As filed with the Securities and Exchange Commission on
July 30, 1997
Registration No. 33-26921
811-5763
- ----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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Pre-Effective Amendment No. / /
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----
Post-Effective Amendment No. 10 / X /
and ----
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940 ----
----
Amendment No. 11 / X /
(Check appropriate box or boxes) ----
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PUTNAM MUNICIPAL INCOME FUND
(Exact name of registrant as specified in charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
(617) 292-1000
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It is proposed that this filing will become effective
(check appropriate box)
----
/ / immediately upon filing pursuant to paragraph (b)
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/ X / on July 30, 1997 pursuant to paragraph (b)
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/ / 60 days after filing pursuant to paragraph (a)(1)
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/ / on (date) pursuant to paragraph (a)(1)
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/ / 75 days after filing pursuant to paragraph (a)(2)
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/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
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/ / this post-effective amendment designates a new
- ---- effective date for a previously filed post-effective
amendment.
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JOHN R. VERANI, Vice President
PUTNAM MUNICIPAL INCOME FUND
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
---------------
Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
The Registrant has registered an indefinite number or
amount of securities under the Securities Act of 1933 pursuant to
Rule 24f-2. A Rule 24f-2 notice for the fiscal year ended March
31, 1997 was filed on May 29, 1997.
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Proposed Proposed
maximum maximum
Amount offering aggregate Amount of
Title of securities being price per offering registration
being registeredregistered unit* price** fee
- -----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Shares of Beneficial
Interest 1,560,087 shs. $9.65 NONE NONE
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
* Based on offering price per share on July 22, 1997.
** Calculated pursuant to Rule 24e-2 under the Investment Company Act of 1940.
The total amount of securities redeemed or repurchased during the Registrant's
previous fiscal year was 49,526,581 shares, 47,966,494 of which have been used
for reductions pursuant to Rule 24e-2(a) or Rule 24f-2(c) under said Act in the
current fiscal year, and 1,560,087 of which are being used for such reduction
in this Amendment.
/TABLE
<PAGE>
PUTNAM MUNICIPAL INCOME FUND
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
PART A
N-1A ITEM NO. LOCATION
1. Cover Page....................... Cover page
2. Synopsis......................... Expenses summary
3. Condensed Financial Information.. Financial highlights;
How performance is shown
4. General Description of
Registrant....................... Objective; How the fund
pursues its objective;
Organization and history
5. Management of the Fund........... Expenses summary; How
the fund is managed;
About Putnam
Investments, Inc.
5A. Management's Discussion of
Fund Performance................. (Contained in the annual
report of the
Registrant)
6. Capital Stock and Other
Securities....................... Cover page; Organization
and history; How the
fund makes distributions
to shareholders; tax
information
7. Purchase of Securities Being
Offered.......................... How to buy shares;
Distribution plans; How
to sell shares; How to
exchange shares; How the
fund values its shares
8. Redemption or Repurchase......... How to buy shares; How
to sell shares; How to
exchange shares;
Organization and history
9. Pending Legal Proceedings........ Not applicable
<PAGE>
PART B
N-1A ITEM NO. LOCATION
10. Cover Page....................... Cover page
11. Table of Contents................ Cover page
12. General Information and History.. Organization and history
(Part A)
13. Investment Objectives and
Policies......................... How the fund pursues its
objective (Part A);
Investment restrictions;
Miscellaneous investment
practices
14. Management of the Registrant..... Management (Trustees;
Trustee fees;
Officers); Additional
officers
15. Control Persons and Principal
Holders of Securities............ Management (Trustees;
Officers); Charges and
expenses (Share
ownership)
16. Investment Advisory and Other
Services......................... Organization and
history (Part A);
Management (Trustees;
Officers; The
management contract;
Principal underwriter;
Investor servicing agent
and custodian); Charges
and expenses;
Distribution plans;
Independent accountants
and financial statements
17. Brokerage Allocation............. Management (Portfolio
transactions); Charges
and expenses
18. Capital Stock and Other
Securities....................... Organization and history
(Part A); How the fund
makes distributions to
shareholders; tax
information (Part A);
Suspension of
redemptions
19. Purchase, Redemption and Pricing
of Securities Being Offered...... How to buy shares (Part
A); How to sell shares
(Part A); How to
exchange shares (Part
A); How to buy shares;
Determination of net
asset value; Suspension
of redemptions
20. Tax Status....................... How the fund makes
distributions to
shareholders; tax
information (Part A);
Taxes
21. Underwriters..................... Management (Principal
underwriter); Charges
and expenses
22. Calculation of Performance Data.. How performance is shown
(Part A); Investment
performance; Standard
performance measures
23. Financial Statements............. Independent accountants
and financial statements
PART C
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C of the
Registration Statement.
<PAGE>
PROSPECTUS
JULY 30,
1997
PUTNAM MUNICIPAL INCOME FUND
CLASS A, B AND M SHARES
INVESTMENT STRATEGY: TAX-ADVANTAGED
This prospectus explains concisely what you should know before
investing in Putnam Municipal Income Fund (the "fund"). Please
read it carefully and keep it for future reference. You can find
more detailed information in the July 30, 1997 statement
of additional information (the "SAI"), as amended from time to
time. For a free copy of the SAI or other information, call
Putnam Investor Services at 1-800-225-1581. The SAI has been
filed with the Securities and Exchange Commission (the
"Commission") and is incorporated into this prospectus by
reference. The Commission maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated
by reference into this prospectus and the SAI, and other
information regarding registrants that file electronically with
the Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
BOSTON * LONDON * TOKYO
<PAGE>
ABOUT THE FUND
EXPENSES SUMMARY
..............................................................
..
This section describes the sales charges, management fees, and
annual operating expenses that apply to various classes
of the fund's shares. Use it to help you estimate the
impact of transaction costs on your investment over time.
FINANCIAL HIGHLIGHTS
............................................................. ....
Study this table to see, among other things, how the fund
performed each year for the past 10 years or since it began
investment operations if it has been in operation for less than
10 years.
OBJECTIVE
............................................................. ....
Read this section to make sure the fund's objective is consistent
with your own.
HOW THE FUND PURSUES ITS OBJECTIVE
..............................................................
..
This section explains in detail how the fund seeks its investment
objective.
RISK FACTORS . All investments entail some
risk. Read this section to make sure you understand the
risks that are associated with an investment in the fund.
HOW PERFORMANCE IS SHOWN
..............................................................
..
This section describes and defines the measures used to assess
fund performance. All data are based on past
investment results and do not predict future performance.
HOW THE FUND IS MANAGED
..............................................................
...
Consult this section for information about the fund's management,
allocation of its expenses, and how purchases and sales of
securities are made .
ORGANIZATION AND HISTORY
..............................................................
..
In this section, you will learn when the fund was introduced, how
it is organized, how it may offer shares, and who its Trustees
are.
<PAGE>
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
..............................................................
..
Read this section for descriptions of the classes of shares this
prospectus offers and for points you should consider when making
your choice.
HOW TO BUY SHARES
..............................................................
..
This section describes the ways you may purchase shares and tells
you the minimum amounts required to open various types of
accounts. It explains how sales charges are determined and how
you may become eligible for reduced sales charges on each class
of shares.
DISTRIBUTION PLANS
..............................................................
..
This section tells you what distribution fees are charged against
each class of shares.
HOW TO SELL SHARES
...............................................................
.
In this section you can learn how to sell fund shares
, directly to the fund or through an investment dealer.
HOW TO EXCHANGE SHARES
...............................................................
.
Find out in this section how you may exchange fund shares
for shares of other Putnam funds. The section also
explains how exchanges can be made without sales charges and the
conditions under which sales charges may be required.
HOW THE FUND VALUES ITS SHARES
...............................................................
.
This section explains how the fund determines the value of its
shares.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
...............................................................
..
This section describes the various options you have in choosing
how to receive fund dividends . It also discusses
the tax status of the payments and counsels you to
seek specific advice about your own situation.
ABOUT PUTNAM INVESTMENTS, INC.
...............................................................
.
Read this section to learn more about the companies that provide
marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.
APPENDIX
Securities ratings<PAGE>
ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The following table summarizes your maximum transaction costs from
investing in the fund and expenses based on the most recent
fiscal year. The examples show the cumulative expenses
attributable to a hypothetical $1,000 investment over specified
periods.
CLASS A CLASS B CLASS M
SHARES SHARES SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 4.75% NONE* 3.25%*
Deferred sales charge 5.0% in the first
(as a percentage year, declining
of the lower of to 1.0% in the
original purchase sixth year, and
price or redemption eliminated
proceeds) NONE** thereafter NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Total fund
Management 12b-1 Other operating
fees fees expenses expenses
- ---------- ------ --------- ---------
Class A 0.58% 0.25% 0.13% 0.96%
Class B 0.58% 0.85% 0.13% 1.56%
Class M 0.58% 0.50% 0.13% 1.21%
The table is provided to help you understand the expenses of
investing and your share of fund operating expenses
. The expenses shown in the table do not reflect the
application of credits that reduce fund expenses. <PAGE>
EXAMPLES
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and, except as indicated, redemption at
the end of each period:
1 3 5 10
year years years years
CLASS A $57 $77
$98 $160
CLASS B $66 $79 $105
$170** *
CLASS B (NO REDEMPTION) $16 $49 $85
$170** *
CLASS M $44 $70 $97 $174
The examples do not represent past or future expense levels.
Actual expenses may be greater or less than those shown. Federal
regulations require the examples to assume a 5% annual return, but
actual annual return varies.
* The higher 12b-1 fees borne by class B and class M shares may
cause long-term shareholders to pay more than the economic
equivalent of the maximum permitted front-end sales charge on
class A shares.
** A deferred sales charge of up to 1.00% is assessed on certain
redemptions of class A shares that were purchased without an
initial sales charge. See "How to buy shares - Class A
shares."
*** Reflects conversion of class B shares to class A shares
(which pay lower ongoing expenses) approximately eight years
after purchase. See "Alternative sales arrangements."
FINANCIAL HIGHLIGHTS
The following table presents per share financial information for
class A, B and M shares. This information has been audited and
reported on by the independent accountants. The "Report
of independent accountants" and financial statements included in
the fund's annual report to shareholders for the 1997
fiscal year are incorporated by reference into this prospectus.
The fund's annual report, which contains additional unaudited
performance information, is available without charge upon request.
On May 7, 1992, the shareholders of the fund approved changes to
the fund's investment objective and policies. Prior to these
changes, the fund sought high current income free from federal
income tax by investing primarily in high yielding, lower-rated
tax-exempt securities (as defined below).<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
TABLE><CAPTION
<PAGE>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
</TABLE>
<TABLE> <CAPTION>
<S> <C> <C> <C> <C> <C>
FOR THE PERIOD JANAURY 4, 1993
(COMMENCEMENT OF OPERATIONS) TO YEAR ENDED MARCH 31 MARCH 31
1997 1996 1995 1994 1993
CLASS B
NET ASSET VALUE,
BEGINNING OF PERIOD
$8.92 $8.74 $8.73 $9.12 $8.95
INVESTMENT OPERATIONS
Net investment income .46 .47 .48 .44 .10
Net realized and unrealized
gain (loss) on investments,
options and futures contracts
(.06) .18 .01 (.32) .17
TOTAL FROM INVESTMENT ACTIVITIES .40 .49 .12 .27
LESS DISTRIBUTIONS:
From net investment income (.46) (.47) (.48) (.44) (.10)
In excess of net investment income -- (.01) --
From net realized gain
on investments -- -- -- --
In excess of net realized
gain on investments -- -- (.06) --
TOTAL DISTRIBUTIONS (.46) (.47) (.48) (.51) (.10)
NET ASSET VALUE, END OF PERIOD $8.86 $8.92 $8.74 $8.73 $9.12
TOTAL INVESTMENT RETURN
AT NAV (%)(a) 4.61 7.55 5.94 1.52 3.05(b)
NET ASSETS, END OF PERIOD
(in thousands) $473,818 $474,374 $427,086 $369,006 $95,175
Ratio of expenses to average
net assets (%)(c) 1.56 1.54 1.55 1.54 .30(b)
Ratio of net investment income to
average net assets (%) 5.19 5.25 5.66 5.02 1.21(b)
Portfolio turnover (%) 55.08 75.89 62.84 47.08 31.05(b)
/TABLE
<PAGE>
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE><CAPTION>
<C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
MAY 22, 1989
YEAR (COMMENCEMENT
ENDED OF OPERATIONS) TO
MARCH 31 MARCH 31
1997 1996 1995 1994 1993 1992 1991 1990
CLASS A
$8.93 $8.74 $8.73 $9.12 $8.65 $8.36 $8.47 $8.50
.52 .52 .54 .55 .63 .67 .68 .57(a)
(.06) .19 -- (.34) .51 .31 (.10) (.04)
.46 .71 .54 .21 1.14 .98 .58 .53
(.52) (.52) (.53) (.54) (.62) (.68) (.69) (.56)
- -- -- -- -- -- -- -- --
- -- -- -- (.01) (.05) (.01) -- --
- -- -- -- (.05) -- -- -- --
(.52) (.52) (.53) (.60) (.67) (.69) (.69) (.56)
$8.87 $8.93 $8.74 $8.73 $9.12 $8.65 $8.36 $8.47
5.24 8.31 6.55 2.15 13.67 12.11 7.16 6.41(b)
$794330 $821,500 $828,548 $852,281 $638,971 $324,384 $244,508 $182,641
.96 .95 .95 .97 1.05 .91 .95 .73(a)(b)
5.80 5.86 6.28 5.73 6.83 7.80 8.08 5.95(a)(b)
55.08 75.89 62.84 47.08 31.05 44.34 49.80 41.84(b)
<FN>
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Not annualized.
(b) The ratio of expenses to average net assets for the period ended March 31, 1996 includes amounts paid through
expense offset arrangements.
Prior period ratios exclude these amounts (Note 2).
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C>
FOR THE PERIOD
DECEMBER 1, 1994
(COMMENCEMENT
OF OPERATIONS) TO
MARCH 31
1995 1996 1997
CLASS M
NET ASSET VALUE,
BEGINNING OF PERIOD $8.21 $8.75 $8.92
INVESTMENT OPERATIONS
Net investment income .16 .49 .50
Net realized and unrealized
gain (loss) on investments,
options and futures contracts .54 .17 (.06)
TOTAL FROM INVESTMENT ACTIVITIES.70 .67 .43
LESS DISTRIBUTIONS:
From net investment income (.16) (.50) (.49)
In excess of net investment income --
From net realized gain
on investments -- -- --
In excess of net realized
gain on investments -- -- --
TOTAL DISTRIBUTIONS (.16) (.50) (.49)
NET ASSET VALUE, END OF PERIOD$8.75 $8.92 $8.86
TOTAL INVESTMENT RETURN
AT NAV (%)(b) 8.58(c) 7.77 4.97
NET ASSETS, END OF PERIOD
(in thousands) $1,224 $8,394 $11,773
Ratio of expenses to average
net assets (%) .41(c) 1.18 1.21
Ratio of net investment income to
average net assets (%) 1.78(c) 5.45 5.51
Portfolio turnover (%) 62.84 75.89 55.08
</TABLE>FOR THE PERIOD
<TABLE>
JANUARY 4, 1993
(COMMENCEMENT OF
OPERATIONS) TO
YEAR ENDED MARCH 31 MARCH 31
1997 1996 1995 1994 1993
CLASS B
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $8.92 $8.74 $8.73 $9.12 $8.95
INVESTMENT OPERATIONS
Net investment income .46 .47 .48 .44 .10
Net realized and unrealized
gain (loss) on investments (.06) .18 .01 (.32) .17
TOTAL FROM INVESTMENT ACTIVITIES .40 .65 .49 .12 .27
LESS DISTRIBUTIONS:
From net investment income
(.46) (.47) (.48) (.44) (.10)
In excess of net investment income --
-- -- (.01) --
From net realized gain
on investments -- -- -- -- --
In excess of net realized
gain on investments -- -- -- (.06) --
TOTAL DISTRIBUTIONS (.46) (.47) (.48) (.51) (.10)
NET ASSET VALUE, END OF PERIOD
$8.86 $8.92 $8.74 $8.73 $9.12
TOTAL INVESTMENT RETURN
AT NAV (%)(a) 4.61 7.55 5.94 1.52 3.05(b)
NET ASSETS, END OF PERIOD
(in thousands)
$473,818 $474,374 $427,086 $369,006 $95,175
Ratio of expenses to average
net assets (%)(c) 1.56 1.54 1.55 1.54 .30(b)
Ratio of net investment income to
average net assets (%)
5.19 5.25 5.66 5.02 1.21(b)
Portfolio turnover (%)
55.08 75.89 62.84 47.0831.05
</TABLE>
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE><CAPTION>
<C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
MAY 22, 1989
YEAR (COMMENCEMENT
ENDED OF OPERATIONS) TO
MARCH 31 MARCH 31
1997 1996 1995 1994 1993 1992 1991 1990
CLASS A
$8.93 $8.74 $8.73 $9.12 $8.65 $8.36 $8.47 $8.50
.52 .52 .54 .55 .63 .67 .68 .57(a)
(.06) .19 -- (.34) .51 .31 (.10) (.04)
.46 .71 .54 .21 1.14 .98 .58 .53
(.52) (.52) (.53) (.54) (.62) (.68) (.69) (.56)
- -- -- -- -- -- -- -- --
- -- -- -- (.01) (.05) (.01) -- --
- -- -- -- (.05) -- -- -- --
(.52) (.52) (.53) (.60) (.67) (.69) (.69) (.56)
$8.87 $8.93 $8.74 $8.73 $9.12 $8.65 $8.36 $8.47
5.24 8.31 6.55 2.15 13.67 12.11 7.16 6.41(b)
$794330 $821,500 $828,548 $852,281 $638,971 $324,384 $244,508 $182,641
.96 .95 .95 .97 1.05 .91 .95 .73(b)(d)
5.80 5.86 6.28 5.73 6.83 7.80 8.08 5.95(b)(d)
55.08 75.89 62.84 47.08 31.05 44.34 49.80 41.84(b)
<FN>
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Not annualized.
(b) The ratio of expenses to average net assets for the years ended March 31, 1996 and thereafter includes
amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts .
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C>
FOR THE PERIOD
DECEMBER 1, 1994
(COMMENCEMENT
OF OPERATIONS) TO
MARCH 31
1995 1996 1997
CLASS M
NET ASSET VALUE,
BEGINNING OF PERIOD $8.21 $8.75 $8.92
INVESTMENT OPERATIONS
Net investment income .16 .50 .49
Net realized and unrealized
gain (loss) on investments .54 .17 (.06)
TOTAL FROM INVESTMENT ACTIVITIES.70 .67 .43
LESS DISTRIBUTIONS:
From net investment income (.16) (.50) (.49)
In excess of net investment income --
From net realized gain
on investments -- -- --
In excess of net realized
gain on investments -- -- --
TOTAL DISTRIBUTIONS (.16) (.50) (.49)
NET ASSET VALUE, END OF PERIOD$8.75 $8.92 $8.86
TOTAL INVESTMENT RETURN
AT NAV (%)(a) 8.58(b) 7.77 4.97
NET ASSETS, END OF PERIOD
(in thousands) $1,224 $8,394 $11,773
Ratio of expenses to average
net assets (%) .41(b) 1.18 1.21
Ratio of net investment income to
average net assets (%) 1.78(b) 5.45 5.51
Portfolio turnover (%) 62.84 75.89 55.08
</TABLE>
<PAGE>
OBJECTIVE
PUTNAM MUNICIPAL INCOME FUND SEEKS AS HIGH A LEVEL OF CURRENT
INCOME EXEMPT FROM FEDERAL INCOME TAX AS PUTNAM INVESTMENT
MANAGEMENT, INC., THE FUND'S INVESTMENT MANAGER ("PUTNAM
MANAGEMENT"), BELIEVES IS 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.
HOW THE FUND PURSUES ITS OBJECTIVE
BASIC INVESTMENT STRATEGY
THE FUND INVESTS UNDER NORMAL MARKET CONDITIONS AT LEAST 65% OF
ITS NET ASSETS IN INVESTMENT-GRADE TAX-EXEMPT SECURITIES.
Investment-grade securities are securities 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 are unrated securities
determined by Putnam Management to be of comparable
quality. It is a fundamental policy of the fund to invest at
least 80% of its net assets in tax-exempt securities, except when
following the alternative "defensive" investment strategies
described below. The fund may hold a portion of its assets in
cash or money market instruments.
Differing yields on tax-exempt securities of the same maturity are
a function of several factors, including the relative financial
strength of the issuers. High yields are generally available from
securities rated below BBB or Baa by a rating agency or
from unrated securities of comparable quality. The fund will
not purchase securities below B by each agency rating such
security , or unrated securities determined by Putnam
Management to be of comparable quality. Securities rated
below BBB and Baa are considered to be of poor
standing and predominantly speculative. The foregoing
investment limitations will be measured at the time of purchase
and, to the extent a security is assigned a different rating by
one or more of the various rating agencies, Putnam Management will
use the highest rating assigned by any agency. For more
detailed information about the risks associated with investing in
lower-rated securities, see "Risk factors" below.
Putnam Management may take full advantage of the entire range of
maturities offered by tax-exempt securities and may adjust the
average maturity of the fund's portfolio from time to time,
depending on its assessment of the relative yields available on
securities of different maturities and its expectations of future
changes in interest rates. However, it is anticipated that under
normal market conditions the fund will invest primarily in
long-term tax-exempt securities .
<PAGE>
ALTERNATIVE MINIMUM TAX
INTEREST INCOME DISTRIBUTED BY THE FUND FROM CERTAIN TYPES
OF TAX-EXEMPT SECURITIES MAY BE SUBJECT TO FEDERAL ALTERNATIVE
MINIMUM TAX FOR INDIVIDUALS AND CORPORATIONS.
