
Sub-total 386,341 7.59
,707
Preferred United 149,305 2.93
Stock States ,999
Canada 8,855,3 0.18
85
German 2,085,0 0.04
y 00
Sub-total 160,246 3.15
,384
Short-term United 214,804 4.22
States ,763
Turkey 35,381, 0.69
731
Sub-total 250,186 4.91
,494
Collateralize United 132,849 2.61
d Mortgage States ,634
Obligation
Units United 82,318, 1.61
States 591
United 12,542, 0.25
Kingdo 175
m
Austra 888,000 0.02
lia
Sub-total 95,748, 1.88
766
Common Stock United 53,733, 1.06
States 639
Asset-Backed United 41,644, 0.82
Securities States 875
Convertile United 28,675, 0.56
Bonds States 270
United 4,464,8 0.09
Kingdo 25
m
Sub-total 33,140, 0.65
095
Warrants United 7,066,7 0.14
States 08
Colomb 744,000 0.02
ia
Irelan 112,000 0.00
d
Sub-total 7,922,7 0.16
08
Convertible United 1,502,4 0.03
Preferred States 00
Stocks
Options, Japan 40,005 0.00
Futures and
Other Italy 5,964 0.00
Derivatives
Sub-total 45,969 0.00
Cash, Deposit - -2.34
and Other 119,306
Assets (After ,403
deduction of
liabilities)
Total 5,092,6 100.00
16,683
(Net Yen647,781
Asset Value) million
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.
(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 November, 1997 is as
follows:
(Note) Operations of Class M Shares were commenced on
December 1, 1994.
(2) Record of Distributions Paid
(Note) Record of distribution paid from December 1996 to
November 1997 are as follows:
(C) Record of Sales and Repurchases
Record of sales and repurchases during the following
fiscal years and number of outstanding Class M 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)
3rd Fiscal 38,906,817 2,156,006 40,527,650
Year (28,660,820) (85,850) (28,574,970)
(10/1/96-
9/30/97)
Note: The number of Shares sold, repurchased and
outstanding in the parentheses represents those sold,
repurchased and outstanding in Japan. The Shares are
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.
April 7, 1989:
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, create two or more series of shares
representing separate investment portfolios. Any such
series of shares may be further divided without
shareholders approval into two or more classes, with such
preferences and special or relative rights and privileges
as the Trustees may determine. The funds shares are not
currently divided into series.
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 U.S. 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
(as of November 30, 1997)
Shares
Name Office and Resume Owned
Title
George Putnam Chairman and present: Chairman and
President Director of 5,440.508
Putnam Management
and Putnam Mutual
Funds Corp.
Director, Marsh &
McLennan
Companies, Inc.
William F. Vice present: Professor of
Pounds Chairman Management, 928.434
Alfred P. Sloan
School of
Management,
Massachusetts
Institute of
Technology
Jameson Adkins Trustee present: President,
Baxter Baxter 377.503
Associates, Inc.
Hans H. Estin Trustee present: Vice Chairman,
North American 222.562
Management Corp.
John A. Hill Trustee present: Chairman and
Managing 1,025.882
Director, First
Reserve
Corporation
Ronald J. Trustee present: Former
Jackson Chairman, 457.774
President and
Chief Executive
Officer of Fisher-
Price, Inc.,
Trustee of Salem
Hospital and the
Peabody Essex
Museum
Paul L. Joskow Trustee present: Professor of 0
Economics and
Management,
Massachusetts
Institute of
Technology
Director, New
England Electric
System
Director of State
Farm Indemnity
Company and
Whitehead
Institute for
Biomedical
Research
Elizabeth T. Trustee present: President
Kennan Emeritus and 288.876
Professor, Mount
Holyoke College
Lawrence J. Trustee and present: President,
Lasser Vice Chief Executive 135.568
President Officer and
Director of
Putnam
Investments, Inc.
and Putnam
Management
Director, Marsh &
McLennan
Companies, Inc.
John H. Trustee present: Chairman and
Mullin, III Chief Executive 398.724
Offficer of
Ridgeway Farm,
Director of ACX
Technologies,
Inc., Alex. Brown
Realty, Inc., The
Liberty
Corporation and
The Ryland Group,
Inc.
Robert E. Trustee present: Executive Vice
Patterson President and 531.907
Director of
Acquisitions,
Cabot Partners
Limited
Partnership
Donald S. Trustee present: Director of
Perkins various 3,177.063
corporations,
including Cummins
Engine Company,
Lucent
Technologies,
Inc., Springs
Industries, Inc.
and Time Warner
Inc.
George Putnam, Trustee present: President, New
III Generation 1,445.163
Research, Inc.
A.J.C. Smith Trustee present: Chairman and
Chief Executive 217.974
Officer, Marsh &
McLennan
Companies, Inc.
W. Thomas Trustee present: President and 104.083
Stephens Chief Executive
Officer of
MacMillian
Bloedel, Ltd.
Director of Mail-
Well Inc., Qwest
Communications,
The Eagle Picher
Trust and New
Century Energies
W. Nicholas Trustee present: Director of
Thorndike various 145.482
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
Porter Vice Director of 1,667.330
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
Shiebler President Senior Managing 1,250.246
Director of
Putnam
Investments, Inc.
President and
Director of
Putnam Mutual
Funds
Gordon H. Vice present: Director and 0
Silver President Senior Managing
Director of
Putnam
Investments, Inc.
and Putnam
Management
John D. Hughes Vice present Senior Vice 0
President President of
and Putnam Management
Treasurer
Beverly Marcus Clerk and N/A 0
Assistant
Treasurer
Gary N. Coburn Vice present Senior 48,812
President Managing Director .868
of Putnam
Investments, Inc.
and Putnam
Management
John R. Verani Vice present Senior Vice 0
President President of
Putnam
Investments, Inc.
and Putnam
Management
Kenneth J. Vice present Senior Vice 0
Taubes President President of
Putnam
Investments, Inc.
and Putnam
Management
David L. Vice present: Managing 0
Waldman President Director of
Putnam Management
William J. Vice present Managing 0
Curtin President Director of
Putnam
Investments, Inc.
and Putnam
Management
Robert M. Vice present: SeniorVice 0
Paine President President of
Putnam Management
D. William Vice present: Managing 0
Kohli President Director of
Putnam Management
Michael Vice present: Managing 0
Martino President Director of
Putnam Management
Gail S. Vice present: SeniorVice 0
Attridge President President of
Putnam Management
Paul G. Assistant present: N/A 0
Bucuvalas Treasurer
Mary A. Eaton Associate present: N/A 0
Treasurer
and
Assistant
Clerk
Judith Cohen Associate present: N/A 0
Treasurer
and
Assistant
Clerk
Katharine Senior present: N/A 0
Howard Associate
Treasurer
Wanda M. Assistant present: N/A 0
McManus Clerk
Joanne M. Assistant present: N/A 0
Neary Clerk
(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 October 31. 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 nearly
$178 billion in assets in nearly 9 million shareholder
accounts at the end of November, 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 November,
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 1993 $49,847,760
End of 1994 $48,149,491
End of 1995 $45,521,351
End of 1996 $45,817,658
End of 1997 $48,617,160
(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 Fixed Income Investments 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-by-
issue 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)
D. William 199 Employed as an investment professional by
Kohli 4 Investment Management Company since 1994.
Managing Prior to September, 1994, Mr. Kohli was
Director 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 Investment Management Company since 1994.
Director 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 Investment Management Company since 1993.
Senior Vice Prior to November, 1993, Ms. Attridge was an
President Analyst at Keystone Custody International.
Robert M. Paine 199 Employed as an investment professional by
Senior Vice 7 Investment Management Company since 1987.
President
Kenneth J. 199 Employed as an investment professional by
Taubes 7 Investment Management Company since 1991.
Senior Vice
President
(G) Information Concerning Major Stockholders
As of the end of November, 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 November 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.
Burke, Director and Senior Managing Director of
Robert W. Senior Putnam Mutual Funds Corp.
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
Erickson Managing
James E. Director
Esteves, Senior
Irene M. Managing
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
Morgan Managing Managing Director of Putnam
Jr., John Director Fiduciary Trust Company
J.
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
Schulz Managing
Mitchell Director
D.
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.
Gillis, Managing
Roland Director
Cassaro, Managing
Joseph A. Director
King, Managing
David L. Director
Thomsen, Managing Managing Director of Putnam
Rosemary Director Fiduciary Trust Company
H.
Haslett, Managing
Thomas R. Director
Zieff, Managing
William Director
Waldman, Managing
David L. Director
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
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.
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
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
Simon, Senior Vice
Sheldon President
N.
Smith Senior Vice
Jr., Leo President
J.
Smith, Senior Vice
Margaret President
D.
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
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
Manuel President
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
Svensson, Senior Vice
Lisa A. President
Atkin, Senior Vice
Michael President
J.
Bakshi, Senior Vice
Manjit S. President
Bamford, Senior Vice
Dolores President
Snyder
Cronin, Senior Vice Senior Vice President of
Kevin M. President Putnam Fiduciary Trust
Company
Holding, Senior Vice
Pamela President
Kobylarz, Senior Vice
Jeffrey, President
J.
Koontz, Senior Vice Senior Vice President of
Jill A. President Putnam Mutual Funds Corp.
Korn, Senior Vice
Karen A. President
Kuenstner Senior Vice
, Deborah President
F.
Madore, Senior Vice Senior Vice President of
Robert A. President Putnam Fiduciary Trust
Company
Malloy, Senior Vice
Julie M. President
Minn, Senior Vice
Seung, H. President
Oler, Senior Vice
Stephen President
S.
Perry, Senior Vice
William President
Peters, Senior Vice
Carmel President
Santos, Senior Vice Senior Vice President of
David J. President Putnam Fiduciary Trust
Company
Scordato, Senior Vice Senior Vice President of
Christine President Putnam Mutual Funds Corp.
A.
Silk, Senior Vice
David M. President
Stairs, Senior Vice
George W. President
Troped, Senior Vice Senior Vice President of
Bonnie L. President Putnam Mutual Funds Corp.
Whalen, Senior Vice Senior Vice President of
Edward F. President Putnam Mutual Funds Corp.
Yogg, Senior Vice
Michael President
R.