In determining compliance with the 80% test described above,
it is a fundamental policy of the fund to exclude from tax-
exempt securities any securities the interest from which may
be subject to the federal alternative minimum tax for
individuals . All tax-exempt interest dividends will,
however, be included in determining the federal
alternative minimum taxable income of corporations.
ALTERNATIVE INVESTMENT STRATEGIES
At times Putnam Management may judge that conditions in the
markets for tax-exempt securities make pursuing the fund's basic
investment strategy inconsistent with the best interests of its
shareholders. At such times Putnam Management may temporarily use
alternative strategies primarily designed to reduce
fluctuations in the value of fund assets.
In implementing these defensive strategies, the fund
may invest without limit in taxable obligations, including
obligations of the U.S. government, its agencies or
instrumentalities or any other securities that Putnam
Management considers consistent with such defensive strategies.
It is impossible to predict when, or for how long,
these alternative strategies will be used .
TAX-EXEMPT SECURITIES
TAX-EXEMPT SECURITIES INCLUDE OBLIGATIONS OF A STATE (INCLUDING
THE DISTRICT OF COLUMBIA), A TERRITORY OR A U.S. POSSESSION, OR
ANY OF THEIR AGENCIES, INSTRUMENTALITIES OR OTHER
GOVERNMENTAL UNITS, THE INTEREST ON WHICH, IN THE OPINION OF BOND
COUNSEL, IS EXEMPT FROM FEDERAL INCOME TAX.
These securities are issued to obtain funds for various public
purposes, such as the construction of public facilities, the
payment of general operating expenses or the refunding of
outstanding debts.
They may also be issued to finance various private activities,
including the lending of funds to public or private institutions
for the construction of housing, educational or medical
facilities, or to fund short-term cash requirements. They may
also include certain types of industrial development bonds,
private activity bonds or notes issued by public authorities to
finance privately owned or operated facilities.
Short-term tax-exempt securities may be issued as interim
financing in anticipation of tax collections, revenue receipts or
bond sales to finance various public purposes.
THE TWO PRINCIPAL CLASSIFICATIONS OF TAX-EXEMPT SECURITIES ARE
GENERAL OBLIGATION AND SPECIAL OBLIGATION (OR SPECIAL REVENUE
OBLIGATION) SECURITIES.
GENERAL OBLIGATION securities involve a pledge of the credit of an
issuer possessing taxing power and are payable from the issuer's
general unrestricted revenues. Their payment may depend on an
appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation
securities vary according to the law applicable to the particular
issuer.
SPECIAL OBLIGATION (OR SPECIAL REVENUE OBLIGATION) securities are
payable only from the revenues derived from a particular facility
or class of facilities, or a specific revenue source, and
generally are not payable from the unrestricted revenues of the
issuer. Industrial development bonds and private activity bonds
are in most cases special obligation securities, whose credit
quality is tied to the private user of the facilities.
The fund may also invest in securities representing interests in
tax-exempt securities, known as "inverse floating obligations" or
"residual interest bonds." These obligations pay interest rates
that vary inversely with changes in the interest rates of
specified short-term tax-exempt securities or an index of short-
term tax-exempt securities. The interest rates on inverse
floating obligations or residual interest bonds will typically
decline as short-term market interest rates increase and increase
as short-term market rates decline.
These securities have the effect of providing a degree of
investment leverage. They will generally respond to changes in
market interest rates more rapidly than fixed-rate long-term
securities (typically twice as fast). As a result, the market
values of inverse floating obligations and residual interest bonds
will generally be more volatile than the market values of fixed-
rate tax-exempt securities.
RISK FACTORS
THE VALUES OF TAX-EXEMPT SECURITIES FLUCTUATE IN RESPONSE TO
CHANGES IN INTEREST RATES. A decrease in interest rates will
generally result in an increase in the value of fund
assets. Conversely, during periods of rising interest rates, the
value of 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 conditions
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 MAY INVEST IN BOTH HIGHER-RATED AND LOWER-RATED
TAX-EXEMPT SECURITIES . LOWER-RATED SECURITIES ARE
SECURITIES RATED BELOW BBB OR BAA BY NATIONALLY RECOGNIZED
SECURITIES RATING AGENCIES, AND, TOGETHER WITH UNRATED
SECURITIES OF COMPARABLE QUALITY , ARE COMMONLY KNOWN AS
"JUNK BONDS." The values of these securities generally
fluctuate more than those of higher-rated securities. In
addition, the lower rating reflects a greater possibility that the
financial condition of the issuer or adverse changes in
general economic conditions, or both, may impair the ability of
the issuer to make payments of income and principal.
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 Putnam Management to be of
comparable quality.
UNRATED SECURITIES
RATED SECURITIES OF COMPARABLE QUALITY,
AS PERCENTAGE OF AS PERCENTAGE OF
RATING NET ASSETS NET ASSETS
"AAA" 33.29% 1.00%
"AA" 7.10% ---
"A" 8.01% ---
"BBB" 20.66% 3.51%
"BB" 4.77% 8.48%
"B" 0.18% 10.49%
"CCC" 0.10% 0.40%
"CC" --- ---
"C" --- ---
"D" --- 0.16%
------ ------
Total 74.11% 24.04%
====== ======
<PAGE>
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis.
However, the amount of information available about the financial
condition of an issuer of tax-exempt securities may not be as
extensive as that which is made available by corporations whose
securities are publicly traded. When the fund invests in tax-
exempt securities in the lower rating categories, the achievement
of its goals is more dependent on Putnam Management's
ability than would be the case if it were investing in tax-
exempt securities in the higher rating categories. Investors
should consider carefully their ability to assume the risk of
owning shares of a mutual fund that may invest in securities in
the lower rating categories.
The fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase.
However, Putnam Management will consider such reduction in its
determination of whether the fund should continue to hold the
security in its portfolio.
At times, a substantial portion of fund assets may be invested in
securities as to which the fund, by itself or together with other
funds and accounts managed by Putnam Management and its
affiliates, holds all or a major portion. Under adverse market or
economic conditions or in the event of adverse changes in the
financial condition of the issuer, it may be more difficult
to sell these securities when Putnam Management 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
fund operating expenses and adversely affect its net
asset value. Any income derived from the ownership or
operation of such assets would not be tax-exempt. The ability of
a holder of a tax-exempt security to enforce the terms of that
security in a bankruptcy proceeding may be more limited than would
be the case with respect to securities of private
issuers .
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 may invest in so-called "zero-coupon" bonds , which
are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life
of the security. The values of zero-coupon bonds are subject
to greater fluctuation in response to changes in market interest
rates than bonds that pay interest currently.
Zero-coupon bonds allow an issuer to avoid the need to generate
cash to meet current interest payments. Accordingly, such bonds
may involve greater credit risks than bonds paying interest
currently. The fund is required to accrue and distribute
interest income from zero-coupon bonds on a current basis,
even though it does not receive that income currently in cash.
Thus it may be necessary to sell other investments
to obtain cash needed to make income distributions.
The secondary market for tax-exempt securities is generally less
liquid than that for taxable fixed-income securities, particularly
in the lower rating categories. Thus it may be more difficult
to value or buy and sell certain of these
securities. Certain investment grade securities
share some of the risk factors discussed above with respect to
lower-rated securities.
FOR ADDITIONAL INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTING IN SECURITIES IN THE LOWER RATING CATEGORIES, SEE THE
SAI.
SINCE THE FUND INVESTS PRIMARILY IN TAX-EXEMPT SECURITIES, THE
VALUE OF ITS SHARES MAY BE ESPECIALLY AFFECTED BY FACTORS
PERTAINING TO THE ECONOMY AND OTHER FACTORS AFFECTING THE ABILITY
OF ISSUERS OF TAX-EXEMPT SECURITIES TO MEET THEIR OBLIGATIONS.
As a result, the value of fund shares may fluctuate more widely
than the value of shares of a portfolio investing in many
different types of securities. The ability of state, county or
local governments to meet their obligations will depend primarily
on the availability of tax and other revenues to those governments
and on their fiscal conditions generally.
The amounts of tax and other revenues available to governmental
issuers of tax-exempt securities may be affected from time to time
by economic, political and demographic conditions within or
outside of their jurisdiction. In addition, constitutional or
statutory restrictions may limit a government's power to raise
revenues or increase taxes. The availability of federal, state
and local aid to issuers of tax-exempt securities may also affect
their ability to meet their obligations.
Payments of principal and interest on special obligation
securities will depend on the economic condition of the facility
or specific revenue source from whose revenues the payments will
be made. The facility's economic status, in turn, could be
affected by economic, political and demographic conditions
affecting the state.
Any reduction in the actual or perceived ability of an issuer of
tax-exempt securities to meet its obligations, including a
reduction in the rating of the issuer's outstanding securities,
would likely have an adverse effect on the market value and
marketability of its obligations. Doubts surrounding an issuer's
ability to meet its obligations could adversely affect the values
of other tax-exempt securities as well.
DIVERSIFICATION AND CONCENTRATION POLICIES
The fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets, the fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government securities). The remaining 25% of its total
assets is not subject to this restriction. To the extent the fund
invests a significant portion of its assets in the securities of a
particular issuer, it will be subject to an increased risk
of loss if the market value of such issuer's securities declines.
THE FUND WILL NOT INVEST MORE THAN 25% OF ITS TOTAL ASSETS IN ANY
ONE INDUSTRY. Governmental issuers of tax-exempt securities are
not considered part of any "industry." However, for this purpose
tax-exempt securities backed only by the assets and revenues of
non-governmental users may be deemed to be issued by such non-
governmental users. Thus, the 25% limitation would apply to these
obligations.
It is possible that the fund may invest more than 25% of its
assets in a broader segment of the market for tax-exempt
securities, such as revenue obligations of hospitals and other
health care facilities, housing revenue obligations, or airport
revenue obligations. This would be the case only if Putnam
Management determined that the yields available from obligations
in a particular segment of the market justified the additional
risks associated with such concentration.
Although these obligations could be supported by the credit of
governmental issuers or by the credit of non-governmental issuers
engaged in a number of industries, economic, business, political
and other developments generally affecting the revenues of
such issuers may have a general adverse effect on all tax-
exempt securities in a particular market segment.
(Examples of such developments include proposed legislation
or pending court decisions affecting the financing of such
projects and market factors affecting the demand for their
services or products).
The fund reserves the right to invest more than 25% of its assets
in industrial development bonds and private activity securities.
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of the fund's
portfolio investments will likely bear coupon rates that are
higher than current market rates, regardless of whether these
securities were originally purchased at a premium. These
securities would generally carry market values greater than the
principal amounts payable on maturity, which would be reflected in
the net asset value of fund shares.
The values of these "premium" securities tend to approach the
principal amount as the securities approach maturity (or call
price in the case of securities approaching their first call
date). As a result, an investor who purchases fund shares
during these periods would initially receive higher
monthly distributions (derived from the higher coupon rates
payable on fund 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
, investors may find it useful to compare the
current dividend rate with the fund's "yield," which is computed
on a yield-to-maturity basis in accordance with SEC regulations
and which reflects amortization of market premiums. See "How
performance is shown."
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 brokerage commissions or dealer markups and other
transaction costs on the sale of securities and reinvestment in
other securities. These transactions may result in realization of
taxable capital gains. Portfolio turnover rates are shown
in the section "Financial highlights."
FINANCIAL FUTURES AND OPTIONS
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND
OPTIONS .
The fund may purchase and sell index futures contracts on
the Municipal Bond Index . This index is intended to
represent a numerical measure of market performance for long-term
tax-exempt bonds. An "index future" is a contract to buy or sell
units of a particular securities index at an agreed price on a
specified future date. Depending on the change in value of the
index between the time the fund enters into and terminates an
index futures contract, the fund realizes a gain or loss.
The fund may also purchase and sell put and call options on
index futures or on indexes directly, in addition to or as
an alternative to purchasing and selling index futures. The fund
may also purchase and sell futures contracts and related options
on U.S. Treasury securities, including U.S. Treasury bills, notes
and bonds ("U.S. government securities") and options directly on
U.S. government securities.
In addition, the fund may purchase put and call options on, or
warrants to purchase, tax-exempt securities, either directly or
through custodial arrangements in which the fund and other
investors own an interest in one or more options on tax-exempt
securities.
The fund will engage in these transactions for hedging purposes
and, to the extent permitted by applicable law, for nonhedging
purposes, such as to manage the effective duration of the fund's
portfolio or as a substitute for direct investment.
THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS AND
MAY RESULT IN REALIZATION OF TAXABLE INCOME OR CAPITAL GAINS.
FUTURES AND OPTIONS TRANSACTIONS INVOLVE COSTS AND MAY RESULT IN
LOSSES.
Certain risks arise from the possibility of imperfect
correlations among movements in the prices of financial
futures and options purchased or sold by the fund, of the
underlying bond index or U.S. government securities and, in the
case of hedging transactions, of the tax-exempt securities
that are the subject of the hedge.
Other risks arise from the potential inability to close out
futures or options positions. There can be no assurance that a
liquid secondary market will exist for any futures contract or
option at a particular time. Certain provisions of the Internal
Revenue Code and certain regulatory requirements may limit the use
of futures and options transactions. The successful use of
these strategies further depends on the ability of Putnam
Management to forecast interest rates and market movements
correctly.
A MORE DETAILED EXPLANATION OF FINANCIAL FUTURES AND
OPTIONS TRANSACTIONS , AND THE RISKS ASSOCIATED WITH
THEM , IS INCLUDED IN THE SAI.
OTHER INVESTMENT PRACTICES
THE FUND MAY ALSO ENGAGE IN THE FOLLOWING INVESTMENT PRACTICES,
EACH OF WHICH MAY RESULT IN TAXABLE INCOME OR CAPITAL GAINS AND
INVOLVES CERTAIN SPECIAL RISKS. THE SAI CONTAINS MORE DETAILED
INFORMATION ABOUT THESE PRACTICES, INCLUDING LIMITATIONS DESIGNED
TO REDUCE THESE RISKS.
REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS. The fund 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 and inverse floating
obligations, are considered to be "derivatives." Derivatives are
financial instruments whose value depends upon, or is derived
from, the value of an underlying asset, such as a security or an
index. Further information about these instruments and the risks
involved in their use is included elsewhere in this prospectus and
in the SAI.
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP TO LIMIT INVESTMENT
RISKS FOR THE FUND'S SHAREHOLDERS. THESE RESTRICTIONS
PROHIBIT THE FUND, WITH RESPECT TO 75% OF ITS TOTAL ASSETS,
FROM ACQUIRING MORE THAN 10% OF THE VOTING SECURITIES OF ANY ONE
ISSUER* THE ALSO PROHIBIT THE FUND FROM INVESTING MORE THAN:
(a) (with respect to 75% of its total assets) 5% of its total
assets in securities of any one issuer (other than U.S. government
obligations);*
(b) 25% of its total assets in any one
industry (other than securities of the U.S. government
, its agencies or instrumentalities);* or
(c) 15% of its net assets in any combination of securities that
are not readily marketable, in securities restricted as to resale
(excluding restricted securities that have been determined by the
fund's Trustees (or the person designated by them to make such
determinations) to be readily marketable), and in repurchase
agreements maturing in more than seven days.
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the SAI for the full text of
these policies and other fundamental investment policies.
Except for investment policies designated as fundamental in this
prospectus or the SAI, the investment policies described in this
prospectus and in the SAI are not fundamental investment policies.
The Trustees may change any non-fundamental investment
policy without shareholder approval. As a matter of
policy, the Trustees would not materially change the fund's
investment objective without shareholder approval.
HOW PERFORMANCE IS SHOWN
FUND ADVERTISEMENTS MAY, FROM TIME TO TIME , INCLUDE
PERFORMANCE INFORMATION . "Yield" for each class of shares is
calculated by dividing the annualized net investment income per
share during a recent 30-day period by the maximum public offering
price per share of the class on the last day of that period.
For purposes of calculating yield, net investment income is
calculated in accordance with SEC regulations and may differ from
net investment income as determined for tax purposes. SEC
regulations require that net investment income be calculated on a
"yield-to-maturity" basis, which has the effect of amortizing any
premiums or discounts in the current market value of fixed -
income securities. The current dividend rate is based on net
investment income as determined for tax purposes, which may not
reflect amortization in the same manner. See "How the fund
pursues its objective -- Investments in premium securities."
Yield is based on the price of the shares, including the maximum
initial sales charge in the case of class A and class M shares,
but does not reflect any contingent deferred sales charge
in the case of class B shares. "Tax-equivalent" yield for each
class of shares shows the effect on performance of the tax-exempt
status of distributions received from the fund. It reflects the
approximate yield that a taxable investment must earn for
shareholders at stated income levels to produce an after-tax yield
equivalent to a class's tax-exempt yield.
"Total return" for the one-, five- and ten-year periods (or for
the life of a class, 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 (in the case of class A and class M shares) or
reflecting the deduction of any applicable contingent deferred
sales charge (in the case of class B shares). 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.
<PAGE>
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
which 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. See the SAI.
HOW THE FUND IS MANAGED
THE TRUSTEES ARE RESPONSIBLE FOR GENERALLY OVERSEEING THE
CONDUCT OF FUND BUSINESS. Subject to such policies as the
Trustees may determine, Putnam Management furnishes a continuing
investment program for the fund and makes investment decisions on
its behalf. Subject to the control of the Trustees, Putnam
Management also manages the fund's other affairs and business.
The fund pays Putnam Management a quarterly fee for these
services based on average net assets. See "Expenses
summary" and the SAI.
The following officer of Putnam Management has had primary
responsibility for the day-to-day management of the fund's
portfolio since the year stated below:
BUSINESS EXPERIENCE
YEAR (AT LEAST 5 YEARS)
---- -------------------
Blake E. Anderson
1996 Employed as an investment Managing
Director professional by Putnam
Management since 1987.
The fund pays all expenses not assumed by Putnam Management,
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 Putnam
Management 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.
Putnam Management places all orders for purchases and sales of
fund securities. In selecting broker-dealers, Putnam
Management may consider research and brokerage services furnished
to it and its affiliates. Subject to seeking the most favorable
price and execution available, Putnam Management may consider
sales of fund shares (and, if permitted by law,
shares of the other Putnam funds) as a factor in the
selection of broker-dealers.
ORGANIZATION AND HISTORY
Putnam Municipal Income Fund is a Massachusetts business trust
organized on February 6, 1989. 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
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. Only class A, B and
M shares are offered by this prospectus. The fund may also offer
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. For more
information, including your eligibility to purchase any other
class of shares, contact your investment dealer or Putnam Mutual
Funds (at 1-800-225-1581).
Each share has one vote, with fractional shares voting
proportionally. Shares of all classes will vote together
as a single class except when otherwise required by law or as
determined by the Trustees. Shares are freely transferable, are
entitled to dividends as declared by the Trustees, and, if the
fund were liquidated, would receive the net assets of the fund.
The fund may suspend the sale of shares at any time and may refuse
any order to purchase shares. Although the fund is not required
to hold annual meetings of its shareholders, shareholders holding
at least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Agreement and Declaration of
Trust.
If you own fewer shares than the minimum set by the
Trustees (presently 20 shares), the fund may choose to redeem your
shares. You will receive at least 30 days' written notice before
the fund redeems your shares, and you may purchase additional
shares at any time to avoid a redemption. The fund may also
redeem shares if you own shares above a maximum amount set by the
Trustees. There is presently no maximum, but the Trustees may
establish one at any time, which could apply to both present and
future shareholders.
THE FUND'S TRUSTEES: GEORGE PUTNAM,* CHAIRMAN. President of the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; WILLIAM F. POUNDS, VICE
CHAIRMAN. Professor of Management, Alfred P. Sloan School of
Management, Massachusetts Institute of Technology; JAMESON ADKINS
BAXTER, President, Baxter Associates, Inc.; HANS H. ESTIN, Vice
Chairman, North American Management Corp.; JOHN A. HILL, Chairman
and Managing Director, First Reserve Corporation; RONALD J.
JACKSON, Former Chairman, President and Chief Executive Officer of
Fisher-Price, Inc. , Director of Safety 1st, Inc., Trustee
of Salem Hospital and the Peabody Essex Museum; ELIZABETH
T. KENNAN, President Emeritus and Professor, Mount Holyoke
College; LAWRENCE J. LASSER,* Vice President of the Putnam funds.
President, Chief Executive Officer and Director of Putnam
Investments, Inc. and Putnam Management. Director, Marsh &
McLennan Companies, Inc.; ROBERT E. PATTERSON, Executive Vice
President and Director of Acquisitions, Cabot Partners Limited
Partnership; DONALD S. PERKINS,* Director of various corporations,
including Cummins Engine Company, Lucent
Technologies , Inc., Springs Industries, Inc. and Time
Warner Inc.; GEORGE PUTNAM, III,* President, New Generation
Research, Inc. ; A.J.C. SMITH,* Chairman and Chief Executive
Officer, Marsh & McLennan Companies, Inc.; and W. NICHOLAS
THORNDIKE, Director of various corporations and charitable
organizations, including Data General Corporation, Bradley Real
Estate, Inc. and Providence Journal Co. Also, Trustee of
Massachusetts General Hospital and Eastern Utilities Associates.
The Trustees are also Trustees of the other Putnam funds.
Those marked with an asterisk (*) are or may be deemed to be
"interested persons" of the fund, Putnam Management or Putnam
Mutual Funds.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
CLASS A SHARES. If you purchase class A shares , you
will generally pay a sales charge at the time of purchase ,
and, as a result, will not have to pay
any charges when you redeem these shares. If you purchase
class A shares at net asset value , you may have to pay
a contingent deferred sales charge ("CDSC") when you redeem
those shares . Certain purchases of class A shares qualify for
reduced sales charges. Class A shares pay lower 12b-1
fees than class B and class M shares. See "How to buy
shares --Class A shares" and "Distribution plans."