(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
November, 1997, Investment Management Company managed,
advised, and/or administered the following 101 funds and
fund portfolios (having an aggregate net asset value of
approximately $178 billion):
(As
of
the
end
of
Novem
ber,
1997)
Name Month/Da Principa Total Net
te/Year l Net Asset
Establis Characte Asset Value
hed ristics Value per
($ share
million ($)
)
The George Putnam Fund of 11/5/37 Open/Equ 2,536.4 17.68
Boston; A ity
The George Putnam Fund of 4/24/92 Open/Equ 922.9 17.57
Boston; B ity
The George Putnam Fund of 12/1/94 Open/Equ 213.0 17.56
Boston; M ity
The George Putnam Fund of 1/1/94 Open/Equ 366.3 17.70
Boston; Y ity
Putnam Arizona Tax Exempt 1/30/91 Open/Bon 122.7 9.22
Income Fund; A d
Putnam Arizona Tax Exempt 7/15/93 Open/Bon 29.1 9.21
Income Fund; B d
Putnam Arizona Tax Exempt 7/3/95 Open/Bon 0.5 9.24
Income Fund; M d
Putnam American Government 3/1/85 Open/Bon 1,532.0 8.70
Income Fund; A d
Putnam American Government 5/20/94 Open/Bon 32.8 8.67
Income Fund; B d
Putnam American Government 2/14/95 Open/Bon 1.2 8.72
Income Fund; M d
Putnam Asia Pacific Growth 2/20/91 Open/Equ 454.0 11.63
Fund; A ity
Putnam Asia Pacific Growth 6/1/93 Open/Equ 162.6 11.42
Fund; B ity
Putnam Asia Pacific Growth 2/1/95 Open/Equ 8.0 11.52
Fund; M ity
Putnam Asset Allocation: 2/7/94 Open/Bal 709.0 11.90
Balanced Portfolio; A anced
Putnam Asset Allocation: 2/11/94 Open/Bal 438.6 11.83
Balanced Portfolio; B anced
Putnam Asset Allocation: 9/1/94 Open/Bal 73.9 11.78
Balanced Portfolio; C anced
Putnam Asset Allocation: 2/6/95 Open/Bal 48.5 11.88
Balanced Portfolio; M anced
Putnam Asset Allocation: 7/14/94 Open/Bal 221.5 11.91
Balanced Portfolio; Y anced
Putnam Asset Allocation: 2/7/94 Open/Bal 306.2 10.42
Conservative Portfolio; A anced
Putnam Asset Allocation: 2/18/94 Open/Bal 139.9 10.38
Conservative Portfolio; B anced
Putnam Asset Allocation: 9/1/94 Open/Bal 30.5 10.35
Conservative Portfolio; C anced
Putnam Asset Allocation: 2/7/95 Open/Bal 12.5 10.38
Conservative Portfolio; M anced
Putnam Asset Allocation: 7/14/94 Open/Bal 19.0 10.43
Conservative Portfolio; Y anced
Putnam Asset Allocation: 2/8/94 Open/Bal 528.0 13.14
Growth Portfolio; A anced
Putnam Asset Allocation: 2/16/94 Open/Bal 359.0 12.95
Growth Portfolio; B anced
Putnam Asset Allocation: 9/1/94 Open/Bal 71.6 12.87
Growth Portfolio; C anced
Putnam Asset Allocation: 2/1/95 Open/Bal 37.0 12.98
Growth Portfolio; M anced
Putnam Asset Allocation: 7/14/94 Open/Bal 222.1 13.22
Growth Portfolio; Y anced
Putnam Balanced Retirement 4/19/85 Open/Bal 534.5 10.35
Fund; A anced
Putnam Balanced Retirement 2/1/94 Open/Bal 78.0 10.30
Fund; B anced
Putnam Balanced Retirement 3/17/95 Open/Bal 7.7 10.29
Fund; M anced
Putnam California Tax 4/29/83 Open/Bon 3,086.4 8.73
Exempt Income Fund; A d
Putnam California Tax 1/4/93 Open/Bon 581.9 8.72
Exempt Income Fund; B d
Putnam California Tax 2/14/95 Open/Bon 13.2 8.72
Exempt Income Fund; M d
Putnam VT Asia Pacific 5/1/95 Open/Equ 114.5 9.33
Growth Fund ity
Putnam VT Diversified 9/15/93 Open/Bon 599.0 11.51
Income Fund d
Putnam VT Global Growth 5/1/90 Open/Equ 1,601.1 18.13
Fund ity
Putnam VT Global Asset 2/1/88 Open/Bal 942.8 18.43
Allocation Fund anced
Putnam VT Growth and 2/1/88 Open/Bal 8,165.7 27.98
Income Fund anced
Putnam VT High Yield Fund 2/1/88 Open/Bon 975.0 13.46
d
Putnam VT Money Market 2/1/88 Open/Bon 451.0 1.00
Fund d
Putnam VT New 5/2/94 Open/Equ 2,803.9 20.80
Opportunities Fund ity
Putnam VT U.S. Government 2/1/88 Open/Bon 779.7 13.31
and High Quality Bond Fund d
Putnam VT Utilities Growth 5/1/92 Open/Bal 775.6 16.27
and Income Fund anced
Putnam VT Voyager Fund 2/1/88 Open/Equ 4,399.6 38.17
ity