<PAGE>
CLASS B SHARES. If you purchase class B shares , you
will not pay an initial sales charge, but may have to
pay a CDSC if you redeem the shares within six
years . Class B shares also bear a higher 12b-1 fee than class
A and class M shares. Class B shares automatically convert into
class A shares, based on relative net asset value, approximately
eight years after purchase. For more information about the
conversion of class B shares, including information about
how shares acquired through reinvestment of distributions are
treated and information about certain circumstances under
which class B shares may not convert to class A shares,
see the SAI . Class B shares provide an investor the benefit
of putting all of the investor's dollars to work from the time the
investment is made. Until conversion, class B shares will have a
higher expense ratio and pay lower dividends than class A and
class M shares because of the higher 12b-1 fee. See "How to buy
shares -- Class B shares" and "Distribution plans."
CLASS M SHARES. If you purchase class M shares , you
will generally pay a sales charge at the time of purchase that
is lower than the sales charge you would pay for class A
shares. Certain purchases of class M shares qualify for reduced
sales charges. Class M shares pay 12b-1 fees that
are lower than class B shares but higher than class A
shares. You will not have to pay any charges when you redeem
class M shares, but the shares will not convert into any other
class of shares. See "How to buy shares --Class M shares" and
"Distribution plans."
WHICH CLASS IS BEST FOR YOU? Which class of shares
provides the most suitable investment for you
depends on a number of factors, including the amount you
intend to invest and how long you intend to hold the shares. If
your intended purchase qualifies for reduced sales
charges , you might consider class A or class M shares.
If you prefer not to pay a sales charge at the
time of purchase, you might consider class B shares.
For more information about these sales arrangements, consult your
investment dealer or Putnam Investor Services. Shares may only
be exchanged for shares of the same class of another Putnam fund.
See "How to exchange shares."
HOW TO BUY SHARES
You can open a fund account with as little as $500 and make
additional investments at any time with as little as $50. You
can buy fund shares three ways - through most investment dealers,
through Putnam Mutual Funds (at 1-800-225-1581), or through a
systematic investment plan. If you do not have a dealer, Putnam
Mutual Funds can refer you to one.
BUYING SHARES THROUGH PUTNAM MUTUAL FUNDS. Complete an order
form and write a check for the amount you wish to invest, payable
to the fund. Return the completed form and check to Putnam
Mutual Funds, which will act as your agent in purchasing shares
.
BUYING SHARES THROUGH SYSTEMATIC INVESTING. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking or savings account. Application forms
are available from your investment dealer or through Putnam
Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange to receive that
day's public offering price.
CLASS A SHARES
The public offering price of class A shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, in its discretion, allocates the entire amount to
your investment dealer.
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED TO
NET DEALERS AS A
AMOUNT OF TRANSACTION AMOUNT OFFERING PERCENTAGE OF
AT OFFERING PRICE ($) INVESTED PRICE OFFERING PRICE
- -----------------------------------------------------------------
Under 25,000 4.99% 4.75% 4.50%
25,000 but under 100,000 4.71 4.50 4.25
100,000 but under 250,000 3.90 3.75 3.50
250,000 but under 500,000 3.09 3.00 2.75
500,000 but under 1,000,000 2.04 2.00 1.85
- -----------------------------------------------------------------
No initial sales charge applies to purchases of
class A shares of $1 million or more. However, a CDSC of 1.00%
or 0.50%, respectively, is imposed on redemptions
of these shares within the first or second year after
purchase, unless the dealer of record waived its
commission with Putnam Mutual Funds' approval.
Putnam Mutual Funds pays dealers of record commissions on
sales of class A shares of $1 million or more based on an
investor's cumulative purchases during the one-year period
beginning with the date of the initial purchase at net asset
value. Each subsequent one-year measuring period for these
purposes will begin with the first net asset value purchase
following the end of the prior period. Such commissions are paid
at the rate of 1.00% of the first $3 million of shares
purchased , 0.50% of the next $47 million and 0.25%
thereafter.
CLASS B SHARES
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within a specified
period after purchase, as shown in the table below.
YEAR 1 2 3 4 5 6 7+
- -------------------------------------------------------------
CHARGE 5% 4% 3% 3% 2% 1% 0%
Putnam Mutual Funds pays a sales commission equal to 4.00% of
the amount invested (including a prepaid service fee of 0.20% of
the amount invested) to dealers who sell class B shares. These
commissions are not paid on exchanges from other Putnam funds or
on sales to investors exempt from the CDSC.
CLASS M SHARES
The public offering price of class M shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, at its discretion, allocates the entire amount to
your investment dealer.
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED TO
NET DEALERS AS A
AMOUNT OF TRANSACTION AMOUNT OFFERING PERCENTAGE OF
AT OFFERING PRICE ($) 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
Sales charges will not apply to class M shares purchased with
redemption proceeds received within the prior 90 days from non-
Putnam mutual funds on which the investor paid a front-end or a
contingent deferred sales charge. Members of qualified groups
may also purchase class M shares without a sales charge.
GENERAL
YOU MAY BE ELIGIBLE TO BUY FUND SHARES AT REDUCED SALES
CHARGES OR TO SELL FUND SHARES WITHOUT A CDSC .
Consult your investment dealer or Putnam Mutual Funds for details
about Putnam's combined purchase privilege, cumulative quantity
discount, statement of intention, group sales plan,
qualified benefit plans and other plans.
Descriptions are also included in the order form and in the SAI.
The fund may sell class A, class B and class M shares at net
asset value without an initial sales charge or a CDSC to
current and retired Trustees (and their families), current and
retired employees (and their families) of Putnam Management and
affiliates, registered representatives and other employees (and
their families) of broker-dealers having sales agreements with
Putnam Mutual Funds, employees (and their families) of financial
institutions having sales agreements with Putnam Mutual Funds (or
otherwise having an arrangement with a broker-dealer or financial
institution with respect to sales of fund shares), financial
institution trust departments investing an aggregate of $1
million or more in Putnam funds, clients of certain
administrators of tax-qualified plans, tax-qualified plans when
proceeds from repayments of loans to participants are invested
(or reinvested) in Putnam funds, "wrap accounts" for the benefit
of clients of broker-dealers, financial institutions or financial
planners adhering to certain standards established by Putnam
Mutual Funds, and investors meeting certain requirements who sold
shares of certain Putnam closed-end funds pursuant to a tender
offer by the closed-end fund.
In addition, the fund may sell shares at net asset value without
an initial sales charge or a CDSC in connection with the
acquisition by the fund of assets of an investment company or
personal holding company. The CDSC will be waived on redemptions
of shares arising out of the death or post-purchase disability of
a shareholder or settlor of a living trust account, and on
redemptions in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of shares subject
to a systematic withdrawal plan may also be redeemed each year
without a CDSC. The SAI contains additional information about
purchasing shares at reduced sales charges.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
fund shares at net asset value.
If you are considering redeeming shares or transferring
shares to another person shortly after purchase, you should pay
for those shares with a certified check to avoid any delay in
redemption or transfer. Otherwise , payment may
be delayed until the purchase price of those shares has been
collected or, if you redeem by telephone, until 15 calendar days
after the purchase date. To eliminate the need for safekeeping,
certificates will not be issued for your shares
unless you request them.
In determining whether a CDSC is payable on any redemption,
shares not subject to any charge will be redeemed first, followed
by shares held longest during the CDSC period. Any CDSC will be
based on the lower of the shares' cost and net asset value. For
this purpose, the amount of any increase in a share's value above
its initial purchase price is not regarded as a share exempt from
the CDSC. Thus, when you redeem a share that has appreciated in
value during the CDSC period, a CDSC is assessed on its initial
purchase price. Shares acquired by reinvestment of distributions
may be redeemed without a CDSC at any time. For information on
how sales charges are calculated if you exchange your shares, see
"How to exchange shares." Putnam Mutual Funds receives the
entire amount of any CDSC you pay. See the SAI for more
information about the CDSC.
Putnam Mutual Funds will from time to time, at its expense,
provide additional promotional incentives or payments to dealers
that sell shares of the Putnam funds. These incentives or
payments may include payments for travel expenses, including
lodging, incurred in connection with trips taken by invited
registered representatives and their guests to locations within
and outside the United States for meetings or seminars of
a business nature. In some instances, these incentives or
payments may be offered only to certain dealers who have sold or
may sell significant amounts of shares. Certain dealers may not
sell all classes of shares.
DISTRIBUTION PLANS
The fund has adopted distribution plans to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of fund shares, including the
payments to dealers mentioned below. The plans provide for
payments by the fund to Putnam Mutual Funds at the annual
rates (expressed as a percentage of average net assets
) of up to 0.35% on class A shares and 1.00% on class B
and class M shares. The Trustees currently limit payments
on class A, class B and class M shares to 0.25%, 0.85% and
0.50% of average net assets, respectively .
Putnam Mutual Funds compensates qualifying dealers
(including, for this purpose, certain financial institutions)
for sales of shares and the maintenance of
shareholder accounts.
Putnam Mutual Funds makes quarterly payments to dealers
at the annual rate of up to 0.20% of the average net asset
value of class A shares for shares outstanding as of May 7,
1992 and 0.25% of the average net asset value for class A shares
acquired after that date (including shares acquired through
reinvestment of distributions for which such dealers are
designated as the dealer of record ). No payments are made
during the first year after purchase on shares
purchased at net asset value by shareholders investing $1
million or more , unless the shareholder has made
arrangements with Putnam Mutual Funds and the dealer of record
has waived the sales commission.
Putnam Mutual Funds makes quarterly payments to
dealers at the annual rates of 0.25% and 0.40% of the
average net asset value of class B and class M shares,
respectively for which such dealers are designated as
the dealer of record, except the first year's service
fees of 0.20% for class B shares are prepaid at
the time of sale, as described above.
Putnam Mutual Funds may suspend or modify its
payments to dealers. The payments are also subject to
the continuation of the relevant distribution plan, the terms of
service agreements between dealers and Putnam Mutual Funds, and
any applicable limits imposed by the National Association of
Securities Dealers, Inc.
HOW TO SELL SHARES
You can sell your shares to the fund any day the New York Stock
Exchange is open, either directly to the fund or through your
investment dealer. The fund will only redeem shares for which it
has received payment.
SELLING SHARES DIRECTLY TO YOUR FUND. Send a signed
letter of instruction or stock power form to Putnam Investor
Services, along with any certificates that represent shares you
want to sell. The price you will receive is the next net asset
value calculated after the fund receives your request in proper
form less any applicable CDSC. In order to receive that day's
net asset value, Putnam Investor Services must receive your
request before the close of regular trading on the New York Stock
Exchange.
If you sell 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. See the SAI for more
information about where to obtain a signature guarantee. Stock
power forms are available from your investment dealer, Putnam
Investor Services and many commercial banks.
If you want your redemption proceeds sent to an address other
than your address as it appears on Putnam's records, a signature
guarantee is required. Putnam Investor Services usually requires
additional documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
YOUR FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES THE
BUSINESS DAY AFTER YOUR REQUEST IS RECEIVED. Under unusual
circumstances, the fund may suspend redemptions, or postpone
payment for more than seven days, as permitted by federal
securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 unless you have notified
Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on the
account application, Putnam Investor Services will be authorized
to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide Putnam Investor
Services with his or her account registration and address as it
appears on Putnam Investor Services' records.
Putnam Investor Services will employ these and other reasonable
procedures to confirm that instructions communicated by telephone
are genuine; if it fails to employ reasonable procedures, Putnam
Investor Services may be liable for any losses due to
unauthorized or fraudulent instructions. For information,
consult Putnam Investor Services.
During periods of unusual market changes and shareholder
activity, you may experience delays in contacting Putnam Investor
Services by telephone. In this event, you may wish to submit a
written redemption request, as described above, or contact your
investment dealer, as described below. The Telephone Redemption
Privilege is not available if you were issued certificates for
your shares that remain outstanding. The Telephone Redemption
Privilege may be modified or terminated without notice.
SELLING SHARES THROUGH YOUR INVESTMENT DEALER. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange to receive that day's net asset value.
Your dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge you for
its services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same class of
certain other Putnam funds at net asset value . Not all
Putnam funds offer all classes of shares. If you exchange shares
subject to a CDSC, the transaction will not be subject to the
CDSC. However, when you redeem the shares acquired through the
exchange, the redemption may be subject to the CDSC, depending
upon when you originally purchased the shares. The CDSC will be
computed using the schedule of any fund into or from which you
have exchanged your shares that would result in your paying the
highest CDSC applicable to your class of shares. For purposes of
computing the CDSC, the length of time you have owned your shares
will be measured from the date of original purchase and will not
be affected by any exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services. The
form is available from Putnam Investor Services. For federal
income tax purposes, an exchange is treated as a sale of shares
and generally results in a capital gain or loss. A Telephone
Exchange Privilege is currently available for amounts up to
$500,000. Putnam Investor Services' procedures for telephonic
transactions are described above under "How to sell shares." The
Telephone Exchange Privilege is not available if you were issued
certificates for shares that remain outstanding. Ask your
investment dealer or Putnam Investor Services for prospectuses of
other Putnam funds. Shares of certain Putnam funds are not
available to residents of all states.
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the Trustees
believe doing so would be in the best interests of your
fund, the fund reserves the right to revise or terminate the
exchange privilege, limit the amount or number of exchanges or
reject any exchange. Consult Putnam Investor Services
before requesting an exchange. See the SAI to find out more
about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH CLASS
BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS LIABILITIES, BY
THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF
THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH
DAY THE EXCHANGE IS OPEN.
Tax-exempt securities are valued on the basis of valuations
provided by a pricing service approved by the Trustees, which
uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in
determining value.
The fund believes that reliable market quotations
generally are not readily available for purposes of
valuing its portfolio securities. As a result, it is likely that
most of the valuations provided by a pricing service will be
based upon fair value determined on the basis of the factors
listed above.
Non-tax-exempt securities for which market quotations are readily
available are valued at market value. Short-term investments
that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets
are valued at their fair value following procedures approved by
the Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
The fund declares all of its net investment income as a
distribution on each day it is open for business. Net
investment income consists of interest accrued on
portfolio investments of the fund, less accrued expenses,
computed in each case since the most recent determination of net
asset value. Normally, the fund pays distributions of net
investment income monthly. The fund will distribute at
least annually all net realized capital gains, if any, after
applying any available capital loss carryovers. A capital
loss carryover is currently available. Distributions paid on
class A shares will generally be greater than those paid on class
B and class M shares because expenses attributable to class B and
class M shares will generally be higher.
You begin earning distributions on the business day that
Putnam Mutual Funds receives payment for your shares. It is your
responsibility to see that your dealer forwards payment promptly.
YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS:
- - Reinvest all distributions in additional shares without a
sales charge;
- - Receive distributions from net investment income in
cash while reinvesting capital gains distributions in
additional shares without a sales charge; or
- - Receive all distributions in cash.
You can change your distribution option by notifying Putnam
Investor Services in writing. If you do not select an option
when you open your account, all distributions will be reinvested.
All distributions not paid in cash will be reinvested in shares
of the class on which the distributions are paid. You will
receive a statement confirming reinvestment of distributions in
additional shares (or in shares of other Putnam funds for
Dividends Plus accounts) promptly following the quarter in which
the reinvestment occurs.
If a check representing a fund distribution is not cashed within
a specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting
the distribution in the fund or in another Putnam fund. If
Putnam Investor Services does not receive your election, the
distribution will be reinvested in the fund. Similarly, if
correspondence sent by the fund or Putnam Investor Services is
returned as "undeliverable," fund distributions will
automatically be reinvested in the fund or in another Putnam
fund.
The fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements necessary for it to be relieved of federal
taxes on income and gains it distributes to shareholders. The
fund will distribute substantially all of its ordinary income and
capital gain net income on a current basis.
Fund distributions designated as "exempt-interest
dividends" are not generally subject to federal income tax.
However, if you receive social security or railroad retirement
benefits, you should consult your tax adviser to determine what
effect, if any, an investment in the fund may have on the
taxation of your benefits. In addition, an investment in the
fund may result in liability for federal alternative minimum tax
and for state and local taxes, for both individual
and corporate shareholders.
The fund may at times purchase tax-exempt securities at a
discount from the price at which they were originally issued,
especially during periods of rising interest rates. For federal
income tax purposes, some or all of this market discount will be
included in the fund's ordinary income and will be taxable to
you as such when it is distributed to you .
Fund distributions other than exempt-interest dividends
will be taxable to you as ordinary income, except that any
distributions of net long-term capital gains will be taxable as
such, regardless of how long you have held the shares.
Distributions will be taxable as described above whether received
in cash or in shares through the reinvestment of distributions.
Early in each year Putnam Investor Services will notify you of
the amount and tax status of distributions paid to you for the
preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in the fund. You should consult your
tax adviser to determine the precise effect of an investment in
the fund on your particular tax situation (including possible
liability for federal alternative minimum tax and for
state and local taxes).
ABOUT PUTNAM INVESTMENTS, INC.
PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937.
Putnam Mutual Funds is the principal underwriter of the fund and
of other Putnam funds. Putnam Fiduciary Trust Company is the
custodian of the fund . Putnam Investor Services,
a division of Putnam Fiduciary Trust Company, is the
investor servicing and transfer agent for the fund .
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., which is
wholly owned by Marsh & McLennan Companies, Inc., a publicly-
owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
<PAGE>
APPENDIX
SECURITIES RATINGS
THE FOLLOWING RATING SERVICES DESCRIBE RATED SECURITIES AS
FOLLOWS:
MOODY'S INVESTORS SERVICE, INC.
BONDS
AAA -- Bonds which are rated AAA are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest
payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of
such issues.
AA -- Bonds which are rated AA are judged to be of high quality
by all standards. Together with the AAA group they comprise what
are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may not
be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat
larger than the AAA securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA -- Bonds which are rated BAA are considered as medium grade
obligations , (i.e., they are neither highly protected nor
poorly secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
BA -- Bonds which are rated BA are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate , and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
<PAGE>
CAA -- Bonds which are rated CAA are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
CA -- Bonds which are rated CA represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of
bonds , and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment
standing.
STANDARD & POOR'S
BONDS
AAA -- Debt rated `AAA' has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA -- Debt rated `AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only
in small degree.
A -- Debt rated `A' has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Debt rated `BBB' is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
BB-B-CCC-CC-C -- Debt rated `BB', `B', `CCC', `CC' and `C' is
regarded , on balance, as predominantly speculative
with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation .
`BB' indicates the lowest degree of speculation and `C'
the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
BB -- Debt rated `BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The `BB' rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied `BBB-' rating.
B -- Debt rated `B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The `B' rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied `BB' or `BB-' rating.
CCC -- Debt rated `CCC' has a currently identifiable
vulnerability to default, and is dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.
The `CCC' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied `B' or `B-'
rating.
CC -- The rating `CC' typically is applied to debt subordinated
to senior debt that is assigned an actual or implied `CCC'
rating.
C -- The rating `C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied `CCC-' debt
rating. The `C' rating may be used to cover a situation where
a bankruptcy petition has been filed, but debt service
payments are continued.
D -- Bonds rated `D' are in payment default. The `D' rating
category is used when interest payments or principal payments are
not made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will
be made during such grace period. The D rating also will
be used on the filing of a bankruptcy petition if debt service
payments are jeopardized.
DUFF & PHELPS CORPORATION
LONG-TERM DEBT
AAA -- Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A+, A, A- -- Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of
economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still
considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently
within this category.
<PAGE>
B+, B, B- -- Below investment grade and possessing risk that
obligations will not be met when due. Financial protection
factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can
be substantial with unfavorable economic/industry conditions,
and/or with unfavorable company developments.
DD -- Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
FITCH INVESTORS SERVICE, INC.
AAA -- Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated `AAA' .
A -- Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB -- Bonds considered to be speculative. The obligor's ability
to pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.
B -- Bonds are considered highly speculative. Bonds in this class
are lightly protected as to the obligor's ability to pay interest
over the life of the issue and repay principal when due.
<PAGE>
CCC -- Bonds have certain characteristics which, with passing of
time, could lead to the possibility of default on either
principal or interest payments.
CC -- Bonds are minimally protected. Default in payment of
interest and/or principal seems probable.
C -- Bonds are in actual or imminent default in payment of
interest or principal.
DDD -- Bonds are in default and in arrears in interest and/or
principal payments. Such bonds are extremely speculative and
should be valued only on the basis of their value in liquidation
or reorganization of the obligor.
<PAGE>
GLOSSARY OF TERMS
BOND An IOU issued by a government or corporation that
usually pays interest.
- -----------------------------------------------------------------
CAPITAL A profit or loss on the sale of securities
GAIN/LOSS (generally stocks or bonds).
- -----------------------------------------------------------------
CLASS A, B, Types of shares, each class offering investors a
M SHARES different way to pay sales charges and
distribution fees. A fund's prospectus explains
the availability and attributes of each type.
- -----------------------------------------------------------------
COMMON A unit of ownership of a corporation.
STOCK
- -----------------------------------------------------------------
DISTRIBUTION A payment from a mutual fund to shareholders. It
may include interest from bonds and dividends from
stocks (dividend distributions). It may also
include profits from the sale of securities from
the fund's portfolio (capital gains
distributions).
- -----------------------------------------------------------------
NET ASSET The value of one share of a mutual fund
VALUE (NAV) without regard to sales charges. Some bond funds
aim for a steady NAV, representing stability; most
stock funds aim to raise NAV, representing growth
in the value of an investment.
- -----------------------------------------------------------------
PUBLIC The purchase price of one class A or class M
OFFERING share of a mutual fund, including the applicable
PRICE (POP) "front-end" sales charge.
- -----------------------------------------------------------------
TOTAL RETURN A measure of performance showing the change in the
value of an investment over a given period,
assuming all earnings are reinvested.
- -----------------------------------------------------------------
YIELD The percentage rate at which a fund has earned
income from its investments over the indicated
period.
<PAGE>
MAKE THE MOST OF YOUR PUTNAM PRIVILEGES
As a Putnam mutual fund shareholder, you have access to a number
of services that can help you build a more effective and flexible
financial program. Here are some of the ways you can use these
privileges to make the most of your Putnam mutual fund
investment.