Putnam Capital 8/5/93 Open/Equ 957.0 21.85
Appreciation Fund; A ity
Putnam Capital 11/2/94 Open/Equ 1,028.9 21.57
Appreciation Fund; B ity
Putnam Capital 1/22/96 Open/Equ 81.0 21.63
Appreciation Fund; M ity
Putnam Convertible Income- 6/29/72 Open/Bal 1,192.4 28.31
Growth Trust; A anced
Putnam Convertible Income- 7/15/93 Open/Bal 262.1 28.09
Growth Trust; B anced
Putnam Convertible Income- 3/13/95 Open/Bal 15.2 28.17
Growth Trust; M anced
Putnam Diversified Equity 7/1/94 Open/Equ 244.7 12.16
Trust; A ity
Putnam Diversified Equity 7/2/94 Open/Equ 300.4 12.07
Trust; B ity
Putnam Diversified Equity 7/3/95 Open/Equ 22.6 12.10
Trust; M ity
Putnam Diversified Income 10/3/88 Open/Bon 2,086.3 12.56
Trust; A d
Putnam Diversified Income 3/1/93 Open/Bon 2,329.7 28.95
Trust; B d
Putnam Diversified Income 12/1/94 Open/Bon 600.7 12.52
Trust; M d
Putnam Diversified Income 7/11/96 Open/Bon 18.3 12.56
Trust ; Y d
Putnam Equity Income Fund; 6/15/77 Open/Bal 878.6 16.04
A anced
Putnam Equity Income Fund; 9/13/93 Open/Bal 463.1 15.95
B anced
Putnam Equity Income Fund; 12/2/94 Open/Bal 48.8 15.96
M anced
Putnam Europe Growth Fund; 9/7/90 Open/Equ 399.5 19.70
A ity
Putnam Europe Growth Fund; 2/1/94 Open/Equ 320.7 19.23
B ity
Putnam Europe Growth Fund; 12/1/94 Open/Equ 19.3 19.55
M ity
Putnam Florida Tax Exempt 8/24/90 Open/Bon 235.4 9.39
Income Fund; A d
Putnam Florida Tax Exempt 1/4/93 Open/Bon 65.7 9.39
Income Fund; B d
Putnam Florida Tax Exempt 5/1/95 Open/Bon 1.7 9.38
Income Fund; M d
Putnam Federal Income 6/2/86 Open/Bon 346.0 10.21
Trust; A d
Putnam Federal Income 6/6/94 Open/Bon 12.1 10.17
Trust; B d
Putnam Federal Income 4/12/95 Open/Bon 346.0 10.21
Trust; M d
Putnam Global Governmental 6/1/87 Open/Bon 307.5 13.66
Income Trust; A d
Putnam Global Governmental 2/1/94 Open/Bon 40.5 13.61
Income Trust; B d
Putnam Global Governmental 3/17/95 Open/Bon 2.4 13.61
Income Trust; M d
Putnam Global Growth Fund; 9/1/67 Open/Equ 2,304.3 12.13
A ity
Putnam Global Growth Fund; 4/27/92 Open/Equ 1,468.3 11.73
B ity
Putnam Global Growth Fund; 3/1/95 Open/Equ 39.1 12.02
M ity
Putnam Global Growth Fund; 6/15/94 Open/Equ 37.0 12.30
Y ity
Putnam Growth and Income 1/5/95 Open/Bal 1,051.5 14.88
Fund II; A anced
Putnam Growth and Income 1/5/95 Open/Bal 1,242.7 14.77
Fund II; B anced
Putnam Growth and Income 1/5/95 Open/Bal 152.2 14.82
Fund II; M anced
The Putnam Fund for Growth 11/6/57 Open/Bal 17,037. 21.72
and Income; A anced 0
The Putnam Fund for Growth 4/27/92 Open/Bal 14,166. 21.47
and Income; B anced 2
The Putnam Fund for Growth 5/1/95 Open/Bal 368.0 21.61
and Income; M anced
The Putnam Fund for Growth 6/15/94 Open/Bal 729.2 21.75
and Income; Y anced
Putnam High Yield 3/25/86 Open/Bon 1,436.1 9.95
Advantage Fund; A d
Putnam High Yield 5/16/94 Open/Bon 1,142.3 9.91
Advantage Fund; B d
Putnam High Yield 12/1/94 Open/Bon 2,029.2 9.94
Advantage Fund; M d
Putnam High Yield Trust; A 2/14/78 Open/Bon 3,266.7 13.00
d
Putnam High Yield Trust; B 3/1/93 Open/Bon 1,221.7 12.95
d
Putnam High Yield Trust; M 7/3/95 Open/Bon 22.8 12.99
d
Putnam Health Sciences 5/28/82 Open/Equ 1,867.4 60.07
Trust; A ity
Putnam Health Sciences 3/1/93 Open/Equ 690.4 58.58
Trust; B ity
Putnam Health Sciences 7/3/95 Open/Equ 29.4 59.62
Trust; M ity
Putnam Income Fund; A 11/1/54 Open/Bon 1,298.7 7.11
d
Putnam Income Fund; B 3/1/93 Open/Bon 406.0 7.08
d
Putnam Income Fund; M 12/14/94 Open/Bon 585.1 7.08
d
Putnam Income Fund; Y 2/12/94 Open/Bon 171.8 7.12
d
Putnam Intermediate U.S. 2/16/93 Open/Bon 136.8 4.90
Government Income Fund; A d
Putnam Intermediate U.S. 2/16/93 Open/Bon 67.9 4.90
Government Income Fund; B d
Putnam Intermediate U.S. 4/3/95 Open/Bon 7.0 4.91
Government Income Fund; M d
Putnam International New 1/3/95 Open/Equ 748.3 12.07