SYSTEMATIC INVESTMENT PLAN
Invest as much as you wish ($25 or more) on any business day of
the month except for the 29th, 30th, or 31st. The amount you
choose will be automatically transferred each month
from your checking or savings account.
SYSTEMATIC WITHDRAWAL
Make regular withdrawals of $50 or more monthly, quarterly, or
semiannually from your Putnam mutual fund account valued
at $10,000 or more. Your automatic withdrawal may be made on any
business day of the month except for the 29th, 30th, or 31st.
SYSTEMATIC EXCHANGE
Transfer assets automatically from one Putnam account to another
on a regular, prearranged basis. There is no additional charge
for this service.
FREE EXCHANGE PRIVILEGE
Exchange money between Putnam funds in the same class of shares
without charge. The exchange privilege allows you to adjust your
investments as your objectives change. A signature guarantee is
required for exchanges of more than $500,000 and shares of all
Putnam funds may not be available to all investors.
DIVIDENDS PLUS
Diversify your portfolio by investing dividends and other
distributions from one Putnam fund automatically into another at
net asset value.
STATEMENT OF INTENTION
To reduce a front-end sales charge, you may agree to invest a
minimum dollar amount over 13 months. Depending on your fund,
the minimum is $25,000, $50,000, or $100,000. Whenever you make
an investment under this arrangement, you or your investment
advisor should notify Putnam Mutual Funds that a Statement
of Intention is in effect.
<PAGE>
Investors may not maintain, within the same fund, simultaneous
plans for systematic investment or exchange (into the
fund) and systematic withdrawal or exchange (out of the
fund) . These privileges are subject to change or
termination.
For more information about any of these services and privileges,
call your investment advisor or a Putnam customer service
representative toll free at 1-800-225-1581.
<PAGE>
PUTNAM FAMILY OF FUNDS *
PUTNAM GROWTH FUNDS
Putnam Asia Pacific Growth Fund
Putnam Capital Appreciation Fund
Putnam Diversified Equity Trust
Putnam Emerging Markets Fund
Putnam Europe Growth Fund
Putnam Global Growth Fund
Putnam Global Natural Resources Fund
Putnam Health Sciences Trust
Putnam International Growth Fund
Putnam International New Opportunities Fund
Putnam International Voyager Fund
Putnam Investors Fund
Putnam New Opportunities Fund++
Putnam OTC & Emerging Growth Fund+
Putnam Vista Fund
Putnam Voyager Fund
Putnam Voyager Fund II
PUTNAM GROWTH AND INCOME FUNDS
Putnam Balanced Retirement Fund
Putnam Convertible Income-Growth Trust
Putnam Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Putnam Growth and Income Fund II
Putnam International Growth and Income Fund
Putnam New Value Fund
Putnam Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Putnam American Government Income Fund
Putnam Diversified Income Trust
Putnam Diversified Income Trust II
Putnam Federal Income Trust
Putnam Global Governmental Income Trust
Putnam High Yield Advantage Fund
Putnam High Yield Total Return Fund
Putnam High Yield Trust++
Putnam Income Fund
Putnam Intermediate U.S. Government Income Fund
Putnam Preferred Income Fund
Putnam U.S. Government Income Trust
<PAGE>
PUTNAM TAX-FREE INCOME FUNDS
Putnam Municipal Income Fund
Putnam Tax Exempt Income Fund
Putnam Tax-Free High Yield Fund
Putnam Tax-Free Insured Fund
Putnam State tax-free income funds+++
Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New York, Ohio,
and Pennsylvania
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that
spread your money across a variety of stocks, bonds, and money
market investments seeking to help maximize your return and
reduce your risk.
THE THREE PORTFOLIOS:
Balanced Portfolio
Conservative Portfolio
Growth Portfolio
PUTNAM MONEY MARKET FUNDS **
Putnam Money Market Fund
Putnam California Tax Exempt Money Market Fund
Putnam New York Tax Exempt Money Market Fund
Putnam Tax Exempt Money Market Fund
*As of 6/30/97.
+Formerly Putnam OTC Emerging Growth Fund.
++New investments restricted; se your financial advisor for
details.
+++Not available in all states.
**Investments in money market funds are neither insured nor
guaranteed by the U.S. government. These funds are managed to
maintain a steady net asset value of $1.00 per share, although
there is no assurance this net asset value will be maintained in
the future.
Please call your financial advisor or Putnam Mutual Funds
to obtain a prospectus for any Putnam fund. It contains more
complete information, including charges and expenses. Read it
carefully before you invest or send money.
<PAGE>
PUTNAM MUNICIPAL INCOME FUND
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
INVESTOR SERVICING AGENT
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
CUSTODIAN
Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
<PAGE>
PUTNAM MUNICIPAL INCOME FUND
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
JULY 30,
1997
This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the prospectus of
the fund dated July 30, 1997 , as revised from time to
time. This SAI contains information which may be useful to
investors but which is not included in the prospectus. If the
fund has more than one form of current prospectus, each reference
to the prospectus in this SAI shall include all of the fund's
prospectuses, unless otherwise noted. The SAI should be read
together with the applicable prospectus. Investors may obtain a
free copy of the applicable prospectus from Putnam Investor
Services, Mailing address: P.O. Box 41203, Providence, RI
02940-1203.
Part I of this SAI contains specific information about the
fund. Part II includes information about the fund and the other
Putnam funds.
<PAGE>
TABLE OF CONTENTS
PART I
TAX-EXEMPT SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . .I-3
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . .I-5
CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . I- 6
EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES. . . . .I- 14
ADDITIONAL OFFICERS. . . . . . . . . . . . . . . . . . . . . . .I- 15
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .I- 15
PART II
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . II- 29
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . II- 34
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . II- 44
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . II- 45
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . II- 57
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . II- 58
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . II- 64
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . II- 64
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . II- 64
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . II- 65
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . II- 66
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . II- 71
<PAGE>
SAI
PART I
TAX-EXEMPT SECURITIES
GENERAL DESCRIPTION. As used in the prospectus and in this SAI,
the term "tax-exempt securities" includes obligations of a state
(including the District of Columbia), a territory or a U.S.
possession, or any of their agencies, instrumentalities or
other governmental units, the interest on which, in the opinion
of bond counsel, is exempt from federal income tax. Such
obligations are issued to obtain funds for various public
purposes, including the construction of a wide range of public
facilities, such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and
sewer works. Other public purposes for which tax-exempt
securities may be issued include the refunding of outstanding
obligations or the payment of general operating expenses.
Short-term tax-exempt securities are generally issued by
state and local governments and public authorities as interim
financing in anticipation of tax collections, revenue receipts,
or bond sales to finance such public purposes.
In addition, certain types of "private activity" bonds may be
issued by public authorities to finance such projects as
privately operated housing facilities and certain local
facilities for water supply, gas, electricity , sewage or
solid waste disposal, student loans, or the obtaining of funds to
lend to public or private institutions for the construction of
facilities such as educational, hospital and housing facilities.
Such obligations are included within the term tax-exempt
securities if the interest paid thereon is, in the opinion of
bond counsel, exempt from federal income tax (such interest may,
however, be subject to federal alternative minimum tax.) Other
types of private activity bonds, the proceeds of which are used
for the construction, repair or improvement of, or to obtain
equipment for, privately operated industrial or commercial
facilities, may constitute tax-exempt securities, although the
current federal tax laws place substantial limitations on the
size of such issues.
STAND-BY COMMITMENTS. When the fund purchases tax-exempt
securities, it has the authority to acquire stand-by commitments
from banks and broker-dealers with respect to those tax-exempt
securities. A stand-by commitment may be considered a security
independent of the tax-exempt security to which it relates. The
amount payable by a bank or dealer during the time a stand-by
commitment is exercisable, absent unusual circumstances, would be
substantially the same as the market value of the underlying tax-
exempt security to a third party at any time. The fund expects
that stand-by commitments generally will be available without the
payment of direct or indirect consideration. The fund does not
expect to assign any value to stand-by commitments.
YIELDS. The yields on tax-exempt securities depend on a variety
of factors, including general money market conditions, effective
marginal tax rates, the financial condition of the issuer,
general conditions of the tax-exempt security market, the size of
a particular offering, the maturity of the obligation and the
rating of the issue. The ratings of nationally recognized
securities rating agencies such as Moody's Investors Service,
Inc., Standard & Poor's and Fitch Investors Service, Inc. ,
represent their opinions as to the quality of the tax-exempt
securities which they undertake to rate. It should be
emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, tax-exempt
securities with the same maturity and interest rate but with
different ratings may have the same yield. Yield disparities may
occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates,
due to such factors as changes in the overall demand or supply of
various types of tax-exempt securities or changes in the
investment objectives of investors. Subsequent to purchase by
the fund, an issue of tax-exempt securities or other investments
may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the fund. Neither event
will require the elimination of an investment from the fund's
portfolio, but Putnam Management will consider such an event in
its determination of whether the fund should continue to hold an
investment in its portfolio.
"MORAL OBLIGATION" BONDS. The fund does not currently intend to
invest in so-called "moral obligation" bonds, where repayment is
backed by a moral commitment of an entity other than the issuer,
unless the credit of the issuer itself, without regard to the
"moral obligation," meets the investment criteria established for
investments by the fund.
ADDITIONAL RISKS. Securities in which the fund may invest,
including tax-exempt securities, are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code
(including special provisions related to municipalities and other
public entities), and laws, if any, which may be enacted by
Congress or the state legislatures extending the time for
payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations. There is also
the possibility that as a result of litigation or other
conditions the power, ability or willingness of issuers to meet
their obligations for the payment of interest and principal on
their tax-exempt securities may be materially affected.
From time to time, proposals have been introduced before Congress
for the purpose of restricting or eliminating the federal income
tax - exemption for interest on debt obligations issued by
states and their political subdivisions. Federal tax laws limit
the types and amounts of tax-exempt bonds issuable for certain
purposes, especially industrial development bonds and
private activity bonds. Such limits may affect the future supply
and yields of these types of tax-exempt securities. Further
proposals limiting the issuance of tax-exempt bonds may well be
introduced in the future. If it appeared that the availability
of tax-exempt securities for investment by the fund and the value
of the fund's portfolio could be materially affected by such
changes in law, the Trustees of the fund would reevaluate its
investment objective and policies and consider changes in the
structure of the fund or its dissolution.
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:
FUNDAMENTAL RESTRICTIONS
(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of the fund's total assets (not
including the amount borrowed) at the time the borrowing is made,
and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such
borrowings will be repaid before any additional investments are
purchased.
(2) 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 federal securities laws.
(3) 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.
(4) 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.
(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) With respect to 75% of its total
assets, 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 and principal by
the U.S. government or its agencies or instrumentalities.
(7) With respect to 75% of its total assets, acquire
more than 10% of the outstanding voting securities of any
issuer.
(8) Purchase securities (other than securities of the
U.S. government, its agencies or instrumentalities or tax-
exempt securities, except tax-exempt securities backed
only by the assets and revenues of non- governmental
issuers) if, as a result of such purchase, more
than 25% of the fund's total assets would be invested in
any one industry.
(9) Issue any class of securities
which is senior to the fund's shares of beneficial interest ,
except for permitted borrowings .
Although certain of the fund's fundamental investment
restrictions permit it to borrow money to a limited
extent, the fund does not currently intend to do so and did not
do so last year.
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 fund shares, or (2) 67% or more of the shares present
at a meeting if more than 50% of the outstanding fund shares are
represented at the meeting in person or by proxy.
IT IS CONTRARY TO THE FUND'S PRESENT POLICY, WHICH MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL, TO:
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.
------------------------
All percentage limitations on investments (other than pursuant
to the non-fundamental restriction) 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.
CHARGES AND EXPENSES
MANAGEMENT FEES
Under a Management Contract dated July 22, 1996, the fund pays a
quarterly fee to Putnam Management 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 0.65% of the first
$500 million of average net assets, 0.55% of the next $500
million, 0.50% of the next $500 million, 0.45% of the next $5
billion, 0.425% of the next $5 billion, 0.405% of the next $5
billion, 0.39% of the next $5 billion and 0.38% thereafter. For
the past three fiscal periods, pursuant to the Management
Contract and a management contract in effect prior to July
22, 1996, under which the management fee payable to Putnam
Management was paid at the annual rate of 0.65% of the
first $500 million of average net assets, 0.55% of
the next $500 million, 0.50% of the next $500
million, 0.45% of any amount over $1.5 billion,
the fund incurred the following fees:
FISCAL MANAGEMENT
YEAR FEE PAID
1997 $7,521,080
1996 $7,512,459
1995 $7,114,310
BROKERAGE COMMISSIONS
The following table shows brokerage commissions paid during the
fiscal periods indicated :
FISCAL BROKERAGE
YEAR COMMISSIONS
1997 $150,228
1996 $30,056
1995 $82,570
The following table shows transactions placed with brokers and
dealers during the most recent fiscal year to recognize research,
statistical and quotation services received by Putnam Management
and its affiliates:
DOLLAR
VALUE PERCENT OF
OF THESE TOTAL AMOUNT OF
TRANSACTIONS TRANSACTIONS COMMISSIONS
$5,176,922 0.35% $30,344
ADMINISTRATIVE EXPENSE REIMBURSEMENT
The fund reimbursed Putnam Management in the following amount for
administrative services during fiscal 1997 , including the
following amount for compensation of certain fund officers
and contributions to the Putnam Investments, Inc. Profit
Sharing Retirement Plan for their benefit:
PORTION OF TOTAL
REIMBURSEMENT FOR
COMPENSATION
TOTAL AND
REIMBURSEMENT CONTRIBUTIONS
$21,336 $18,780
TRUSTEE FEES
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 Putnam
Management and is responsible for recommending Trustee
compensation, estimates that Committee and Trustee meeting time
together with the appropriate preparation requires the equivalent
of at least three business days per Trustee meeting. The
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 1996 :
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or Estimated Total
Aggregate retirement annual benefits compensation
compensation benefits accrued from all from all
from the as part of Putnam funds Putnam
Trustees/Year fund(1) fund expenses(2) upon retirement(3) funds(4)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jameson A. Baxter/1994 $2,239 $427 $85,646 $172,291 (5)
Hans H. Estin/1972 2,222 1,517 85,646 171,291
John A. Hill/1985 (5) 2,226 566 85,646 170,791
Ronald J. Jackson/1996 (5)(6) 1,809 31 85,646 94,807
Elizabeth T. Kennan/1992 2,231 1,035 85,646 171,291
Lawrence J. Lasser/1992 2,226 776 85,646 169,791
Robert E. Patterson/1984 2,344 454 85,646 182,291
Donald S. Perkins/1982 2,239 1,652 85,646 170,291
William F. Pounds/1971 (7) 2,507 1,516 98,146 197,291
George Putnam/1957 2,239 1,743 85,646 171,291
George Putnam, III/1984 2,239 299 85,646171,291
A.J.C. Smith/1986 2,209 1,013 85,646 169,791
W. Nicholas Thorndike/1992 2,335 1,487 85,646 181,291
(1) Includes an annual retainer and an attendance fee for each
meeting attended.
(2) The Trustees approved a Retirement Plan for Trustees of
the Putnam funds on October 1, 1996. Prior to that
date, voluntary retirement benefits were paid to certain
retired Trustees.
(3) Assumes that each Trustee retires at the normal retirement date. Estimated benefits for
each Trustee are based on Trustee fee rates in effect during calendar 1996.
(4) As of December 31, 1996, there were 96 funds in
the Putnam family.
(5) Includes compensation deferred pursuant to a Trustee
Compensation Deferral Plan. The total amounts of
deferred compensation payable by the fund to Mr. Hill
and Mr. Jackson as of March 31, 1997 were $4,825
and $1,740 , respectively, including income earned on
such amounts.
(6) Elected as a Trustee in May 1996.
(7) Includes additional compensation for service as Vice
Chairman of the Putnam funds.
<PAGE>
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.
For additional information concerning the Trustees, see "Management"
in Part II of this SAI.
SHARE OWNERSHIP
At June 30, 1997 , the officers and Trustees of the fund as a
group owned less than 1% of the outstanding shares of each
class of the fund, and , except as noted below, to the knowledge
of the fund no person owned of record or beneficially 5% or more of
any class of shares of the fund :
SHAREHOLDER NAME PERCENTAGE
CLASS AND ADDRESS OWNED
B Merrill Lynch, Pierce 6.7%
Fenner & Smith,
1 Liberty Plaza, 165 Broadway
New York, NY 10006
DISTRIBUTION FEES
During fiscal 1997 , the fund paid the following 12b-1 fees to
Putnam Mutual Funds:
CLASS ACLASS B CLASS M
$2,039,750 $4,044,680 $48,940
<PAGE>
CLASS A SALES CHARGES AND CONTINGENT DEFERRED SALES CHARGES
Putnam Mutual Funds received sales charges with respect to class A
shares in the following amounts during the periods indicated:
SALES CHARGES
RETAINED BY PUTNAM CONTINGENT
TOTAL MUTUAL FUNDS DEFERRED
FRONT-END AFTER SALES
FISCAL YEAR SALES CHARGES DEALER CONCESSIONS CHARGES
1997 $2,022,292 $132,203 $3,697
1996 $2,433,582 $162,997 $6,315
1995 $2,770,572 $172,961 $28,100
CLASS B CONTINGENT DEFERRED SALES CHARGES
Putnam Mutual Funds received contingent deferred sales charges upon
redemptions of class B shares in the following amounts during the
periods indicated:
CONTINGENT DEFERRED
FISCAL YEAR SALES CHARGES
1997 $1,008,697
1996 $954,983
1995 $1,115,633
CLASS M SALES CHARGES
Putnam Mutual Funds received sales charges with respect to class M
shares in the following amounts during the periods
indicated :
SALES CHARGES
RETAINED BY PUTNAM
MUTUAL FUNDS
FISCAL TOTAL AFTER
YEAR SALES CHARGES DEALER CONCESSIONS
1997 $59,928 $5,408
1996 $48,302 $4,797
INVESTOR SERVICING AND CUSTODY FEES AND EXPENSES
During the 1997 fiscal year, the fund incurred
$1,026,629 in fees and out-of-pocket expenses for investor
servicing and custody services provided by Putnam Fiduciary Trust
Company.
<PAGE>
INVESTMENT PERFORMANCE
STANDARD PERFORMANCE MEASURES
(for periods ended March 31, 1997)
CLASS A CLASS B CLASS M
Inception date: 5/22/89 1/4/93 12/1/94
ANNUALIZED TOTAL RETURN
1 year 0.19% 4.61% 1.55%
5 years 6.07% --- ---
10 years --- --- ---
Life of class 7.12% 5.36% 8.22%
YIELD
30-day yield 5.36% 4.99% 5.20%
Tax-equivalent
Yield* 8.87% 8.26% 8.69%
* Assumes the maximum 39.6% federal tax rate. Results for
investors subject to lower tax rates would be less
advantageous.
Data represent past performance and are not indicative of future
results. Total return for class A and class M shares
reflects the deduction of the maximum sales charge of
4.75% and 3.25%, respectively. Total return for class B
shares reflects the deduction of the applicable contingent deferred
sales charge ("CDSC"). The maximum class B CDSC is 5.0%. See
"Standard performance measures" in Part II of this SAI for information
on how performance is calculated.
Returns for class A and class M shares reflect the deduction of the
current maximum initial sales charges of 4.75% for class A shares and
3.25% for class M shares.
Returns for class B shares reflect the deduction of the applicable
contingent deferred sales charge ("CDSC") which is 5% in the first
year, declining to 1% in the sixth year, and is eliminated thereafter.
Returns shown for class A shares have not been adjusted to reflect
payments under the class A distribution plan prior to its
implementation. All returns assume reinvestment of distributions at
net asset value and represent past performance; they do not
guarantee future results. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.<PAGE>
EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES
</TABLE>
<TABLE><CAPTION>
The table below shows the effect of the tax status of tax-exempt securities on the effective
yield received by their individual holders under the federal income tax laws currently in
effect for 1997 . It gives the approximate yield a taxable security must earn at various
income levels to produce after-tax yields equivalent to those of tax-exempt securities yielding
4.0% , 6.0% and 8.0% .
- -----------------------------------------------------------------------------------
MARGINAL
TAXABLE INCOME* FEDERAL TAX-EXEMPT YIELD
------------------------ INCOME ------------------------------
TAX
JOINT SINGLE RATE** 4.0% 6.0% 8.0%
- -----------------------------------------------------------------------------------
EQUIVALENT TAXABLE YIELD
<C> <C> <C> <C> <C> <C> <C> <C>
$0-41,200 $0-24,650 15.00% 4.71% 7.06% 9.41%
41,201-99,600 24,651-59,750 28.00 5.56 8.33 11.11
99,601-151,750 *** 59,751-124,650 *** 31.00 5.80 8.70 11.59
151,751-271,050 *** 124,651-271,050 *** 36.00 6.25 9.38 12.50
over 271,050 *** over 271,050 *** 39.60 6.62 9.93 13.25
- -----------------------------------------------------------------------------------
* This amount represents taxable income as defined in the Internal Revenue Code of 1986,
as amended (the "Code").
** These rates are the marginal federal income tax rates on taxable income
currently in effect for 1997 under the Code .
*** The amount of taxable income in this bracket may be affected by the phase-out of
personal exemptions and the limitation on itemized deductions under the Code.
Of course, there is no assurance that the fund will achieve any specific tax-exempt yield.
While it is expected that the fund will invest principally in obligations which pay interest
exempt from federal income tax, other income received by the fund may be taxable. The table
does not take into account any state or local taxes payable on fund distributions.
/TABLE
<PAGE>
ADDITIONAL OFFICERS
In addition to the persons listed as fund officers in
Part II of this SAI, each of the following persons is also a Vice
President of the fund and certain of the other Putnam
funds , the total number of which is noted parenthetically .
Officers of Putnam Management hold the same offices in Putnam
Management's parent company, Putnam Investments, Inc.