Opportunities Fund; A ity
Putnam International New 7/21/95 Open/Equ 941.8 11.92
Opportunities Fund; B ity
Putnam International New 7/21/95 Open/Equ 79.0 11.98
Opportunities Fund; M ity
Putnam Investors Fund; A 12/1/25 Open/Equ 1,876.1 12.25
ity
Putnam Investors Fund; B 3/1/93 Open/Equ 358.9 11.85
ity
Putnam Investors Fund; M 12/2/94 Open/Equ 38.3 12.10
ity
Putnam Investors Fund; Y 11/30/96 Open/Equ 86.7 12.28
ity
Putnam Massachusetts Tax 10/23/89 Open/Bon 286.3 9.54
Exempt Income Fund; A d
Putnam Massachusetts Tax 7/15/93 Open/Bon 97.8 9.54
Exempt Income Fund; B d
Putnam Massachusetts Tax 5/12/95 Open/Bon 2.3 9.54
Exempt Income Fund; M d
Putnam Michigan Tax Exempt 10/23/89 Open/Bon 144.1 9.33
Income Fund; A d
Putnam Michigan Tax Exempt 7/15/93 Open/Bon 37.8 9.32
Income Fund; B d
Putnam Michigan Tax Exempt 4/17/95 Open/Bon 1.1 9.33
Income Fund; M d
Putnam Minnesota Tax 10/23/89 Open/Bon 101.0 9.13
Exempt Income Fund; A d
Putnam Minnesota Tax 7/15/93 Open/Bon 39.6 9.10
Exempt Income Fund; B d
Putnam Minnesota Tax 4/3/95 Open/Bon 1.8 9.13
Exempt Income Fund; M d
Putnam Money Market Fund; 10/1/76 Open/Bon 2,068.1 1.00
A d
Putnam Money Market Fund; 4/27/92 Open/Bon 461.4 1.00
B d
Putnam Money Market Fund; 12/8/94 Open/Bon 65.2 1.00
M d
Putnam Municipal Income 5/22/89 Open/Bon 821.1 9.21
Fund; A d
Putnam Municipal Income 1/4/93 Open/Bon 494.0 9.20
Fund; B d
Putnam Municipal Income 12/1/94 Open/Bon 14.6 9.21
Fund; M d
Putnam New Jersey Tax 2/20/90 Open/Bon 225.0 9.24
Exempt Income Fund; A d
Putnam New Jersey Tax 1/4/93 Open/Bon 88.3 9.23
Exempt Income Fund; B d
Putnam New Jersey Tax 5/1/95 Open/Bon 0.7 9.24
Exempt Income Fund; M d
Putnam New York Tax Exempt 9/2/83 Open/Bon 1,726.7 9.02
Income Fund; A d
Putnam New York Tax Exempt 1/4/93 Open/Bon 227.8 9.00
Income Fund; B d
Putnam New York Tax Exempt 4/10/95 Open/Bon 1.8 9.02
Income Fund; M d
Putnam New York Tax Exempt 11/7/90 Open/Bon 165.1 9.12
Opportunities Fund; A d
Putnam New York Tax Exempt 2/1/94 Open/Bon 58.1 9.11
Opportunities Fund; B d
Putnam New York Tax Exempt 2/10/95 Open/Bon 2.4 9.10
Opportunities Fund; M d
Putnam Global Natural 7/24/80 Open/Equ 288.3 21.77
Resources Fund; A ity
Putnam Global Natural 2/1/94 Open/Equ 144.9 21.37
Resources Fund; B ity
Putnam Global Natural 7/3/95 Open/Equ 8.7 21.61
Resources Fund; M ity
Putnam New Opportunities 8/31/90 Open/Equ 8,290.1 48.82
Fund; A ity
Putnam New Opportunities 3/1/93 Open/Equ 6,832.0 47.15
Fund; B ity
Putnam New Opportunities 12/1/94 Open/Equ 373.6 48.10
Fund; M ity
Putnam New Opportunities 7/19/94 Open/Equ 314.7 49.25
Fund; Y ity
Putnam Ohio Tax Exempt 10/23/89 Open/Bon 184.0 9.19
Income Fund; A d
Putnam Ohio Tax Exempt 7/15/93 Open/Bon 51.3 9.18
Income Fund; B d
Putnam Ohio Tax Exempt 4/3/95 Open/Bon 1.6 9.19
Income Fund; M d
Putnam OTC & Emerging 11/1/82 Open/Equ 2,219.6 15.82
Growth Fund; A ity
Putnam OTC & Emerging 7/15/93 Open/Equ 1,141.4 15.22
Growth Fund; B ity
Putnam OTC & Emerging 12/2/94 Open/Equ 192.0 15.55
Growth Fund; M ity
Putnam OTC & Emerging 7/12/96 Open/Equ 97.9 15.89
Growth Fund; Y ity
Putnam International 2/28/91 Open/Equ 1,042.2 17.49
Growth Fund; A ity
Putnam International 6/1/94 Open/Equ 736.3 17.19
Growth Fund; B ity
Putnam International 12/1/94 Open/Equ 87.7 17.37
Growth Fund; M ity
Putnam International 7/12/96 Open/Equ 99.5 17.54
Growth Fund; Y ity
Putnam Pennsylvania Tax 7/21/89 Open/Bon 188.8 9.44
Exempt Income Fund; A d
Putnam Pennsylvania Tax 7/15/93 Open/Bon 83.1 9.43
Exempt Income Fund; B d
Putnam Pennsylvania Tax 7/3/95 Open/Bon 1.3 9.45
Exempt Income Fund; M d
Putnam Preferred Income 1/4/84 Open/Bon 116.2 9.00
Fund; A d
Putnam Preferred Income 4/20/95 Open/Bon 7.5 8.98
Fund; M d