OFFICER NAME (AGE) (NUMBER OF FUNDS)
GARY N. COBURN (age 50) (58 funds). Senior Managing Director of
Putnam Investment Management, Inc. Director, Putnam Investments, Inc.
BLAKE E. ANDERSON (age 40) (15 funds). Managing Director of
Putnam Management .
WILLIAM J. CURTIN (age 37 ) (58 funds). Managing Director of
Putnam Management. Prior to August, 1996, Mr. Curtin was Managing
Director of Lehman Brothers.
JEROME J. JACOBS (age 38) (17 funds). Managing Director of Putnam
Management. Prior to October, 1996, Mr. Jacobs was Principal at The
Vanguard Group.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, MA 02109,
are the fund's independent accountants, providing audit services, tax
return review and other tax consulting services and assistance and
consultation in connection with the review of various Securities and
Exchange Commission filings. The Report of Independent Accountants,
financial highlights and financial statements included in the fund's
Annual Report for the fiscal year ended March 31, 1997 , filed
electronically on May 28, 1997 (File no. 811-5763), are
incorporated by reference into this SAI. The financial highlights
included in the prospectus and incorporated by reference into this SAI
and the financial statements incorporated by reference into the
prospectus and this SAI have been so included and incorporated in
reliance upon the report of the independent accountants, given on
their authority as experts in auditing and accounting.
<PAGE>
<PAGE>
6
Putnam
High Yield
Total
Return
Fund
Portfolio
of
investment
s owned
April 30,
1997
(Unaudited
)
Corporate Bonds and Notes (60.1%) (a)
PRINCIPAL VALUE
AMOUNT
Advertising (0.3%)
$ Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 $
50,000 49,860
Aerospace and Defense
(0.1%)
15,000 L-3 Communications Corp. 144A sr. sub. notes 10 15,450
3/8s, 2007
10,000 Tracor, Inc. 144A sr. sub. notes 8 1/2s, 2007 9,800
Agriculture (1.8%) 25,250
299,734 Premium Standard Farms, Inc. sr. secd. notes 11s, 319,217
2003 (PIK)
Apparel (0.1%)
25,000 GFSI, Inc. 144A sr. sub. notes 9 5/8s, 2007 24,750
Automotive (2.4%)
200,000 A.P.S Inc. company guaranty 11 7/8s, 2006 200,000
25,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 25,625
75,000 Exide Corp. sr. notes 10s, 2005 75,938
50,000 Harvard Industries Inc. sr. notes 11 1/8s, 2005 22,500
80,000 Hawk Corp. sr. notes 10 1/4s, 2003 80,600
15,000 Key Plastics Corp. 144A sr. sub. notes 10 1/4s, 15,150
2007
419,813
Broadcasting
(4.0%)
50,000 Capstar Broadcasting 144A sr. disc. notes stepped- 27,875
coupon zero % (12 3/4s, 2/1/02), 2009 (STP)
150,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero % 103,500
(11.2s, 11/15/00), 2007(Bermuda) (STP)
272,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon 173,400
zero % (13 1/4s, 5/15/01), 2008(Mexico) (STP)
150,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes 124,125
stepped-coupon zero % (13 1/2s, 8/1/99), 2004 (STP)
10,000 RBS Participacoes S.A. 144A company guaranty 11s, 10,098
2007(Brazil)
25,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 26,188
3/4s, 2006
15,000 Spanish Broadcasting Systems 144A sr. notes 11s, 15,075
2004
125,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 125,000
10,000 TCI Satellite Entertainment 144A sr. sub. notes 10 9,500
7/8s, 2007
50,000 TV Azteca Sa De Cv 144A sr. notes 10 1/2s, 49,188
2007(Mexico)
50,000 Young Broadcasting Inc. company guaranty Ser. B, 47,250
9s, 2006
711,199
Building and Construction
(3.0%)
100,000 Consumers International 144A sr. notes 10 1/4s, 103,000
2005
5,000 Continental Homes Holding Corp. sr. notes 10s, 2006 4,925
75,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 74,250
125,000 Presley Cos. sr. notes 12 1/2s, 2001 120,938
100,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 105,000
50,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 54,938
75,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 78,750
541,801
Cable Television (1.5%)
60,000 Adelphia Communications Corp. 144A sr. notes 9 56,700
7/8s, 2007
50,000 Cablevision Systems Corp. sr. sub. notes 9 1/4s, 48,750
2005
125,000 Diamond Cable Communication Co. sr. disc. notes 86,563
stepped-coupon zero % (11 3/4s, 12/15/00),
2005(United Kingdom) (STP)
115,000 Diamond Cable Communications Co. 144A sr. disc. 68,425
notes stepped-coupon zero % (10 3/4s, 2/15/02),
2007 (STP)
260,438
Chemicals (0.8%)
25,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 24,750
120,000 NL Industries, Inc. sr. notes stepped-coupon zero % 110,850
(13s, 10/15/98), 2005 (STP)
135,600
Connecticut (0.4%)
50,000 Mohegan Tribal Gaming sr. secd. notes Ser. B, 13 65,500
1/2s, 2002
Consumer Products (0.4%)
100,000 Revlon Worldwide Corp. 144A sr. disc. notes zero %, 65,500
2001
Consumer Services (2.6%)
25,000 Affinity Group Holdings 144A sr. notes 11s, 2007 25,625
20,000 AMC Entertainment, Inc. 144A sr. sub. notes 9 1/2s, 19,800
2009
50,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 55,000
26,375 Falcon Holdings Group, Inc. sr. sub. notes 11s, 22,946
2003 (PIK)
125,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 129,375
10,000 Hollinger International Publishing, Inc. company 9,875
guaranty 8 5/8s, 2005
200,000 Sun International Hotels Ltd. 144A sr. sub. notes 197,500
9s, 2007
460,121
Electronics and Electrical Equipment
(1.0%)
20,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 17,666
11.74s, 2008
165,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 166,650
10 1/8s, 2007
184,316
Entertainment (1.2%)
50,000 Panda Global Energy Co. 144A sr. notes 12 1/2s, 47,500
2004
Food (0.3%)
50,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 49,000
45,000 Cobb Theatres LLC company guaranty 10 5/8s, 2003 46,575
50,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 50,625
75,000 Trump A.C. 1st mtge. 11 1/4s, 2006 72,938
219,138
Food and Beverage (0.9%)
50,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 53,125
Forest Products (0.3%)
5,000 Del Monte Corp. 144A sr. sub. notes 12 1/4s, 2007 5,150
150,000 Doane Products Co. sr. notes 10 5/8s, 2006 156,000
161,150
Health Care (2.1%)
50,000 Gaylord Container Corp. sr. sub. disc. deb. 12 53,750
3/4s, 2005 (STP)
Insurance and Finance
(3.5%)
10,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 10,000
150,000 Integrated Health Services sr. sub. notes 10 3/4s, 160,500
2004
150,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 141,750
55,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 54,725
366,975
Insurance and Finance (3.5%)
225,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 209,250
10,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 10,000
2027
150,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 150,000
2003
125,000 Imperial Credit Industries, Inc. 144A sr. notes 9 115,000
7/8s, 2007
25,000 Provident Capital Trust company guaranty 8.6s, 2026 24,125
50,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 36,000
50,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 51,375
2003
10,000 Sovereign Capital Trust 144A company guaranty 9s, 9,750
2027
10,000 Webster Capital Trust I 144A bonds 9.36s, 2027 10,206
615,706
Medical Supplies and Devices
(0.4%)
75,000 Wright Medical Technology, Inc. sr. secd. notes 75,750
Ser. B, 10 3/4s, 2000
Metals and Mining (1.7%)
10,000 Acindar Industria Argentina de Aceros S.A. bonds 11 10,150
1/4s, 2004(Argentina)
10,000 Altos Hornos De Mexico 144A bonds 11 7/8s, 10,125
2004(Mexico)
15,000 Continental Global Group 144A sr. notes Ser. A, 15,450
11s, 2007
10,000 Echo Bay Mines jr. sub. deb. 11s, 2027(Canada) 9,850
50,000 Maxxam Group Holdings sr. nores Ser. B, 12s, 2003 50,500
150,000 Royal Oak Mines, Inc. company guaranty Ser. B, 11s, 150,750
2006(Canada)
50,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 50,500
297,325
Oil and Gas
(6.1%)
125,000 Cliffs Drilling Co. company guaranty Ser. B, 10 129,688
1/4s, 2003
100,000 Falcon Drilling Co., Inc. sr. notes Ser. B, 9 3/4s, 102,000
2001
50,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 58,125
50,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 51,750
5,000 Forcenergy, Inc. 144A sr. sub. notes 8 1/2s, 2007 4,750
50,000 KCS Energy, Inc. company guaranty Ser. B, 11s, 2003 53,250
50,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 51,375
2006
25,000 Transamerican Refining 144A 15s, 1998 25,000
600,000 Transamerican Refining Corp. var. rate 1st mtge. 556,500
zero % (18.5s 2/15/98), 2002 (STP)
50,000 TransTexas Gas Corp. sr. secd. notes 11 1/2s, 2002 55,625
1,088,06
3
Packaging and Containers
(0.5%)
15,000 Innova S De R.L. 144A sr. notes 12 7/8s, 14,775
2007(Mexico)
75,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 81,469
96,244
Paper and Forest Products
(1.0%)
50,000 Buckeye Cellulose Corp. sr. sub. notes 9 1/4s, 2008 51,000
50,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 48,000
2003
50,000 Repap New Brunswick sr. notes 10 5/8s, 2005(Canada) 47,000
25,000 Riverwood International Corp. company guaranty 10 23,500
1/4s, 2006
169,500
Publishing (0%)
5,000 Sun Media Corp. 144A sr. sub. notes 9 1/2s, 4,825
2007(Canada)
Real Estate (0.1%)
20,000 Prime Hospitality Corp. 144A sr. sub. notes 9 3/4s, 20,400
2007
Recreation (3.3%)
50,000 Alliance Gaming Corp. 12 7/8s, 2003 53,938
150,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 134,250
100,000 Colorado Gaming & Entertainment Co. sr. notes 12s, 99,000
2003 (PIK)
150,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 153,750
150,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 150,000
590,938
Retail (1.6%)
100,000 Eagle Food Centers. Inc. sr. notes 8 5/8s, 2000 97,000
50,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 52,000
10,000 Quality Food Centers, Inc. 144A sr. sub. notes 9,850
8.7s, 2007
125,000 Supermercados Norte 144A bonds 10 7/8s, 2004 125,000
(Argentina)
10,000 William Carter Co. 144A sr. sub. notes 12s, 2008 10,200
294,050
Telecommunications
(10.3%)
125,000 Arch Communications Group sr. disc. notes stepped- 56,875
coupon zero % (10 7/8s, 3/15/01), 2008 (STP)
50,000 Brooks Fiber Properties, Inc. sr. disc. notes 32,750
stepped-coupon zero % (10 7/8s, 3/1/01), 2006 (STP)
225,000 Cencall Communications Corp. sr. disc. notes 166,500
stepped-coupon
zero % (10 1/8s, 1/15/99), 2004 (STP)
75,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 75,656
25,000 Charter Communications International, Inc. sr. 25,813
notes Ser. B, 11 1/4s, 2006
10,000 Consorcio Ecuatoriano 144A notes 14s, 2002 10,100
(Ecuador)
150,000 Dobson Communications Corp. 144A sr. notes 11 3/4s, 144,000
2007
25,000 Frontiervision Operating Partners L.P. sr. sub. 25,063
notes 11s, 2006
150,000 GST Telecommunications, Inc. company guaranty 93,000
stepped-coupon zero % (13 7/8s, 15/15/00), 2005
(STP)
25,000 Hyperion Telecommunication Corp. sr. disc. notes 12,750
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003
(STP)
275,000 Intelcom Group (USA), Inc. company guaranty stepped- 163,625
coupon zero % (12 1/2s, 5/1/01), 2006 (STP)
100,000 Intermedia Communications, Inc. sr. disc. notes 64,500
stepped-coupon zero % (12 1/2s, 5/15/01), 2006
(STP)
150,000 International Cabletel, Inc. sr. notes stepped- 98,250
coupon Ser. B, zero % (11 1/2s, 2/01/01), 2006
(STP)
40,000 International Cabletel, Inc. 144A sr. notes 10s, 39,100
2007
85,000 McLeod, Inc. 144A sr. disc. notes stepped-coupon 48,663
zero % (10 1/2s, 3/1/02), 2007 (STP)
50,000 MFS Communications sr. disc. notes stepped-coupon 37,927
zero % (8 7/8s, 1/1/01), 2006 (STP)
275,000 Millicom International Cellular S.A. sr. disc. 192,500
notes stepped-coupon zero % (13 1/2s, 6/1/01),
2006(Luxembourg) (STP)
100,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 99,000
2002
50,000 NEXTEL Communications, Inc. sr. disc. notes stepped- 36,375
coupon zero % (9 3/4s, 2/15/99), 2004 (STP)
150,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 117,000
25,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 19,500
50,000 Paging Network, Inc. sr. sub. notes 10s, 2008 44,500
75,000 Pricellular Wireless Corp. sr. disc. notes stepped- 77,250
coupon Ser. B, zero % (14s, 11/15/97), 2001 (STP)
50,000 Rogers Cantel, Inc. deb. 9 3/8s, 2008(Canada) 51,375
125,000 Teleport Communications Group Inc. sr. disc. notes 85,938
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 (STP)
15,000 Winstar Equipment Corp. 144A company guaranty 12 14,363
1/2s, 2004
1,832,37
3
Textiles (1.2%)
50,000 Foamex (L.P.) Capital Corp. sr. disc. notes stepped- 44,000
coupon
Ser. B, zero % (14s, 7/1/99), 2004 (STP)
60,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 60,600
100,000 Polysindo International Finance company guaranty 11 105,000
3/8s, 2006(Indonesia)
209,600
Transportation
(1.0%)
50,000 Atlantic Express, Inc. 144A company guaranty 10 51,250
3/4s, 2004
125,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 122,500
2003(Greece)
173,750
Utilities (5.9%)
325,000 AES China Generating Co. sr. notes 10 1/8s, 333,531
2006(China)
300,000 Calpine Corp. sr. notes 10 1/2s, 2006 320,250
50,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. 51,365
17-A, 9 3/8s, 2017
100,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. 106,996
B, 9 1/2s, 2005
150,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. 153,933
E, 9s, 2023
50,000 Niagara Mohawk Power Corp. mtge. 9 1/2s, 2000 51,793
25,000 Toledo Edison Co. med. term notes 9.22s, 2021 25,570
1,043,43
8
Total Corporate Bonds and Notes (cost $10,903,400) 10,676,96
5
Brady Bonds (11.0%)
(a)
PRINCIPAL VALUE
AMOUNT
$ 567,450 Argentina (Republic of) deb. 6.75s, 2005 $
520,635
135,000 Argentina (Republic of) FRN Ser. L-GP, 5 1/4s, 2023 87,919
35,000 Bulgaria (Republic of) deb. Ser. PDI, 6.5625s, 2011 21,919
451,621 Brazil (Republic of) FRB 8s, 2014 (POR) 342,667
87,000 Ecuador (Government of) bonds 6.4375s, 2025 58,073
90,000 Poland (Government of) bonds 6.9375s, 2024 87,413
560,000 United Mexican States deb. Ser. A, 6 1/4s, 2019 406,700
250,000 United Mexican States FRB Ser. D, 6.35156s, 2019 221,406
238,095 Venezuela (Government of)deb. Ser. B, 6.75s, 2007 213,095
Total Brady Bonds (cost $1,973,487)
1,959,82
7
Convertible Bonds and Notes (7.6%)
(a)
PRINCIPAL VALUE
AMOUNT
Automotive (0.2%)
$ Magna International cv. sub. deb. 5s, 2002 $
23,000 25,013
Basic Industrial Products
(0%)
7,000 Cooper Industries, Inc. cv. sub. 7.05s, 2015 7,770
Broadcasting (0.2%)
22,000 International Cabletel Inc. 144A cv. deb. 7 1/4s, 21,148
2005
48,000 Jacor Communications, Inc. cv. sr. notes zero %, 22,320
2011
43,468
Business Equipment and Services
(0.6%)
100,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 84,250
28,000 U.S. Office Products Co. 144A cv. sub. notes 5 23,485
1/2s, 2003
107,735
Cellular Broadcasting (0.2%)
55,000 Comcast Corp. cv. notes 1 1/8s, 2007 28,050
Chemicals (0.1%)
9,000 Hercules, Inc. cv. deb. 8s, 2010 23,929
Computer Services and Software
(0.1%)
25,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 21,125
Computers (0.3%)
25,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s,
2006 22,719
28,000 Softkey International, Inc. 144A cv. sr. notes 5 20,825
1/2s, 2000
20,000 Synoptics Communications Inc. 144A cv. sub. deb. 5 17,475
1/4s, 2003
61,019
Conglomerates
(0.3%)
18,000 Hexcel Corp. cv. sub. notes 7s, 2003
23,490
20,000 Thermo Electron Corp. 144A cv. subordinated 4 1/4s, 21,575
2003
45,065
Consumer Non Durables
(0.3%)
74,000 Coleman Worldwide Corp. cv. sr. sec. notes Liquid
Yeild Option Note ( LYON) zero %, 2013 22,385
24,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 21,660
2007 (NON)
44,045
Consumer Services (0.5%)
60,000 Boston Chicken, Inc. cv. notes LYON zero %, 2015
14,775
20,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 21,650
55,000 Hollinger, Inc. cv. LYON zero %, 2013 20,075
22,000 Pharmaceutical Marketing Services Inc. 144A cv. 18,040
deb. 6 1/4s, 2003
16,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 15,220
2003
89,760
Electronics and Electrical Equipment
(1.4%)
9,000 Diagnostic Retrieval Systems cv. sr. sub. deb. 9s,
2003 11,070
29,000 HMT Technology Corp. 144A cv. sub. notes 5 3/4s, 23,345
2004
29,000 Integrated Device Technology, Inc. cv. sub. notes 5 24,469
1/2s, 2002
30,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 22,275
14,000 Plasma & Materials Technologies, Inc. 144A cv. notes 9,520
7 1/8s, 2001
27,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 22,343
20,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 27,525
10,000 Texas Instruments cv. sub. deb. 2 3/4s, 2002 21,538
20,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 18,750
1/2s, 2003
23,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 23,230
21,000 Thermo Quest Corp. cv. co. guaranty 5s, 2000 21,000
20,000 Xilinx, Inc. 144A cv. sub. notes 5 1/4s, 2002 22,900
247,96
5
Environmental Control (0.1%)
12,000 USA Waste Services, Inc. cv. sub. notes 4s, 2002
11,850
14,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 12,110
23,960
Health Care (0.9%)
50,000 Alza Corp. cv. sub. LYON zero %, 2014
21,938
30,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 27,188
30,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 24,525
20,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 18,100
2006
18,000 Rotech Medical Corp. cv. sub. deb. 5 1/4s, 2003 15,390
22,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. 21,120
deb. 9s, 2003
23,000 Vivra, Inc. 144A cv. sub. notes 5s, 2001 21,936
150,19
7
Hospital Management and Medical Services
(0.1%)
19,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 20,235
2003
Insurance and Finance (0.5%)
24,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001
23,010
22,000 Mitsubishi Bank Ltd. International Finance cv. trust 22,358
guaranteed notes 3s, 2002(Bermuda)
17,000 Pioneer Financial Services, Inc. cv. sub. notes 6 24,544
1/2s, 2003
40,000 USF&G Corp. cv. sub. notes zero %, 2009 26,200
96,112
Medical Supplies and Devices
(0.1%)
25,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 15,031
Metals and Mining
(0.1%)
20,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 20,300
Oil and Gas (0.3%)
21,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 23,730
3,000 Pride Petroleum Services, Inc. cv. sub. deb. 6 4,361
1/4s, 2006
16,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 14,840
42,931
Paper and Forest Products (0.1%)
24,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 25,500
2000
Pharmaceuticals (0.2%)
16,000 North American Vaccine, Inc. 144A cv. sub. notes 6 15,420
1/2s, 2003
40,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 18,400
2010(Switzerland)
33,820
Pharmaceuticals and Biotechnology
(0.1%)
23,000 Nabi, Inc. cv. sub. notes 6 1/2s, 2003 18,113
4,000 North American Vaccine, Inc. 144A cv. sub. notes 6 3,855
1/2s, 2003
21,968
Recreation (0.4%)
100,000 Argosy Gaming cv. sub. notes 12s, 2001 71,000
Retail (0.5%)
20,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 20,425
26,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 22,653
20,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 24,325
25,000 Rite Aid Corp. cv. deb. zero %, 2006 18,375
85,778
Telecommunications
(0%)
10,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 8,300
1/4s, 2003
Total Convertible Bonds and Notes (cost $1,428,901) 1,360,07
6
Preferred Stocks (4.3%) (a)
NUMBER OF VALUE
SHARES
518 Alliance Gaming Corp. Ser. B, $15.00 pfd. (PIK)
51,800
1,159 American Radio Systems Corp. 144A $11.375 pfd. 114,451
1,798 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. 165,416
pfd.(PIK)
400 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 10,000
1,070 Chancellor Radio Broadcasting 144A $12.00 pfd. 105,930
1,500 Chevy Chase Capital Corp. Ser. A, $10.375 pfd. 72,750
127 Granite Broadcasting Corp. 144A 12.75% pfd. (PIK) 115,888
25 ICG Holdings, Inc. 14.00% (Canada) 24,125
5 Intermedia Communications, Inc. 144A 13.50% pfd. 48,375
20 NTL Inc. 144A 13.00% pfd. (PIK) 19,400
800 Public Service Co. of New Hampshire $10.60 1st 18,000
mtge. pfd.
20 Spanish Broadcasting Systems 144A 14.25% pfd. 17,600
(PIK)
Total Preferred Stocks (cost $795,863) 763,735
Convertible Preferred Stocks
(3.6%) (a)
NUMBER OF VALUE
SHARES
Automotive (0.1%)
170 Ford Motor Co. Ser. A, $4.20 dep. shs. cv. pfd.
19,040
Banks (0.1%)
230 Sovereign Bancorp Inc. $3.13 cv. pfd. 17,020
Basic Industrial Products (0.1%)
170 Case Corp. $4.50 cv. pfd. ($4.50) 22,823
Broadcasting
(0.2%)
342 Chancellor Broadcasting Corp. 144A $3.50 cv. pfd. 18,212
360 SFX Broadcasting, Inc. Ser. D, $3.25 cv. pfd. 16,200
34,412
Building and Construction
(0.1%)
227 Greenfield Capital Trust $3.00 cv. pfd. 9,307
Business Equipment and Services
(0.1%)
150 Ikon Office Solutions Inc. Ser. BB, $5.04 cv. pfd. 10,200
Computer Services and Software
(0.1%)
240 Vanstar Corp. 144A $3.375 cv. pfd. 7,350
407 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 18,519
25,869
Consumer Non Durables (0.1%)
340 Corning Deleware(L.P.) $3.00 cv. pfd. 25,840
Consumer Services (0.1%)
220 Service Corp. $3.125 cv. pfd. 25,218
Food and Beverages (0.1%)
276 Chiquita Brands International, Inc. Ser. B, $3.75 16,146
cv. pfd.
Insurance and Finance
(1.1%)
285 Ahmanson (H.F.) & Co. $3.00 cv. pfd. 22,515
251 American Bankers Insurance Group, Inc. Ser. B, 15,782
$3.125 cv. pfd.
575 American General Delaware Corp. $3.00 cv. pfd. 33,566
160 Devon Financing Trust $3.25 cv. pfd. 10,200
452 Finova Finance Trust $2.75 cv. pfd. 24,069
700 Matewan Bancshares, Inc. Ser. A, $3.75 cv. pfd. 16,975
385 Penncorp Financial Group, Inc. 144A $3.50 cv.pfd. 22,426
120 Roosevelt Financial Group $3.25 cv. pfd. 10,230
340 St. Paul Capital LLC $3.00 cv. pfd. 20,910
400 Timet Capital Trust I 144A $3.3125 cv. pfd. 18,800
195,473
Metals and Mining (0.2%)
285 Amax Gold, Inc. Ser. B, $3.75 cv. pfd. 14,784
950 Freeport-McMoRan Copper Co., Inc. $1.25 cv. pfd. 25,650
($1.75)
40,434
Oil and Gas (0.6%)
360 Neuvo Energy Ser. A, $2.875 cv. pfd. 16,425
435 Occidental Petroleum Corp. 144A $3.875 cv. pfd. 23,816
360 Tejas Gas Corp. $2.65 cv. pfd. 19,260
380 Tosco Financing Trust 144A $2.875 cv. pfd. 20,995
500 Unocal Capital Trust $3.125 cv. pfd. 28,125
108,621
Real Estate (0.1%)
430 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 19,135
Retail (0.3%)
350 Ann Taylor Finance Trust $4.25 cv. pfd. 23,713
465 Kmart Financing I $3.875 cv. pfd. 26,796
50,509
Telecommunications (0.2%)
600 Airtouch Communications, Inc. Ser. C, $2.125 cv. 27,300
pfd.
Total Convertible Preferred Stocks (cost $660,470) 647,347
Foreign Government Bonds and Notes (1.3%)
(a)
PRINCIPAL VALUE
AMOUNT
Bank of Foreign Economic Affairs of Russia
USD (Vnesheconombank) principal loan 144A 8s, 2020 $
305,000 (NON)(WIS)(PIK) 178,806
USD Morocco (Government of) bonds Ser. A, 6.375s, 2009 35,150
40,000
ZAR South Africa (Republic of) bonds Ser. 153, 13s, 9,980
50,000 2010
Total Foreign Government Bonds and Notes (cost 223,936
$219,478)
Common Stocks (0.2%) (a)
NUMBER OF VALUE
UNITS
15 Advanced Radio Telecommunications units 14s, 2007
15,900
5 Anvil Holdings 144A units 13s, 2009 (PIK) 4,925
200 Colt Telecommunications Group PLC units stepped- 117,000
coupon zero % (12s, 12/15/01), 2006(United Kingdom)
(STP)
25 Esat Holdings Ltd. 144A units stepped-coupon zero % 14,000
(12 1/2s, 2/1/02), 2007(Ireland) (STP)
110 Globalstar L.P. Capital units 11 3/8s, 2004 108,900
20 McCaw International Ltd. 144A units stepped-coupon 9,800
zero % (13s, 4/15/02), 2007 (STP)
50 Nextlink Communications 144A pfd. units zero % 2,350
(.14s,), 2009 (PIK)(STP)
50,000 Winstar Communications, Inc. 144A sr. disc. notes 26,000
stepped-coupon zero % (14s, 10/15/00), 2005 (STP)
Total Units (cost $331,486) 298,875
Common Stocks (0.2%) (a)
NUMBER OF VALUE
SHARES
27,272 Capstar Broadcasting Partners (NON)
29,999
316 Catellus Development Corp. (NON) 4,661
Total Common Stocks (cost $34,711) 34,660
Warrants (0%) (a)
NUMBER OF VALUE
WARRANTS
Expiration
Date
25 Hyperion Telecommunications 144A 750
4/15/01
20 Spanish Broadcasting Systems 144A 2,200
6/30/99
Total Warrants (cost $2,700) 2,950
Short-Term Investments (8.0%) (a)
PRINCIPAL VALUE
AMOUNT
MXP Mexican Treasury Bill zero %, April 2, 1998 $
57,529 59,760
Interest in $473,073,000 joint repurchase agreement
1,367,000 dated April 30, 1997 with Merrill Lynch
due May 1, 1997 with respect to various U.S.
Treasury obligations -- maturity value of
$1,367,205
for an effective yeild of 5.40%.
1,367,20
5
Total Short-Term Investments (cost $1,426,965) 1,426,96
5
total Investments (cost $17,777,461) (b) 17,395,33
6
FOOTNOTES
NOTES
(a) Percentages indicated are based
on net assets of $17,762,038.
(b) The aggregate identified cost on
a tax basis is
$17,777,461, resulting in gross
unrealized appreciation and
depreciation of $130,645 and
$512,770, respectively,
or net unrealized depreciation
of $382,125.
(NON) Non-income-producing security.
(STP) The interest or dividend rate
and date shown parenthetically
represent the new interest or
dividend rate to be paid and the
date the fund will begin
receiving interest or dividend
income at this rate.
(PIK) Income may be received in cash
or additional securities at the
discretion of the issuer.
(WIS) When-issued securities (Note 1).
The coupon rate will be LIBOR
plus 13/16.
(BRA) Brady bonds are foreign bonds
collateralized by the U.S.
Government.
The rates are floating and are
the current rates at April 30,
1997.
144A after the name of a
security represents a security
purchased in a transaction
exempt from registration under
Rule 144A of the Securities Act
of 1933. These securities may be
resold only in transactions
exempt from registration,
normally to qualified
institutional buyers.
The accompanying notes are an
integral part of these financial
statements.
Putnam High Yield Total Return
Statement of assets and liabilities
April 30,1997 (Unaudited)
Assets
Investments in securities, at value
(identified cost $17,777,461) (Note 1) $17,395,33
6
Cash 107,295
Dividends, interest and other receivables 291,423
Receivable for shares of the fund sold 445,849
Receivable for securities sold 253,143
Receivable from Manager (Note 2) 33,864
Unamortized organization expenses (Note 1) 80,672
Total assets 18,607,582
Liabilities
Payable for securities purchased 693,696
Payable for investor servicing and custodian fees 9,942
(Note 2)
Payable for compensation of Trustees (Note 2) 4,000
Payable for administrative services (Note 2) 1,333
Payable for distribution fees (Note 2) 8,228
Payable for organization expenses (Note 1) 80,943
Other accrued expenses 45,893
Total liabilities 844,035
Net assets $17,763,54
7
Represented by
Paid-in capital (Notes 1 and 4) $18,071,79
5
Undistributed net investment income (Note 1) 111,334
Accumulated net realized loss on investments (37,457)
(Note 1)
Net unrealized depreciation of investments (382,125)
Total - Representing net assets applicable to
capital shares outstanding $17,763,54
7
Computation of net asset value and offering price
Net asset value and redemption price per class A
share
($7,816,161 divided by 936,769 shares) $8.34
Offering price per class A share (100/95.25 of $8.76
$8.34)*
Net asset value and offering price per class B
share
($8,901,350 divided by 1,068,486 shares)** $8.33
Net asset value and redemption price per class M
share
($1,044,527 divided by 125,260 shares) $8.34
Offering price per class M share (100/96.75 of $8.62
$8.34)*
* On single sales of less than $50,000. On sales
of $50,000 or more and on group
sales the offering price is reduced.
** Redemption price per share is equal to net
asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of
these financial statements.
Putnam High Yield Total Return
Statement of operations
Period January 2, 1997 (commencement of
operations) to
April 30,1997 (Unaudited)
Investment income:
Interest $233,411
Dividends 18,004
Total investment income 251,415
Expenses:
Compensation of Manager (Note 2) 23,481
Investor servicing and custodian fees (Note 2) 19,408
Compensation of Trustees (Note 2) 4,000
Administrative services (Note 2) 1,333
Distribution fees -- Class A (Note 2) 3,185
Distribution fees -- Class B (Note 2) 15,015
Distribution fees -- Class M (Note 2) 775
Amortization of organization expenses (Note 1) 271
Reports to shareholders 6,333
Registration fees 5,456
Auditing 22,867
Legal 2,667
Postage 7,336
Other 1,703
Fees waived by Manager (Note 2) (57,345)
Total expenses 56,485
Expense reduction (Note 2) (13,079)
Net expenses 43,406
Net investment income 208,009
Net realized loss on investments (Notes 1 and 3) (37,457)
Net unrealized depreciation of investments during (382,125
the period )
Net loss on investments (419,582)
Net decrease in net assets resulting from $(211,57
operations 3)
The accompanying notes are an integral part of these financial
statements.
Putnam High Yield Total Return
Statement of changes in net assets For the
period
January 2,
1997
(commencement
of
operation) to
April 30,
1997*
Decrease in net assets
Operations:
Net investment income $208,009
Net realized loss on investments (37,457)
Net unrealized depreciation of investments (382,125)
Net decrease in assets resulting from operations (211,573)
Distributions to shareholders:
From net investment income
Class A (46,942)
Class B (44,326)
Class M (5,407)
Increase from capital share transactions (Note 4) 18,068,795
Total increase in net assets 17,760,547
Net Assets
Beginning of period 3,000
End of period (including undistributed net investment
income $17,763,54
of $109,825) 7
*Unaudited
The accompanying notes are an integral part of
these financial statements.
Putnam High Yield Total Return Fund
Financial highlights
(For a share outstanding throughout the period)
CLASS A
For the period
January 2, 1997+
Per share to April 30
operating performance (unaudited)
----------------
1997
----------------
Net asset value, beginning of period $8.50
Investment operations:
Net investment income .20(c)
Net realized and unrealized loss on investments (.29)
Total from investment operations (.09)
Less distributions:
From net investment income (.07)
Net realized gain on investments --
Total distributions (.07)
Net asset value, end of period $8.34
Total investment return at net asset value (%)(a) (1.10)*
Net assets, end of period (in thousands) $7,817
Ratio of expenses to average net assets (%)(b) .50*
Ratio of net investment income to average
net assets (%) 2.41*
Portfolio turnover (%) 38.59*
+ 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 include amounts paid through
brokerage service and expense offset arrangements. (Note 2)
(c) Per share net investment loss has been determined on the basis
of weighted average number of shares outstanding during the
period.
Putnam High Yield Total Return Fund
Financial highlights
(For a share outstanding throughout the period)
CLASS B
For the period
January 2, 1997+
Per share to April 30
operating performance (unaudited)
----------------
1997
----------------
Net asset value, beginning of period
$8.50
Investment operations:
Net investment income .18(c)
Net realized and unrealized loss on investments (.29)
Total from investment operations (.11)
Less distributions:
From net investment income (.06)
Net realized gain on investments --
Total distributions (.06)
Net asset value, end of period $8.33
Total investment return at net asset value (%)(a) (1.35)*
Net assets, end of period (in thousands) $8,902
Ratio of expenses to average net assets (%)(b) .75*
Ratio of net investment income to average
net assets (%) 2.21*
Portfolio turnover (%) 38.59*
+ 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 include amounts paid through
brokerage service and expense offset arrangements. (Note 2)
(c) Per share net investment loss has been determined on the basis
of weighted average number of shares outstanding during the
period.
Putnam High Yield Total Return Fund
Financial highlights
(For a share outstanding throughout the period)
CLASS M
For the period
January 2, 1997+
Per share to April 30
operating performance (unaudited)
----------------
1997
----------------
Net asset value, beginning of period $8.50
Investment operations:
Net investment income .19(c)
Net realized and unrealized loss on investments (.29)
Total from investment operations (.10)
Less distributions:
From net investment income (.06)
Net realized gain on investments --
Total distributions (.06)
Net asset value, end of period $8.34
Total investment return at net asset value (%)(a) (1.15)*
Net assets, end of period (in thousands) $1,045
Ratio of expenses to average net assets (%)(b) .58*
Ratio of net investment income to average
net assets (%) 2.39*
Portfolio turnover (%) 38.59*
+ 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 include amounts paid through
brokerage service and expense offset arrangements. (Note 2)
(c) Per share net investment loss has been determined on the basis
of weighted average number of shares outstanding during the
period.
Putnam High Yield Total Return Fund
Notes to
financial statements
April 30, 1997 (Unaudited)
Note 1
Significant
accounting
policies
Putnam High Yield Total Return Fund (the "fund") is registered
under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The fund
seeks total return through high current income and capital
appreciation by investing primarily in high-yielding, lower-rated
fixed-income securities.
The fund offers class A, class B and class M shares. Class A
shares are sold with a maximum front-end sales charge of 4.75%.
Class B shares, which convert to class A shares after
approximately eight years, do not pay a front-end sales charge,
but pay a higher ongoing distribution fee than class A shares,
and are subject to a contingent deferred sales charge, if those
shares are redeemed within six years of purchase. Class M shares
are sold with a maximum front-end sales charge of 3.25% and pay
an ongoing distribution fee that is lower than class B shares and
higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each
class of shares, except that each class bears expenses unique to
that class (including the distribution fees applicable to such
class). Each class votes as a class only with respect to its own
distribution plan or other matters on which a class vote is
required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the
fund, if the fund were liquidated. In addition, the Trustees
declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its
financial statements. The preparation of financial statements is
in conformity with generally accepted accounting principles and
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities. Actual results
could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is 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. Securities quoted in foreign currencies
are translated into U.S. dollars at the current exchange rate.
Short-term investments having remaining maturities of 60 days or
less are stated at amortized cost, which approximates market
value, and other investments are stated at fair value following
procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued
by the Securities and Exchange Commission, the fund may transfer
uninvested cash balances into a joint trading account along with
the cash of other registered investment companies and certain
other accounts managed by Putnam Investment Management, Inc.
("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. . These balances may be
invested in one or more repurchase agreements and/or short-term
money market instruments.
C) Repurchase agreements The fund, or any joint trading account,
through its custodian, receives delivery of the underlying
securities, the market value of which at the time of purchase is
required to be in an amount at least equal to the resale price,
including accrued interest. Putnam Management is responsible for
determining that the value of these underlying securities is at
all times at least equal to the resale price, including accrued
interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order
to buy or sell is executed).
Interest income is recorded on the accrual basis. Dividend
income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the
fund is informed of the ex-dividend date. Discounts on zero
coupon bonds, stepped-coupon bonds and payment in kind bonds are
accreted according to the effective yield method.
Securities purchased or sold on a when-issued or delayed delivery
basis may be settled a month or more after the trade date;
interest income is accrued based on the terms of the security.
Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform
under the contract.
E) Federal taxes It is the policy of the fund to distribute all
of its taxable income within the prescribed time and otherwise
comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies. It is also the
intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal
Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on
income and capital gains.
F) Distributions to shareholders Distributions to shareholders
from net investment income are recorded by the fund on the ex-
dividend date. Capital gain distributions, if any, are recorded
on the ex-dividend date and paid at least annually. The amount
and character of income and gains to be distributed are
determined in accordance with income tax regulations which may
differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
G) Unamortized organization expenses Expenses incurred by the
fund in connection with its organization, its registration with
the Securities and Exchange Commission and with various states
and the initial public offering of its shares were $80,943. These
expenses are being amortized on projected net asset levels over
a five-year period.
Note 2
Management fee,
administrative services,
and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net
assets of the fund. Such fee is based on the following annual
rates: 0.80% of the first $500 million of the average net assets,
0.70% of the next $500 million, 0.65% of the next $500 million,
0.60% of the next $5 billion, 0.575% of the next $5 billion,
0.555% of the next $5 billion, 0.54% of the next $5 billion,
0.53% of any amount over $21.5 billion.
Putnam Management has agreed to limit its compensation (and, to
the extent necessary, bear other expenses) through June 30, 1997,
to the extent that expenses of the fund (exclusive of brokerage,
interest, taxes, deferred organizational and extraordinary
expense, credits from Putnam Fiduciary Trust Company (PFTC), a
wholly-owned subsidiary of Putnam Investments, Inc. and payments
under the Trust's distribution plan) would exceed an annual rate
of 1.25% of the fund's average net assets.
The fund reimburses Putnam Management for the compensation and
related expenses of certain officers of the fund and their staff
who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the
Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of
Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam
Investor Services, a division of PFTC.
For the period ended April 30, 1997, fund expenses were reduced
by $13,079 under expense offset arrangements with PFTC and
brokerage service arrangements. Investor servicing and custodian
fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets
utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such
arrangements.
Trustees of the fund receive an annual Trustees fee of $650 and
an additional fee for each Trustee's meeting attended. Trustees
who are not interested persons of Putnam Management and who serve
on committees of the Trustees receive additional fees for
attendance at certain committee meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which
allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred
fees remain in the fund and are invested in certain Putnam funds
until distribution in accordance with the Plan.
The Fund has adopted an unfunded noncontributory defined benefit
pension plan covering all Trustees of the Fund who have served as
Trustee for at least five years. Benefits under the plan are
equal to 50% of the Trustee's average total retainer and meeting
fees for the three years preceding retirement. Pension expense
for the fund is included in Trustee fees in the Statement of
operations for the period ended April 30, 1997. Accrued pension
liability is included in Payable for compensation of Trustees in
the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with
respect to its class A, class B and class M shares pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The purpose
of the Plans is to compensate Putnam Mutual Funds Corp., a wholly-
owned subsidiary of Putnam Investments Inc., for services
provided and expenses incurred by it in distributing shares of
the fund. The Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00%
of the average net assets attributable to class A, class B and
class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of 0.25%, 0.25% and .050% of the
average net assets attributable to class A, class B and class M
shares respectively.
Note 3
Purchase and sales of securities
During the period ended April 30, 1997, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $20,253,306 and $3,911,133,
respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on
securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Capital shares
At April 30, 1997, there was an unlimited number of shares of
beneficial interest authorized.
For the period January 2,
1997
(commencement of
operations) to
April 30
1997
Class A Shares Amount
Shares sold 980,136 $8,308,988
Shares issued in connection with 4,596 38,222
reinvestment of distributions
984,732 8,347,210
Shares repurchased (48,081) (406,686)
Net increase 936,651 $7,940,524
For the period January 2,
1997
(commencement of
operations) to
April 30
1997
Class B Shares Amount
Shares sold 1,153,33 $9,781,816
4
Shares issued in connection with 4,514 37,505
reinvestment of distributions
1,157,84 9,819,321
8
Shares repurchased (89,480) (749,928)
Net increase 1,068,36 $9,069,393
8
For the period January 2,
1997
(commencement of
operations) to
April 30
1997
Class M Shares Amount
Shares sold 126,277 $1,068,346
Shares issued in connection with 513 4,266
reinvestment of distributions
126,790 1,072,612
Shares repurchased (1,648) (13,734)
Net increase 125,142 $1,058,878
Note 5
Initial capitalization and offering of shares
The fund was established as a Massachusetts business trust on
January 22, 1996. During the period January 22, 1996 to January
2, 1997, the fund had no operations other than those related to
organizational matters, including the initial capital
contribution of $1,000, $1,000 and $1,000 for class A, class B
and class M, respectively, and $80,943 of initial organizational
expenses, and the issuance of 118 shares for each class to Putnam
Mutual Funds Corp., a wholly-owned subsidiary of Putnam
Investments, Inc.
<PAGE>
PUTNAM MUNICIPAL INCOME FUND
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Index to Financial Statements and Supporting Schedule:
(1) Financial Statements:
Statement of assets and liabilities -- March 31,
1997 (a) .
Statement of operations -- year ended March 31,
1997 (a).
Statement of changes in net assets -- years ended
March 31, 1997 and March 31, 1996
(a).
Financial highlights (a) (b).
Notes to financial statements (a).
(2) Supporting Schedules:
Schedule I -- Portfolio of investments owned --
March 31, 1997 (a).
Schedules II through IX omitted because the
required matter is not present.
(a) Incorporated by reference into Parts A
and B.
(b) Included in Part A.
--------------------------
(b) Exhibits:
1. Agreement and Declaration of Trust dated February
6, 1989, as amended May 11, 1992 --Incorporated by
reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement.
2. By-Laws, as amended through February 1, 1994
Incorporated by reference to Post-Effective
Amendment No. 7 to the Registrant's Registration
Statement.
3. Not applicable.
4a. Class A Specimen share certificate --Incorporated
by reference to Post-Effective Amendment No. 3 to
the Registrant's Registration Statement.
4b. Class B Specimen share certificate --Incorporated
by reference to Post-Effective Amendment No. 3 to
the Registrant's Registration Statement.