Putnam Tax - Free Income 9/20/93 Open/Bon 216.0 15.38
Trust d
Tax - Free High Yield
Fund; A
Putnam Tax - Free Income 9/9/85 Open/Bon 336.0 15.40
Trust d
Tax - Free High Yield Fund
B
Putnam Tax - Free Income 12/29/94 Open/Bon 1.5 15.38
Trust d
Tax - Free High Yield Fund
M
Putnam Tax - Free Income 9/30/93 Open/Bon 620.5 15.42
Trust d
Tax - Free Insured Fund; A
Putnam Tax - Free Income 9/9/85 Open/Bon 1,385.6 14.53
Trust d
Tax - Free Insured Fund; B
Putnam Tax - Free Income 6/1/95 Open/Bon 18.2 14.51
Trust d
Tax - Free Insured Fund; M
Putnam Tax Exempt Income 12/31/76 Open/Bon 2,039.4 9.14
Fund; A d
Putnam Tax Exempt Income 1/4/93 Open/Bon 249.4 9.14
Fund; B d
Putnam Tax Exempt Income 2/16/95 Open/Bon 9.0 9.16
Fund; M d
Putnam Tax Exempt Money 10/26/87 Open/Bon 85.7 1.00
Market Fund d
Putnam U.S. Government 2/8/84 Open/Bon 2,118.0 13.06
Income Trust; A d
Putnam U.S. Government 4/27/92 Open/Bon 1,286.3 13.01
Income Trust; B d
Putnam U.S. Government 2/6/95 Open/Bon 9.6 13.05
Income Trust; M d
Putnam U.S. Government 4/11/94 Open/Bon 6.7 13.05
Income Trust; Y d
Putnam Utilities Growth 11/19/90 Open/Bal 698.2 13.29
and Income Fund; A anced
Putnam Utilities Growth 4/27/92 Open/Bal 710.3 13.21
and Income Fund; B anced
Putnam Utilities Growth 3/1/95 Open/Bal 13.1 13.27
and Income Fund; M anced
Putnam Vista Fund; A 6/3/68 Open/Equ 2,713.6 12.51
ity
Putnam Vista Fund; B 3/1/93 Open/Equ 1,289.8 12.05
ity
Putnam Vista Fund; M 12/1/94 Open/Equ 104.9 12.82
ity
Putnam Vista Fund; Y 3/28/95 Open/Equ 246.2 12.62
ity
Putnam Voyager Fund II; A 4/14/93 Open/Equ 512.5 18.71
ity
Putnam Voyager Fund II; B 10/2/95 Open/Equ 479.7 18.40
ity
Putnam Voyager Fund II; M 10/2/95 Open/Equ 57.8 18.53
ity
Putnam Voyager Fund; A 4/1/96 Open/Equ 11,467. 19.84
ity 5
Putnam Voyager Fund; B 4/27/92 Open/Equ 6,001.4 18.87
ity
Putnam Voyager Fund; M 12/1/94 Open/Equ 256.3 19.54
ity
Putnam Voyager Fund; Y 4/1/94 Open/Equ 1,215.0 20.08
ity
Putnam California 11/27/92 Closed/B 87.3 18.96
Investment Grade Municipal ond
Trust
Putnam Convertible 6/29/95 Closed/B 99.5 26.88
Opportunities and Income ond
Trust
Putnam Dividend Income 9/28/89 Closed/B 125.3 11.58
Fund ond
Putnam High Income 7/9/87 Closed/B 137.7 10.27
Convertible and Bond Fund ond
Putnam Intermediate 6/27/88 Closed/B 554.0 8.61
Government Income Trust ond
Putnam Investment Grade 10/26/89 Closed/B 388.7 18.83
Municipal Trust ond
Putnam Investment Grade 11/27/92 Closed/B 253.6 18.99
Municipal Trust II ond
Putnam Investment Grade 11/29/93 Closed/B 63.6 15.87
Municipal Trust III ond
Putnam Managed High Yield 6/25/93 Closed/B 110.2 14.67
Trust ond
Putnam Managed Municipal 2/24/89 Closed/B 630.1 13.73
Income Trust ond
Putnam Master Income Trust 12/28/87 Closed/B 490.5 9.24
ond
Putnam Master Intermediate 4/29/88 Closed/B 332.4 8.65
Income Trust ond
Putnam Municipal 5/28/93 Closed/B 347.1 21.48
Opportunities Trust ond
Putnam New York Investment 11/27/92 Closed/B 50.0 17.55
Grade Municipal Trust ond
Putnam Premier Income 2/29/88 Closed/B 1,238.1 8.83
Trust ond
Putnam Tax - Free Heath 6/29/92 Closed/B 206.2 14.94
Care Fund ond
Putnam American 10/2/95 Open/Equ 165.2 13.28
Renaissance Fund; A ity
Putnam Diversified Income 2/19/95 Open/Bon 49.4 8.64
Trust II; A d
Putnam Diversified Income 2/19/96 Open/Bon 71.9 8.64
Trust II; B d
Putnam Diversified Income 2/19/96 Open/Bon 8.4 8.65
Trust II; M d
Putnam High Yield Total 1/1/97 Open/Bon 13.5 9.04
Return Fund; A d
Putnam High Yield Total 1/1/97 Open/Bon 18.0 9.03
Return Fund; B d
Putnam High Yield Total 1/1/97 Open/Bon 1.9 9.04
Return Fund; M d
Putnam VT International 1/1/97 Open/Bal 191.6 11.68
Growth and Income anced
Putnam VT International 1/1/97 Open/Equ 103.2 9.82
New Opportunities Fund ity