4c. Class M Specimen share certificate --Incorporated
by reference to Post-Effective Amendment No. 8 to
the Registrant's Registration Statement.
4d. Portions of Agreement and Declaration of Trust
Relating to Shareholders' Rights --Incorporated by
reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement.
4e. Portions of By-Laws Relating to Shareholders'
Rights -- Incorporated by reference to Post-
Effective Amendment No. 5 to the Registrant's
Registration Statement.
5. Management Contract dated July 22, 1996 --
Incorporated by reference to Post-Effective
Amendment No. 9 to the Registrant's Registration
Statement.
6a. Distributor's Contract dated May 6, 1994 --
Incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's Registration
Statement.
6b. Form of Specimen Dealer Sales Contract --
Incorporated by reference to Post-Effective
Amendment No. 4 to the Registrant's Registration
Statement.
6c. Form of Specimen Financial Institution Sales
Contract -- Incorporated by reference to Post-
Effective Amendment No. 4 to the Registrant's
Registration Statement.
7. Trustee Retirement Plan dated October 4, 1996 -
- Exhibit 1.
8. Custodian Agreement with Putnam Fiduciary Trust
Company dated May 3, 1991, as amended July 13,
1992 -- Incorporated by reference to Post-
Effective Amendment No. 7 to the Registrant's
Registration Statement.
9. Investor Servicing Agreement dated June 3, 1991
with Putnam Fiduciary Trust Company --Incorporated
by reference to Post-Effective Amendment No. 3 to
the Registrant's Registration Statement.
10. Opinion of Ropes & Gray, including consent --
Exhibit 2.
11. Not applicable.
12. Not applicable.
13. Investment Letter from Putnam Investments, Inc. to
the Registrant -- Incorporated by reference to the
Registrant's Initial Registration Statement.
14. Not applicable.
15a. Class A Distribution Plan and Agreement --
Incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's Registration
Statement.
15b. Class B Distribution Plan and Agreement --
Incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's Registration
Statement.
15c. Class M Distribution Plan and Agreement --
Incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's Registration
Statement.
15d. Form of Specimen Dealer Service Agreement --
Exhibit 3.
15e. Form of Specimen Financial Institution Service
Agreement -- Exhibit 4.
16. Schedule of computation of performance quotations
-- Exhibit 5 .
17a. Financial Data Schedule for Class A shares --
Exhibit 6 .
17b. Financial Data Schedule for Class B shares --
Exhibit 7 .
17c. Financial Data Schedule for Class M shares --
Exhibit 8.
18. Rule 18f-3(d) Plan -- Incorporated by reference
to Post-Effective Amendment No. 9 to the
Registrant's Registration Statement.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of June 30, 1997 , the number of record holders of each
class of securities of the Registrant is as follows:
NUMBER OF RECORD HOLDERS
---------------------------------
CLASS A CLASS B CLASS M
22,376 13,855 351
ITEM 27. INDEMNIFICATION
The information required by this item is incorporated herein
by reference to Pre-Effective Amendment No. 1 from the Registrant's
Registration Statement on Form N-1A under the Investment Company Act
of 1940 (File No. 811-5763).<PAGE>
<PAGE>
<PAGE>
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of accounts, books
and other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules promulgated thereunder
are Registrant's Clerk, Beverly Marcus; Registrant's investment
adviser, Putnam Investment Management, Inc.; Registrant's principal
underwriter, Putnam Mutual Funds Corp.; Registrant's custodian, Putnam
Fiduciary Trust Company ("PFTC"); and Registrant's transfer and
dividend disbursing agent, Putnam Investor Services, a division of
PFTC. The address of the Clerk, investment adviser, principal
underwriter, custodian and transfer and dividend disbursing agent is
One Post Office Square, Boston, Massachusetts 02109.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to whom
a prospectus of the Registrant is delivered a copy of the Registrant's
latest annual report to shareholders, upon request and without charge.
----------------------------
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus
and Statement of Additional Information constituting parts of Post-
Effective Amendment No. 10 to the Registration Statement of
Putnam Municipal Income Fund on Form N-1A (File No. 33-26921) of our
report dated May 15, 1997 , on our audit of the financial
statements and financial highlights of the Fund , which report
is included in the Annual Report for Putnam Municipal Income Fund for
the year ended March 31, 1997 , which is incorporated by
reference in the Registration Statement.
We also consent to the references to our firm under the caption
"Independent Accountants and Financial Statements" in the Statement of
Additional Information and under the heading "Financial highlights" in
such Prospectus.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
July 28, 1997
--------------------------
NOTICE
A copy of the Agreement and Declaration of Trust of Putnam
Municipal Income Fund is on file with the Secretary of State of The
Commonwealth of Massachusetts and notice is hereby given that this
instrument is executed on behalf of the Registrant by an officer of
the Registrant as an officer and not individually and the obligations
of or arising out of this instrument are not binding upon any of the
Trustees, officers or shareholders individually but are binding only
upon the assets and property of the Registrant.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it
meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and
has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Boston, and The Commonwealth of Massachusetts, on the
30th day of July, 1997 .
PUTNAM MUNICIPAL INCOME FUND
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement of Putnam Municipal Income
Fund has been signed below by the following persons in the capacities
and on the dates indicated:
SIGNATURE TITLE
George Putnam President and Chairman of the Board;
Principal Executive Officer; Trustee
John D. Hughes Senior Vice President; Treasurer
and Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and Principal
Accounting Officer
Jameson A. Baxter Trustee
Hans H. Estin Trustee
John A. Hill Trustee
Ronald J. Jackson Trustee
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
Robert E. Patterson Trustee
Donald S. Perkins Trustee
William F. Pounds
Trustee
George Putnam, III Trustee
A.J.C. Smith Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver,
as Attorney-in-Fact
July 30, 1997
RETIREMENT PLAN
FOR THE
TRUSTEES OF THE PUTNAM FUNDS
1. General; effective date. This Retirement Plan For The
Trustees Of The Putnam Funds is intended to provide, on the terms
and conditions specified below, cash retirement benefits to
certain individuals who have served as trustees ("Trustees") of
the Funds. Except as provided at Section 12 below, the Plan is
effective with respect to retirements occurring on or after
January 1, 1996.
2. Statement of Purpose. The purpose of this Plan is to
assist the Funds in attracting and retaining highly qualified
individuals to serve as Trustees of the Putnam Funds by providing
a form of deferred compensation which is competitive with
compensation practices of other major investment company
complexes as well as those of major business corporations and
which recognizes the benefits to the Funds and of having Trustees
with many years of experience with the affairs of the Funds.
3. Defined terms. When used in the Plan, the following
terms shall have the meanings set forth in this Section:
- "Administrator": such committee, consisting solely of
Trustees who are not "interested persons" of the Funds
within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940, as may be designated
from time to time by the Trustees to administer the
Plan.
- "Service": active service as a Trustee for one or more
of the Funds, including service prior to the Effective
Date. For purposes of this definition, service for an
entity that was a Fund at the time of such service
shall not be disregarded merely because the entity
later ceases to be a Fund. A Participant who dies
prior to retirement or who retires by reason of total
and permanent disability (as determined by the
Administrator) shall be deemed to have served at least
one hundred twenty (120) months of Service regardless
of his or her actual period of service.
- "Effective Date": the date specified in the second
sentence of Section 1.
- "Final Average Remuneration": the quotient obtained by
dividing (i) a Participant's total retainer and meeting
fees paid to the individual by the Funds for the last
thirty-six (36) months of the individual's service as a
Trustee, by (ii) three.
<PAGE>
- "Fund": any of the Putnam Funds, other than any such
Fund that has either (i) elected by vote of a majority
of its Trustees who are not "interested persons" of the
Fund (as defined above) not to participate in the Plan,
or (ii) terminated its participation in the Plan in
accordance with Section 14(c).
- "Participant": a Trustee with at least sixty (60)
months of Service.
- "Plan": the Retirement Plan For The Trustees Of The
Putnam Funds set forth herein, as the same may from
time to time be amended and in effect.
- "Retirement": ceasing to be an active Trustee
(regardless of whether service to one or more Funds
continues in a capacity other than as a Trustee) for
any reason other than (i) termination for cause as
determined by the Administrator, or (ii) death. The
terms "retire," "retires" and "retired" shall be
similarly construed.
- "Trustee": a trustee of any of the Funds.
4. Eligibility for retirement benefit. Each Participant
shall receive the normal retirement benefit specified in Section
5 below commencing in the calendar year next following the date
of retirement.
5. Form and amount of retirement benefit. The retirement
benefit payable to a Participant shall be an annual cash payment
equal to fifty percent (50%) of the Participant's Final Average
Remuneration. Such retirement benefit shall be paid on January
15 of each calendar year commencing with the year specified in
Section 4 above and continuing for the lesser of (i) a number of
years equal to the Participant's years of Service (rounded to the
nearest whole year) or (ii) the lifetime of the Participant.
6. Death benefit. The only death benefits payable under
the Plan shall be those described in this Section:
(a) If a Participant dies after retirement but before
ten (10) annual retirement benefit payments have been made,
the Participant's designated beneficiary shall be entitled
to receive an annual death benefit, in the same amount,
payable on January 15 of each year for the lesser of (i) the
remainder, if any, of the period specified in clause (i) of
Section 5 above or (ii) the remainder of such 10-year
period.
<PAGE>
(b) If a Participant dies before retirement, there
shall be paid to his or her designated beneficiary an annual
death benefit equal in amount to the annual retirement
benefit specified in Section 5 above. The death benefit
described in this paragraph (b) shall be paid on January 15
of each year commencing in the calendar year next following
the Participant's death for a number of years equal to the
lesser of (i) the period specified in clause (i) of Section
5 above or (ii) ten (10) years.
(c) The Administrator in its discretion may commute any
death benefit under this Section to an immediate lump sum
payment or may otherwise accelerate such payments, in each
case applying such reasonable discount rates as it deems
appropriate.
7. Designation of beneficiary. For purposes of Section 6
above, a Participant's designated beneficiary shall be such
person or persons, including a trust, as the Participant shall
have designated in writing on a form acceptable to and delivered
to the Administrator. In the absence of an effective beneficiary
designation governing the payment of any portion of the death
benefit described in Section 6 above, payment of such portion
shall be made to the Participant's estate, which shall be deemed
to be the Participant's designated beneficiary for all purposes
hereunder. If the person designated as the beneficiary to
receive any portion of the death benefit should die prior to
completion of payments to such beneficiary without the
Participant having made effective provision (by a designation
delivered to the Administrator as hereinabove prescribed) for a
successor or contingent beneficiary, payment of such portion or
the remainder thereof shall be made to the decedent beneficiary's
estate.
8. Agreement not to compete, etc. Eligibility for and
payment of benefits under the Plan is conditioned on agreement by
the Participant (i) to refrain from engaging in any business
activity in competition with the Funds, and (ii) not to disclose
any proprietary or otherwise confidential information pertaining
to the Funds. Any breach by an active or retired Trustee of the
agreement or conditions specified in the preceding sentence shall
be grounds for termination or reduction by the Administrator of
benefits under the Plan.
9. Nature of rights. Nothing in the Plan shall be
construed as requiring the Funds, or any of them, to set aside or
to segregate any assets of any kind to meet any of its
obligations hereunder or otherwise to fund the Plan. The rights
of persons claiming benefits under the Plan shall be no greater
than those of general unsecured creditors of a Fund, and no such
person shall have any right in or to any specific assets of any
Fund. All rights to benefits under the Plan shall be construed
and interpreted consistent with the continued qualification of
each Fund as a registered investment company under the Investment
Company Act of 1940, as amended.
10. Rights non-assignable. No Participant, beneficiary or
other person shall have any right to assign, pledge, encumber, or
otherwise alienate or transfer any right to receive benefits or
payments hereunder or any other interest under the Plan, in whole
or in part, and any attempt by any such person to effectuate such
an assignment, pledge, encumbrance, or other alienation or
transfer shall be null and void.
11. No rights to continuation of status. Nothing in the
Plan shall be construed as giving any individual a right to
continue to serve as a Trustee of the Funds, or any of them, or
to receive any particular level of remuneration for any such
service.
12. Application of Plan to certain persons. This Plan
supersedes in its entirety the voluntary retirement program
heretofore maintained by the Funds and any benefits previously
authorized under such program but not yet paid for periods
commencing on or after January 1, 1996. Reference is made to
those former Trustees listed on Schedule A hereto who retired
prior to the effective date of this Plan and who are currently
receiving benefits under such voluntary retirement program. In
addition, reference is made to a current Trustee listed on
Schedule B hereto who previously received certain retirement
benefits under such voluntary retirement program following such
Trustee's initial retirement from the Funds. Each person listed
on Schedules A or B shall be entitled to a retirement benefit in
the amount and payable in accordance with the terms of the Plan
except that, to the extent inconsistent with the generally
applicable provisions of the Plan, the specific provisions of
Schedule A and B shall control.
13. Payment of benefits. Benefits shall be paid by the
Funds, in cash, upon direction by the Administrator. The
Administrator shall allocate the obligation to make payments with
respect to a Trustee under the Plan for any calendar year among
the Funds in proportion to their respective cumulative
liabilities accrued with respect to such Trustee's participation
in the Plan for financial reporting purposes or on such other
reasonable basis as the Administrator may determine.
14. Amendment and termination.
(a) AMENDMENT. The Plan may be amended at any time by the
Administrator. No amendment shall reduce the benefits or future
benefits of any Trustee who has retired, and in the case of a
participant who is still an active Trustee no amendment shall
reduce the amount such Trustee would have been entitled to
receive if he or she had ceased to serve as a Trustee immediately
prior to such amendment.
(b) TERMINATION OF THE PLAN AS A WHOLE. The Plan as a
whole may be terminated by the Administrator. Upon termination
of the plan as a whole, benefits in pay status shall continue to
be paid. Any Participant not yet in pay status shall continue to
be entitled to a benefit equal to the benefit to which he or she
would have been entitled had retirement as a Trustee occurred
immediately prior to such Plan termination. Notwithstanding the
foregoing, in its discretion the Administrator may commute and
pay as a single lump sum payment any benefits remaining payable
upon termination of the Plan as a whole, and in determining such
lump sum amounts the Administrator may apply such reasonable
discount factors and mortality assumptions as it determines in
its discretion.
(c) TERMINATION BY INDIVIDUAL FUND. A Fund may terminate
its participation in the Plan at any time by vote of a majority
of its Trustees who are not "interested persons" of the Fund (as
defined under "Administrator" in Section 3 above), provided that
upon any such termination such Fund shall remain liable for its
allocable share of the benefits to which Participants would have
been entitled is the Plan as a whole had been terminated as of
the date of such individual termination, as determined by the
Administrator in its sole discretion.
As Adopted October 4, 1996
ROPES & GRAY
One International Place
Boston, Massachusetts 02110-2624
(617) 951-7000
July 25, 1997
Putnam Municipal Income Fund (the "Fund")
One Post Office Square
Boston, Massachusetts 02109
Gentlemen:
You have informed us that you propose to offer and sell from
time to time 1,560,087 of your shares of beneficial interest (the
"Shares"), for cash or securities at the net asset value per
share, determined in accordance with your Bylaws, which Shares
are in addition to your shares of beneficial interest which you
have previously offered and sold or which you are currently
offering.
We have examined copies of (i) your Agreement and
Declaration of Trust as on file at the office of the Secretary of
State of The Commonwealth of Massachusetts, which provides for an
unlimited number of authorized shares of beneficial interest, and
(ii) your Bylaws, which provide for the issue and sale by the
Fund of such Shares.
We assume that appropriate action will be taken to register
or qualify the sale of the Shares under any applicable state and
federal laws regulating offerings and sales of securities.
Based upon the foregoing, we are of the opinion that:
1. The Fund is a legally organized and validly existing
voluntary association with transferable shares of beneficial
interest under the laws of The Commonwealth of Massachusetts and
is authorized to issue an unlimited number of shares of
beneficial interest.
2. Upon the issue of any of the Shares referred to in the
first paragraph hereof for cash or securities at net asset value,
and the receipt of the appropriate consideration therefor as
provided in your Bylaws, such Shares so issued will be validly
issued, fully paid and nonassessable by the Fund.
<PAGE>
Putnam Municipal Income Fund -2- July 25, 1997
The Fund is an entity of the type commonly known as a
"Massachusetts business trust". Under Massachusetts law,
shareholders could, under certain circumstances, be held
personally liable for the obligations of the Fund. However, the
Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Fund and requires that
notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Fund or its
Trustees. The Agreement and Declaration of Trust provides for
indemnification out of the property of the Fund for all loss and
expense of any shareholder of the Fund held personally liable for
the obligations of the Fund solely by reason of his being or
having been a shareholder. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable
to meet its obligations.
We understand that this opinion is to be used in connection
with the registration of the Shares for offering and sale
pursuant to the Securities Act of 1933, as amended, and the
provisions of Rule 24e-2 under the Investment Company Act of
1940, as amended. We consent to the filing of this opinion with
and as a part of Post-Effective Amendment No. 10 to your
Registration Statement (No. 33-26921.)
Very truly yours,
Ropes & Gray
DEALER SERVICE AGREEMENT
Between: and
PUTNAM MUTUAL FUNDS CORP.
General Distributor of
The Putnam Family of Mutual Funds
One Post Office Square
Boston, MA 02109
We are pleased to inform you that, pursuant to the terms of this
Dealer Service Agreement, we are authorized to pay you service
fees in connection with the accounts of your customers that hold
shares of certain Putnam Funds listed in SCHEDULE 1 that have
adopted distribution plans pursuant to Rule 12b-1 (the "12b-1
Funds"). Payment of the service fees is subject to your initial
and continuing satisfaction of the following terms and conditions
which may be revised by us from time to time:
1. QUALIFICATION REQUIREMENTS
(a) You have entered into a Sales Contract with us with respect
to the Putnam Family of Mutual Funds (the "Putnam Funds").
(b) You are the dealer of record for accounts in Putnam Funds
having an aggregate average net asset value of at least the
minimum amount set forth in SCHEDULE 2 (DEALER FIRM REQUIREMENTS)
during the period for which a service fee is to be paid. Putnam
Fund accounts are accounts in any open-end Putnam Fund, but
excluding any accounts for your firm's own retirement plans.
(c) One or more of your current employees must be the designated
registered representative(s) on accounts in Putnam Funds having
an aggregate average net asset value of at least the minimum
amount set forth in SCHEDULE 2 (REGISTERED REPRESENTATIVE
REQUIREMENTS) during the period for which a service fee is to be
paid.
(d) You will provide the following information and agree that we
will be entitled to rely on the accuracy of such information in
updating our records for determining the levels of service fees
payable to you under the terms of this Agreement. You understand
that such payments will be based solely on Putnam's records.
For each Putnam Fund account registered in the name of
one of your customers, you will advise us, preferably
by electronic means, before the end of the second month
in each calendar quarter, of the registered
representative's name, identification number, branch
number, and telephone number.<PAGE>
2. S ERVICE FEES
(a) If you meet the qualification requirements set forth above
in Paragraph 1, you will be paid a service fee on assets in the
12b-1 Funds for which you are the dealer of record and which are
serviced by a registered representative of your firm meeting the
Registered Representative Requirements, if any, at the annual
rates specified (excluding any accounts for your firm's own
retirement plans).
(b) You understand and agree that:
(i) all service fee payments are subject to the
limitations contained in each 12b-1 Fund's Distribution
Plan, which may be varied or discontinued at any time;
(ii) you shall waive the right to receive service fee
payments to the extent any 12b-1 Fund fails to make
payments to us under its distribution plan with us;
(iii) your failure to provide the services described in
Paragraph 4 below as may be amended by us from time to
time, or otherwise comply with the terms of this
Agreement, will render you ineligible to receive
service fees; and
(iv) failure of an assigned registered representative
to provide services required by this Agreement will
render that representative's accounts ineligible as
accounts on which service fees are paid.
3. P AYMENTS AND COMMUNICATIONS TO REGISTERED REPRESENTATIVES
(a) You will pass through to your registered representatives a
significant share of the service fees paid to you pursuant to
this Agreement.
(b) You will assist us in distributing to your registered
representatives periodic statements which we will have prepared
showing the aggregate average net asset value of shares in Putnam
Funds with which they are credited on our records.<PAGE>
4. REQUIRED SERVICES
(a) You will assign one of your registered representatives to
each Putnam Fund account on your records and reassign the Putnam
Fund account should that representative leave your firm.
(b) You and your registered representatives will assist us and
our affiliates in providing the following services to
shareholders of the Putnam Funds:
(i) Maintain regular contact with shareholders in
assigned accounts and assist in answering inquiries
concerning the Putnam Funds.
(ii) Assist in distributing sales and service
literature provided by us, particularly to the
beneficial owners of accounts registered in your name
(nominee name accounts).
(iii)Assist us and our affiliates in the establishment
and maintenance of shareholder accounts and records.
(iv) Assist shareholders in effecting administrative
changes, such as changing dividend options, account
designations, address, automatic investment programs or
systematic investment plans.
(v) Assist in processing purchase and redemption
transactions.
(vi) Provide any other information or services as the
customer or we may reasonably request.
(c) You will support our marketing efforts by granting
reasonable requests for visits to your offices by our wholesalers
and by including all Putnam Funds on your "approved" list.
(d) Your compliance with the service requirements set forth in
this Agreement will be evaluated by us from time to time by
surveying shareholder satisfaction with service, by monitoring
redemption levels of shareholder accounts assigned to you and by
such other methods as we deem appropriate.
(e) The provisions of this Paragraph 4 may be amended by us from
time to time upon notice to you.
5. AMENDMENT
This Agreement, including any Schedule hereto, shall be deemed
amended as provided in any written notice delivered by us to you.<PAGE>
6. EFFECTIVE PERIOD AND TERMINATION
The provisions of this Agreement shall remain in effect for not
more than one year from the date of its execution or adoption and
thereafter for successive annual periods only so long as such
continuance is specifically approved at least annually by the
Trustees of each of the 12b-1 Funds in conformity with Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act"). This
Agreement shall automatically terminate in the event of its
assignment (as defined by the 1940 Act). In addition, this
Agreement may be terminated at any time, without the payment of
any penalty, by either party upon written notice delivered or
mailed by registered mail, postage prepaid, to the other party,
or, as provided in Rule 12b-1 under the 1940 Act, by the Trustees
of any 12b-1 Fund or by the vote of the holders of the
outstanding voting securities of any 12b-1 Fund.
7. WRITTEN REPORTS
Putnam Mutual Funds Corp. shall provide the Trustees of each of
the 12b-1 Funds, and such Trustees shall review at least
quarterly, a written report of the amounts paid to you under this
Agreement and the purposes for which such expenditures were made.
8. MISCELLANEOUS
(a) All communications mailed to us should be sent to the
address listed below. Any notice to you shall be duly given if
mailed or delivered to you at the address specified by you below.
(b) The provisions of this Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of
Massachusetts.
Very truly yours,
PUTNAM MUTUAL FUNDS CORP.
By: ------------------------------
William N. Shiebler, President
and Chief Executive Officer<PAGE>
We accept and agree to the foregoing Agreement as of the date set
forth below.
Dealer: -------------------------
By: ----------------------------
Authorized Signature, Title
------------------------------
------------------------------
Address
Dated: -------------------------
Please return the signed Putnam copy of this Agreement to Putnam
Mutual Funds Corp., P.O. Box 41203, Providence, RI 02940-1203.<PAGE>
SCHEDULE 1:
THE 12B-1 FUNDS
Service fees will be paid on the following Putnam Funds at the
rates set forth in the Prospectus of that Fund:
Putnam Adjustable Rate U.S. Government Fund
Putnam American Government Income Fund
Putnam Arizona Tax Exempt Income Fund
Putnam Asia Pacific Growth Fund
Putnam Asset Allocation Funds
-Putnam Asset Allocation: Growth Portfolio
-Putnam Asset Allocation: Balanced Portfolio
-Putnam Asset Allocation: Conservative Portfolio
Putnam Balanced Retirement Fund
Putnam California Tax Exempt Income Trust
-Putnam California Intermediate Tax Exempt Fund
-Putnam California Tax Exempt Income Fund
Putnam Capital Appreciation Fund
Putnam Convertible Income-Growth Trust
Putnam Diversified Equity Trust
Putnam Diversified Income Trust
Putnam Equity Income Fund
Putnam Europe Growth Fund
Putnam Federal Income Trust
Putnam Florida Tax Exempt Income Fund
The George Putnam Fund of Boston
Putnam Global Governmental Income Trust
Putnam Global Growth Fund
The Putnam Fund for Growth and Income
Putnam Growth and Income Fund II
Putnam Health Sciences Trust
Putnam High Yield Advantage Fund
Putnam High Yield Trust
Putnam Income Fund
Putnam Intermediate Tax Exempt Fund
Putnam Intermediate U.S. Government Fund
Putnam Investment Funds
-Putnam International New Opportunities Fund
Putnam Investors Fund
Putnam Massachusetts Tax Exempt Income Fund
Putnam Michigan Tax Exempt Income Fund
Putnam Minnesota Tax Exempt Income Fund
Putnam Money Market Fund
Putnam Municipal Income Fund
Putnam Natural Resources Fund
Putnam New Jersey Tax Exempt Income Fund
Putnam New Opportunities Fund
Putnam New York Tax Exempt Income Trust
-Putnam New York Intermediate Tax Exempt Fund
-Putnam New York Tax Exempt Income Fund
Putnam New York Tax Exempt Opportunities Fund
Putnam Ohio Tax Exempt Income Fund
Putnam OTC Emerging Growth Fund
Putnam Overseas Growth Fund
Putnam Pennsylvania Tax Exempt Income Fund
Putnam Preferred Income Trust
Putnam Tax Exempt Income Fund
Putnam Tax-Free Income Trust
-Putnam Tax-Free High Yield Fund
-Putnam Tax-Free Insured Fund
Putnam U.S. Government Income Trust
Putnam Utilities Growth and Income Fund
Putnam Vista Fund
Putnam Voyager Fund
Putnam Voyager Fund II
SCHEDULE 2: MINIMUM ASSETS
DEALER FIRM REQUIREMENTS. The minimum aggregate average net
asset value of all accounts in Putnam Funds specified by
Paragraph 1(b) is $250,000. We will review this requirement
prior to the start of each year and inform you of any changes.
REGISTERED REPRESENTATIVE REQUIREMENTS. With respect to
Paragraph 1(c), there is no minimum asset qualification
requirement in the Putnam Funds applicable to each of your
representatives. We will review this requirement prior to the
start of each year and inform you of any changes.
NF-57
2/7/97
FINANCIAL INSTITUTION
SERVICE AGREEMENT
Between: and
PUTNAM MUTUAL FUNDS CORP.
General Distributor of
The Putnam Family of Mutual Funds
One Post Office Square
Boston, MA 02109
We are pleased to inform you that, pursuant to the terms of this
FINANCIAL INSTITUTION SERVICE AGREEMENT, we are authorized to pay
you service fees in connection with the accounts of your
customers that hold shares of certain Putnam funds listed in
SCHEDULE 1 that have adopted distribution plans pursuant to Rule
12b-1 (the "12b-1 Funds"). Payment of the service fees is
subject to your initial and continuing satisfaction of the
following terms and conditions which may be revised by us from
time to time:
1. QUALIFICATION REQUIREMENTS
(a) You have entered into a Financial Institution Sales Contract
with us with respect to the Putnam Family of Mutual Funds (the
"Putnam Funds"), whose shares you have agreed to make available
to your customers on an agency basis.
(b) You are the financial institution of record for accounts in
Putnam Funds having an aggregate average net asset value of at
least the minimum amount set forth in SCHEDULE 2 (FINANCIAL
INSTITUTION REQUIREMENTS) during the period for which a service
fee is to be paid. Putnam Fund accounts are accounts in any
open-end Putnam Fund but excluding any accounts for your
organization's own retirement plans.
(c) One or more of your current employees must be the designated
registered representative(s) in the case of a bank affiliated
dealer, or agent representative(s) in the case of a bank (both
referred to as "representatives"), on accounts in Putnam Funds
having an aggregate average net asset value of at least the
minimum amount set forth in SCHEDULE 2 (REPRESENTATIVE
REQUIREMENTS) during the period for which a service fee is to be
paid.
(d) You will provide the following information and agree that we
will be entitled to rely on the accuracy of such information in
updating our records for determining the levels of service fees
payable to you under the terms of this Agreement. You understand
that such payments will be based solely on Putnam's records:<PAGE>
For each Putnam Fund account registered in the name of one
of your customers, you will advise us, preferably by
electronic means, before the end of the second month in each
calendar quarter, of the representative's name,
identification number, branch number, and telephone number.
2. SERVICE FEES
(a) If you meet the qualification requirements set forth above in
Paragraph 1, you will be paid, at the end of each calendar
quarter, a service fee on assets of your customers in the 12b-1
Funds for which you are the financial institution of record and
which are serviced by a representative of your organization
meeting the Representative Requirements, if any at the annual
rates specified (excluding any accounts for your organization's
own retirement plans), provided that you have evaluated such
service fees and have concluded that it is consistent with
applicable laws, rules, regulations and regulatory
interpretations for you to receive such service fees.
(b) You understand and agree that:
(i) all service fee payments are subject to the limitations
contained in each 12b-1 Fund's Distribution Plan, which may
be varied or discontinued at any time;
(ii) you shall waive the right to receive service fee
payments to the extent any 12b-1 Fund fails to make
payments to us under its distribution plan with us;
(iii)your failure to provide the services described in
Paragraph 4 below as may be amended by us from time to time,
or otherwise comply with the terms of this Agreement, will
render you ineligible to receive service fees; and
(iv) failure of an assigned representative to provide
services required by this Agreement will render that
representative's accounts ineligible as accounts on which
service fees are paid.
3. PAYMENTS AND COMMUNICATIONS TO REPRESENTATIVES
(a) Where consistent with applicable laws, rules, regulations and
regulatory interpretations, you will pass through to your
representatives a significant share of the service fees paid to
you pursuant to this Agreement, or you will otherwise use the
payments of service fees to advance the objective of providing
and improving service to shareholders of the Putnam Funds in a
manner specifically approved by Putnam Mutual Funds (for example,
via training courses for representatives or shareholder
seminars).
(b) You will assist us in distributing to your representatives
periodic statements which we will have prepared showing the
aggregate average net asset value of shares in Putnam Funds with
which they are credited on our records.
4. REQUIRED SERVICES
(a) You will assign one of your representatives to each Putnam
Fund account on your records and reassign the Putnam Fund account
should that representative leave your organization.
(b) You and your representatives will assist us and our
affiliates in providing the following services to shareholders of
the Putnam Funds:
(i) Maintain regular contact with shareholders in assigned
accounts and assist in answering inquiries concerning the
Putnam Funds.
(ii) Assist in distributing sales and service literature
provided by us, particularly to the beneficial owners of
accounts registered in your name (nominee name accounts).
(iii) Assist us and our affiliates in the establishment and
maintenance of shareholder accounts and records.
(iv) Assist shareholders in effecting administrative
changes, such as changing dividend options, account
designations, address, automatic investment programs or
systematic investment plans.
(v) Assist in processing purchase and redemption
transactions.
(vi) Provide any other information or services as the
customer or we may reasonably request.
(c) You will grant reasonable requests for visits to your offices
by our wholesalers and include all Putnam Funds on your menu or
list of investments made available by you to your customers.
(d) Your compliance with the service requirements set forth in
this Agreement will be evaluated by us from time to time by
surveying shareholder satisfaction with service, by monitoring
redemption levels of shareholder accounts assigned to you and by
such other methods as we deem appropriate.
(e) The provisions of this Paragraph 4 may be amended by us from
time to time upon notice to you.
5. AMENDM ENT
This Agreement, including any Schedule hereto, shall be deemed
amended as provided in any written notice delivered by us to you.<PAGE>
6. EFFECT IVE PERIOD AND TERMINATION
The provisions of this Agreement shall remain in effect for one
year from the date of its execution or adoption and thereafter
for successive annual periods only so long as such continuance is
specifically approved at least annually by the Trustees of each
of the 12b-1 Funds in conformity with Rule 12b-1 under the
Investment Company Act of 1940 (the "1940 Act"). This Agreement
shall automatically terminate in the event of its assignment (as
defined by the 1940 Act). In addition, this Agreement may be
terminated at any time, without the payment of any penalty, by
either party upon written notice to the other party, or, as
provided in Rule 12b-1 under the 1940 Act, by the Trustees of any
12b-1 Fund or by the vote of the holders of the outstanding
voting securities of any 12b-1 Fund.
7. WRITTE N REPORTS
Putnam Mutual Funds Corp. shall provide the Trustees of each of
the 12b-1 Funds, and such Trustees shall review at least
quarterly, a written report of the amounts paid to you under this
Agreement and the purposes for which such expenditures were made.
8. COMPLI ANCE WITH LAWS
With respect to the receipt of service fees under the terms of
this Agreement, you will comply with all applicable federal and
state laws and rules, and all applicable regulations and
interpretations of regulatory agencies or authorities, which may
affect your business practices, including any requirement of
written authorization or consent by your customers to your
receipt of service fees, and any requirement to provide
disclosure to your customers of such service fees.
9. MISCEL LANEOUS
(a) All communications mailed to us should be sent to the address
listed below. Any notice to you shall be duly given if mailed or
delivered to you at the address specified by you below.<PAGE>
(b) The provisions of this Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of
Massachusetts.
Very truly yours,
PUTNAM MUTUAL FUNDS CORP.
By: --------------------------
William N. Shiebler,
President and
Chief Executive Officer
We accept and agree to the foregoing Agreement as of the date set
forth below.
Financial Institution: --------------------------
By: --------------------------
Authorized Signature, Title
--------------------------
--------------------------
Address
Dated: --------------------------
Please return the signed Putnam copy of this Agreement to Putnam
Mutual Funds Corp., P.O. Box 41203, Providence, RI 02940-1203. <PAGE>
SCHEDULE 1:
THE 12B-1 FUNDS
Service fees will be paid on the following Putnam Funds at the
rates set forth in the Prospectus of that Fund:
Putnam Adjustable Rate U.S. Government Fund
Putnam American Government Income Fund
Putnam Arizona Tax Exempt Income Fund
Putnam Asia Pacific Growth Fund
Putnam Asset Allocation Funds
-Putnam Asset Allocation: Growth Portfolio
-Putnam Asset Allocation: Balanced Portfolio
-Putnam Asset Allocation: Conservative Portfolio
Putnam Balanced Retirement Fund
Putnam California Tax Exempt Income Trust
-Putnam California Intermediate Tax Exempt Fund
-Putnam California Tax Exempt Income Fund
Putnam Capital Appreciation Fund
Putnam Convertible Income-Growth Trust
Putnam Diversified Equity Trust
Putnam Diversified Income Trust
Putnam Equity Income Fund
Putnam Europe Growth Fund
Putnam Federal Income Trust
Putnam Florida Tax Exempt Income Fund
The George Putnam Fund of Boston
Putnam Global Governmental Income Trust
Putnam Global Growth Fund
The Putnam Fund for Growth and Income
Putnam Growth and Income Fund II
Putnam Health Sciences Trust
Putnam High Yield Advantage Fund
Putnam High Yield Trust
Putnam Income Fund
Putnam Intermediate Tax Exempt Fund
Putnam Intermediate U.S. Government Fund
Putnam Investment Funds
-Putnam International New Opportunities Fund
Putnam Investors Fund
Putnam Massachusetts Tax Exempt Income Fund
Putnam Michigan Tax Exempt Income Fund
Putnam Minnesota Tax Exempt Income Fund
Putnam Money Market Fund
Putnam Municipal Income Fund
Putnam Natural Resources Fund
Putnam New Jersey Tax Exempt Income Fund
Putnam New Opportunities Fund
Putnam New York Tax Exempt Income Trust
-Putnam New York Intermediate Tax Exempt Fund
-Putnam New York Tax Exempt Income Fund
Putnam New York Tax Exempt Opportunities Fund
Putnam Ohio Tax Exempt Income Fund
Putnam OTC Emerging Growth Fund
Putnam Overseas Growth Fund
Putnam Pennsylvania Tax Exempt Income Fund
Putnam Preferred Income Trust
Putnam Tax Exempt Income Fund
Putnam Tax-Free Income Trust
-Putnam Tax-Free High Yield Fund
-Putnam Tax-Free Insured Fund
Putnam U.S. Government Income Trust
Putnam Utilities Growth and Income Fund
Putnam Vista Fund
Putnam Voyager Fund
Putnam Voyager Fund II
SCHEDULE 2: MINIMUM ASSETS
FINANCIAL INSTITUTION REQUIREMENTS. The minimum aggregate
average net asset value of all accounts in Putnam Funds specified
by Paragraph 1(b) is $250,000. We will review this requirement
prior to the start of each year and inform you of any changes.
REPRESENTATIVE REQUIREMENTS. With respect to Paragraph
1(c), there is no minimum asset qualification requirement in the
Putnam Funds applicable to each of your representatives. We will
review this requirement prior to the start of each year and
inform you of any changes. We reserve the right to set a minimum
at any time.
NF-58
2/7/97
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Municipal Income Fund -- Class A Shares
Fiscal period ending: 3/31/97
Inception date (if less than 10 years of performance): 5/22/89
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 $1,000 $1,000
ERV = Ending Redeemable Value $1,001.95 $1,342,92 $1,717.30
T = Average Annual
Total Return 0.20% 6.07% 7.12%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $4,281,635
Expenses $592,117
Reimbursement $0
Average shares 89,747,632
NAV $8.87
Sales Charge 4.75%
POP $9.31
Yield at POP 5.36%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
5.36% 5.36%
------ = ------ = 8.87%
1-39.6% .604%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Municipal Income Fund -- Class B Shares
Fiscal period ending: 3/31/97
Inception date (if less than 10 years of performance): 1/4/93
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 N/A $1,000
ERV = Ending Redeemable Value $1,248 N/A $1,697.97
T = Average Annual
Total Return 4.61% N/A 5.36%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $2,550,302
Expenses $599,246
Reimbursement $0
Average shares 53,513,418
NAV $8.86
Maximum Contingent Deferred
Sales Charge 5.0%
Yield at NAV 4.99%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
4.99% 4.99%
------ = ------ = 8.26%
1-39.6% .604%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Municipal Income Fund -- Class M Shares
Fiscal period ending: 12/1/94
Inception date (if less than 10 years of performance): 12/1/94
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 N/A $1,000
ERV = Ending Redeemable Value $1,016 N/A $1,202
T = Average Annual
Total Return 1.55% N/A 8.22%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $61,062
Expenses $10,799
Reimbursement $0
Average shares 1,280,515
NAV $8.86
Sales Charge 3.25%
POP $9.16
Yield at POP 5.25%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
5.25% 5.25%
------ = ------ = 8.69%
1-39.6% .604%
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Municipal Income Fund
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 1,253,058,237
<INVESTMENTS-AT-VALUE> 1,261,433,587
<RECEIVABLES> 44,650,954
<ASSETS-OTHER> 83,424
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,306,167,965
<PAYABLE-FOR-SECURITIES> 17,995,670
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,250,483
<TOTAL-LIABILITIES> 26,246,153
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,296,999,598
<SHARES-COMMON-STOCK> 89,578,555
<SHARES-COMMON-PRIOR> 92,020,210
<ACCUMULATED-NII-CURRENT> 768,055
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (26,221,191)
<ACCUM-APPREC-OR-DEPREC> 8,375,350
<NET-ASSETS> 1,279,921,812
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 87,662,771
<OTHER-INCOME> 0
<EXPENSES-NET> 14,955,774
<NET-INVESTMENT-INCOME> 72,706,997
<REALIZED-GAINS-CURRENT> 1,570,079
<APPREC-INCREASE-CURRENT> (9,991,065)
<NET-CHANGE-FROM-OPS> 64,286,011
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (47,379,439)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29,553,613
<NUMBER-OF-SHARES-REDEEMED> (34,810,212)
<SHARES-REINVESTED> 2,814,944
<NET-CHANGE-IN-ASSETS> (24,345,228)
<ACCUMULATED-NII-PRIOR> 721,349
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (27,131,353)
<GROSS-ADVISORY-FEES> 7,521,080
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,379,131
<AVERAGE-NET-ASSETS> 817,652,732
<PER-SHARE-NAV-BEGIN> 8.93
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> (.06)
<PER-SHARE-DIVIDEND> (.52)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.87
<EXPENSE-RATIO> .96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Municipal Income Fund
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 1,253,058,237
<INVESTMENTS-AT-VALUE> 1,261,433,587
<RECEIVABLES> 44,650,954
<ASSETS-OTHER> 83,424
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,306,167,965
<PAYABLE-FOR-SECURITIES> 17,995,670
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,250,483
<TOTAL-LIABILITIES> 26,246,153
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,296,999,598
<SHARES-COMMON-STOCK> 53,486,441
<SHARES-COMMON-PRIOR> 53,194,483
<ACCUMULATED-NII-CURRENT> 768,055
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (26,221,191)
<ACCUM-APPREC-OR-DEPREC> 8,375,350
<NET-ASSETS> 1,279,921,812
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 87,662,771
<OTHER-INCOME> 0
<EXPENSES-NET> 14,955,774
<NET-INVESTMENT-INCOME> 72,706,997
<REALIZED-GAINS-CURRENT> 1,570,079
<APPREC-INCREASE-CURRENT> (9,991,065)
<NET-CHANGE-FROM-OPS> 64,286,011
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (47,379,439)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,127,756
<NUMBER-OF-SHARES-REDEEMED> (14,405,728)
<SHARES-REINVESTED> 1,569,930
<NET-CHANGE-IN-ASSETS> (24,345,228)
<ACCUMULATED-NII-PRIOR> 721,349
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (27,131,353)
<GROSS-ADVISORY-FEES> 7,521,080
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,379,131
<AVERAGE-NET-ASSETS> 476,801,031
<PER-SHARE-NAV-BEGIN> 8.92
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> (.06)
<PER-SHARE-DIVIDEND> (.46)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.86
<EXPENSE-RATIO> 1.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Municipal Income Fund
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS M
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 1,253,058,237
<INVESTMENTS-AT-VALUE> 1,261,433,587
<RECEIVABLES> 44,650,954
<ASSETS-OTHER> 83,424
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,306,167,965
<PAYABLE-FOR-SECURITIES> 17,995,670
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,250,483
<TOTAL-LIABILITIES> 26,246,153
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,296,999,598
<SHARES-COMMON-STOCK> 1,328,362
<SHARES-COMMON-PRIOR> 940,541
<ACCUMULATED-NII-CURRENT> 768,055
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (26,221,191)
<ACCUM-APPREC-OR-DEPREC> 8,375,350
<NET-ASSETS> 1,279,921,812
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 87,662,771
<OTHER-INCOME> 0
<EXPENSES-NET> 14,955,774
<NET-INVESTMENT-INCOME> 72,706,997
<REALIZED-GAINS-CURRENT> 1,570,079
<APPREC-INCREASE-CURRENT> (9,991,065)
<NET-CHANGE-FROM-OPS> 64,286,011
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (540,669)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 648,726
<NUMBER-OF-SHARES-REDEEMED> (310,641)
<SHARES-REINVESTED> 49,736
<NET-CHANGE-IN-ASSETS> (24,345,228)
<ACCUMULATED-NII-PRIOR> 721,349
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (27,131,353)
<GROSS-ADVISORY-FEES> 7,521,080
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,379,131
<AVERAGE-NET-ASSETS> 9,800,027
<PER-SHARE-NAV-BEGIN> 8.92
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> (.06)
<PER-SHARE-DIVIDEND> (.49)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.86
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