Putnam VT International 1/1/97 Open/Equ 140.4 11.46
Growth Fund ity
Putnam Balanced Fund 10/2/95 Open/Bal 2.8 11.93
anced
Putnam Emerging Markets 10/2/95 Open/Equ 43.2 9.33
Fund; A ity
Putnam Emerging Markets 10/2/95 Open/Equ 34.7 9.26
Fund; B ity
Putnam Emerging Markets 10/2/95 Open/Equ 27.8 10.81
Fund; M ity
Putnam California Tax 10/26/87 Open 32.5 1.00
Exempt Money Market Fund
Putnam High Yield 5/25/89 Closed 246.8 11.31
Municipal Trust
Putnam New York Tax Exempt 10/26/87 Open 44.2 1.00
Money Market Fund
Putnam International 8/1/96 Open 271.0 10.84
Growth and Income Fund; A
Putnam International 8/1/96 Open 276.3 10.79
Growth and Income Fund; B
Putnam International 8/1/96 Open 27.8 10.81
Growth and Income Fund; M
Putnam Research Fund 10/2/95 Open 10.3 13.71
Putnam New Value Fund; A 1/3/95 Open 465.4 15.01
Putnam New Value Fund; B 2/26/96 Open 453.1 14.84
Putnam New Value Fund; M 2/26/96 Open 51.7 14.90
Putnam Global Growth and 1/3/95 Open 9.5 12.04
Income Fund
Putnam International Fund 12/28/95 Open 3.7 9.63
Putnam Japan Fund 12/28/95 Open 2.3 5.41
Putnam International 12/28/95 Open 51.0 11.57
Voyager Fund; A
Putnam International 10/30/96 Open 44.1 11.49
Voyager Fund; B
Putnam International 10/30/96 Open 5.0 11.52
Voyager Fund; M
Putnam VT New Value Fund 1/2/97 Open 184.1 11.76
Putnam VT Vista Fund 1/2/97 Open 156.0 11.97
(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.$39,996,454 (approximately Yen5.1 billion) as of
the end of November, 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.$186,573,823 (approximately Yen23.7 billion) as
of the end of November, 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
Yen15 billion as of the end of November, 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 Dai-
Ichi Kangyo Asahi Investment Trust Management Co.,
Ltd.,Sakura Investment Trust Management Co., Ltd.,
Nissei Investment Trust Management Co., Ltd., NCG
Investment Trust Management Co., Ltd., Nomura Asset
Management Co., Ltd. and Goldman Sachs Investment
Trust Management Co., Ltd., etc. 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
John R. Vice President Senior Vice None
Verani President
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
Waldman 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 1997 fiscal year
are presented in their entirety 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
Year ended
Year ended December 1, 1994+
September 30
September 30 to September 30
1997
1996 1995
Class M
Net asset value, beginning of$12.27 $11.97 $11.34
period
Investment operations
Net investment income .82(c) .86 .78
Net realized and unrealized gain (loss)
on investments .43 .31 .63
Total from investment operations 1.25 1.17
1.41
Less Distributions
From net investment income (.85) (.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 (.85) (.87) (.78)
Net asset value, end of period $12.67 $12.27
$11.97
10.59
Total investment return 10.59 10.12 12.90*
at net asset value (%) (a)
Net assets, end of period $513,351 $46,327 $14,751
(in thousands)
Ratio of expenses to average net
assets (%) (b) 1.24 1.28 1.07*
Ratio of net investment income 6.88 7.09
6.30*
to average net assets (%)
Portfolio turnover (%) 250.93 304.39 235.88
(+) Commencement of operations
(*) 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.
(c) Per share net investment income has been determined on
the basis of the weighted average number of shares
outstanding during the period.
<TABLE> <CAPTION>
2. CONDITION OF THE FUND
(a) Statement of Net Assets
(As of the end of November, 1997)
<S> <C> <C> <C> <C> <C> <C>
U.S. Invest-
Dollar
Kind of Inte Par Value Acquisition Current ent
rest
Name of Securities Issue Maturity Rate (1,000) curr Cost Value Ratio
(%) ency (%)
1. GNMA U.S. 2024-2027 7 385,131 USD 387,855 ####### 7.7
Governmen 1/2 ,652 ##
t
2. GNMA U.S. 2025-2027 8 150,425 USD 156,133 ####### 3.1
Governmen 1/2 ,865 ##
t
3. France Treasury bill Foreign 2002 4 887,125 FRF 143,851 ####### 2.9
Bonds 3/4 ,680 ##
4. Brazil (Government Brady 2014 4 188,681 BRL 323,248 ####### 2.8
of) Bonds ,821 ##
5. U.S. Treasury Notes U.S. 2026 6 116,445 USD 110,004 ####### 2.4
Governmen 1/2 ,136 ##
t
6. U.S. Treasury Notes U.S. 2006 6 111,342 USD 109,404 ####### 2.3
Governmen 1/2 ,695 ##
t
7. United Kingdom Foreign 2006 7 58,515 USD 106,656 ####### 2.1
Treasury Bond Bonds 1/2 ,260 ##
8. United Mexican States Foreign 2019 6 129,071 USD 100,180 ####### 2.1
Bonds 1/4 ,509 ##
9. FNMA U.S. 2027 6 98,140 GBP 95,840, 96,238, 1.9
Governmen 1/2 219 425
t
10 U.S. Treasury Notes U.S. 2006 7 86,550 MXP 92,351, 92,824, 1.8
. Governmen 695 875
t
11 GNMA U.S. 2027 5 75,425 USD 75,134, 75,389, 1.5
. Governmen 1/2 530 550
t
12 Canada (Government Foreign 2007 7 94,850 USD 75,574, 74,644, 1.5
. of) Bonds 1/4 314 912
13 GNMA U.S. 2027 7 74,431 USD 74,411, 74,641, 1.5
. Governmen 613 300
t
14 U.S. Treasury Bonds U.S. 2019 8 58,380 USD 66,580, 72,199, 1.4
. Governmen 1/8 884 714
t
15 Germany (Republic of) Foreign 2007 6 121,370 CAD 67,813, 71,468, 1.4
. Bonds 469 937
CAD 6109098
0
16 New Zealand( Foreign 2004 8 103,020 USD 70,093, 67,300, 1.3
. Government of) Bonds 545 700
17 U.S. Treasury Notes U.S. 2002 6 64,435 USD 64,067, 64,807, 1.3
. Governmen 519 434
t
18 U.S. Treasury Notes U.S. 1999 5 62,040 USD 61,966, 61,845, 1.2
. Governmen 5/8 499 815
t
19 U.S. Treasury Notes U.S. 2027 6 53,720 DEM 57,522, 57,522, 1.1
. Governmen 5/8 302 302
t
20 Argentina (Republic Brady 2005 4 58,202 NZD 59,332, 51,435, 1.0
. of) Bonds 1/5 651 947
21 GNMA U.S. 2027 6 49,722 USD 50,219, 50,001, 1.0
. Governmen 476 941
t
22 Bank of Economic Foreign 1999 6 50,525 USD 48,815, 42,137, 0.8
. Affairs of Ru Bonds 397 850
23 FNMA U.S. 2012 7 40,435 USD 40,902, 40,876, 0.8
. Governmen 530 955
t
24 DBR Unity Fund Bonds Foreign 2002 8 64,035 USD 41,329, 40,409, 0.8
. Bonds 997 556
25 FHLMC U.S. 2011-2012 6 39,754 USD 39,325, 39,642, 0.8
. Goverment 1/2 781 275
26 FHLMC U.S. 2027 8 35,088 USD 36,645, 36,611, 0.7
. Governmen 1/2 315 872
t
27 Germany (Republic of) Foreign 2027 6 59,650 ARP 34,699, 35,919, 0.7
. Bonds 1/2 783 078
28 United Kingdom Foreign 2021 8 16,925 USD 57,832, 34,119, 0.7
. Treasury Bond Bonds 407 444
29 Denmark (Goverment Foreign 2026 6 219,430 USD 30,813, 30,736, 0.6
. of) Bonds 328 335
30 FHLMC U.S. 2012 7 30,026 USD 30,368, 30,382, 0.6
. Government 484 409
</TABLE>
V. 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.]
VI. 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.
VII. REFERENCE INFORMATION
The following documents in connection with the Fund were
filed with MOF.
May 12, 1997: Securities Registration
Statement
May 22, 1997: Amendment to Securities
Registration Statement
August 4, 1997: Securities Registration
Statement
January 5, 1998: Amendment to Securities
Registration Statement
AMENDMENT TO SECURITIES REGISTRATION STATEMENT
(NAV Sale)
PUTNAM DIVERSIFIED INCOME TRUST
AMENDMENT TO SECURITIES REGISTRATION STATEMENT
To: Minister of Finance
Filing
Date of SRS: February 4, 1998
Name of the Registrant Trust: PUTNAM DIVERSIFIED INCOME
TRUST
Name and Official Title of Trustees: George Putnam
William
F. Pounds
Jameson
A. Baxter
Hans H.
Estin
John A.
Hill
Ronald
J. Jackson
Paul L.
Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H.
Mullin, III
Robert
E. Patterson
Donald
S. Perkins
George
Putnam, III
A.J.C.
Smith
W.
Thomas Stephens
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
Chiyoda-
ku, 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
Chiyoda-
ku, 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 2,754.4 million U.S.
dollars (approximately Yen350
billion).
Note 1: U.S.$ amount is translated into Japanese Yen at the
rate of U.S.$l.00=Yen127.20 the mean of the exchange rate
quotations by The Bank of Tokyo-Mitsubishi, Ltd. for
buying and selling spot dollars by telegraphic transfer
against yen on 28th November, 1997.
Note 2: The maximum amount expected to be sold is an amount
calculated by multiplying the net asset value per Class M
Share as of 28th November, 1997 (U.S.$ 12.52) by 220
million Class M Shares for convenience.
Places where a copy of this Amendment to the Securities
Registration
Statement is available for Public Inspection
Not applicable.
(Total number of pages of this Amendment to Securities
Registration Statement in Japanese is
2 including front and back pages.)
I. REASON FOR FILING THIS AMENDMENT TO SECURITIES
REGISTRATION STATEMENT:
This statement purports to amend and update the relevant
information of the Securities Registration Statement
("SRS") filed on August 4, 1997 due to the fact that the
aforementioned Securities Report was filed today.
The exchange rates used in this statement to translate
the amended amounts of foreign currencies are different
from those used before these amendments, as the latest
exchange rates are used in this statement.
II. CONTENTS OF THE AMENDMENTS (the page numbers refer to
those of the Japanese original)
Part II. INFORMATION CONCERNING ISSUER
(page 4 of the original Japanese SRS)
The following matters in the original Japanese SRS are
amended to have the same contents as those provided in
the following items of the aforementioned Securities
Report:
Before amendment After amendment
[Original Japanese SRS] [Aforementioned Annual
Securities Report]
I. DESCRIPTION OF THE
FUNDI. DESCRIPTION OF
THE FUND (the
aforementioned Japanese
Annual Securities Report,
from page 1 to page 32)
II. OUTLINE OF THE FUND
II. OUTLINE OF THE TRUST
(Ditto, from page 33 to
page 67)
III.OUTLINE OF THE OTHER
III.OUTLINE OF THE OTHER
RELATED COMPANIES
RELATED COMPANIES (Ditto,
from page 68 to page 69)
IV. FINANCIAL CONDITIONS
OF IV. FINANCIAL
CONDITIONS OF
THE FUND THE
FUND (Ditto, from page 70
to page 183)
V. SUMMARY OF INFORMATION
VI. SUMMARY OF INFORMATION
CONCERNING THE
EXERCISE OF
CONCERNING THE EXERCISE OF
RIGHTS BY HOLDERS OF
FOREIGN RIGHTS BY
HOLDERS OF FOREIGN
INVESTMENT FUND
SECURITIES
INVESTMENT FUND SECURITIES
(Ditto, page
207)
VI. MISCELLANEOUS VII. REFERENCE INFORMATION
(Ditto, page 207)
Note 1: U.S.$ amount is translated into Japanese
Yen at the rate of U.S.$1 = Yen127.20, the mean of the
exchange rate quotations at The Bank of Tokyo-
Mitsubishi, Ltd. for buying and selling spot dollars
by telegraphic transfer against yen on November 28,
1997, for convenience.
Note 2: 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.
Note 3:In this Report, "fiscal year" refers to a year
from October 1 to September 30 of the following year.
Part III. SPECIAL INFORMATION
(Ditto, page 191)
II. FINANCIAL CONDITIONS OF THE INVESTMENT MANAGEMENT
COMPANY of the Original SRS is ammended to to have the
same contents as those provided in V. FINANCIAL
CONDITIONS OF THE INVESTMENT MANAGEMENT COMPANY of the
aforementioned Securities Report:
