As filed with the Securities and Exchange Commission on
June 18, 1996
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
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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. / /
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(Check appropriate box or boxes)
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PUTNAM INTERMEDIATE U.S. GOVERNMENT INCOME FUND
(Exact Name of Registrant as Specified in Charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
617-292-1000
(Area Code and Telephone Number)
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JOHN R. VERANI, Vice President
PUTNAM INTERMEDIATE U.S. GOVERNMENT INCOME FUND
One Post Office Square
Boston, Massachusetts 02109
(Name and address of Agent for Service)
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Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
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<PAGE>
Approximate Date of Proposed Offering: As soon as practicable
after this Registration Statement becomes effective.
It is proposed that this filing will become effective on July 18,
1996 pursuant to Rule 488.
An indefinite amount of the Registrant's securities has been
registered under the Securities Act of 1933 pursuant to Rule
24f-2 under the Investment Company Act of 1940. In reliance upon
such Rule, no filing fee is being paid at this time. A Rule
24f-2 notice for the Registrant for the year ended November 30,
1995 was filed on January 26, 1996.
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PUTNAM INTERMEDIATE U.S. GOVERNMENT INCOME FUND
CROSS-REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
FORM N-14 ITEM NO.
PART A CAPTION IN PROSPECTUS/PROXY STATEMENT OF PUTNAM
ADJUSTABLE RATE U.S. GOVERNMENT FUND
1. Cross-Reference Sheet; Front Cover
2. Front Cover
3. Synopsis; Risk factors
4. Introduction; Proposal regarding approval or
disapproval of Agreement and Plan of Reorganization;
Background and reasons for the proposed
reorganization; Information about the reorganization
5. Front Cover -- Incorporated by reference to
specified documents
6. Front Cover -- Incorporated by reference to
specified documents
7. Introduction; Proposal regarding approval or
disapproval of Agreement and Plan of Reorganization;
Information about the reorganization; Voting
information
8. Not Applicable
9. Not Applicable
PART B CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page
11. Cover Page
12. Cover Page -- Incorporated by reference to specified
documents
13. Cover Page -- Incorporated by reference to specified
documents
14. Independent Accountants and Financial Statements
<PAGE>
PART C
The information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
<PAGE>
IMPORTANT INFORMATION
FOR SHAREHOLDERS IN
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
The document you hold in your hands contains a combined
prospectus/proxy statement and proxy card. A proxy card is, in
essence, a ballot. When you vote your proxy, it tells us how to
vote on your behalf on important issues relating to your fund.
If you complete and sign the proxy, we'll vote it exactly as you
tell us. If you simply sign the proxy, we'll vote it in
accordance with the Trustees' recommendation on page .
While investors sometimes find these materials intimidating, we
are, in fact, asking for your vote on just one matter. So we
urge you to spend a few minutes with the combined
prospectus/proxy statement, fill out your proxy card, and return
it to us. When shareholders don't return their proxies in
sufficient numbers, we have to incur the expense of additional
follow-up solicitations, which can cost your fund money.
We want to know how you would like to vote and welcome your
comments. Please take a few minutes with these materials and
return your proxy to us.
<PAGE>
TABLE OF CONTENTS
A Message from the Chairman
Notice of Shareholder Meeting
Combined Prospectus/Proxy Statement
PROXY CARD ENCLOSED
If you have any questions, please contact us at the special toll-
free number we have set up for you (1-800-225-1581) or call your
financial advisor.
<PAGE>
A MESSAGE FROM THE CHAIRMAN
(photograph of George Putnam appears here)
Dear Shareholder:
I am writing you to ask you for your vote on an important matter
that affects your investment in Putnam Adjustable Rate U.S.
Government Fund (the "Adjustable Rate Fund"). While you are, of
course, welcome to join us at the Adjustable Rate Fund's meeting,
most shareholders cast their vote by filling out and signing the
enclosed proxy card.
We are asking for your vote on the following matter:
1. APPROVAL OR DISAPPROVAL OF A PROPOSED MERGER OF THE ADJUSTABLE
RATE FUND INTO PUTNAM INTERMEDIATE U.S. GOVERNMENT INCOME FUND
(THE "INTERMEDIATE FUND"). IN THIS MERGER, YOUR SHARES OF THE
ADJUSTABLE RATE FUND WOULD, IN EFFECT, BE EXCHANGED AT NET ASSET
VALUE AND ON A TAX-FREE BASIS FOR SHARES OF THE INTERMEDIATE
FUND.
The proposed merger would combine funds with similar investment
objectives. The Adjustable Rate Fund seeks attractive current
income and preservation of capital. While the Intermediate Fund
seeks as high a level of current income as Putnam Investment
Management, Inc. ("Putnam Management"), the Funds' investment
manager, believes is consistent with preservation of capital.
The Adjustable Rate Fund seeks its objectives by investing
primarily in adjustable rate mortgage securities that are issued
or guaranteed by the U.S. government, by various of its agencies,
or by various instrumentalities established or sponsored by the
U.S. government ("U.S. government securities"), while the
Intermediate Fund seeks its objective by investing primarily in a
portfolio of U.S. government securities with an average maturity
of three to ten years.
The Trustees of the Adjustable Rate Fund recommend approval of
the merger because it offers shareholders of the Fund the
opportunity to pursue a similar investment objective in a fund
with greater investment flexibility and that Putnam Management
believes has greater potential, over the long term, to become
significantly larger and achieve possible economies of scale and
lower expenses.
Your vote is important to us. We appreciate the time and
consideration I am sure you will give this important matter. If
you have questions about the proposal, please call 1-800-225-
1581, or call your financial advisor.
Sincerely yours,
(signature of George Putnam)
George Putnam, Chairman
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
NOTICE OF A MEETING OF SHAREHOLDERS
THIS IS THE FORMAL AGENDA FOR THE SHAREHOLDER MEETING. IT
TELLS YOU WHAT MATTERS WILL BE VOTED ON AND THE TIME AND
PLACE OF THE MEETING, IF YOU CAN ATTEND IN PERSON.
To the Shareholders of Putnam Adjustable Rate U.S.
Government Fund:
A Meeting of Shareholders of Putnam Adjustable Rate U.S.
Government Fund (the "Fund" or the "Adjustable Rate Fund")
will be held October 3, 1996 at 2:00 p.m., Boston time, on
the eighth floor of One Post Office Square, Boston,
Massachusetts, to consider the following:
1. APPROVING OR DISAPPROVING AN AGREEMENT AND PLAN OF
REORGANIZATION PROVIDING FOR THE TRANSFER OF ALL OF THE
ASSETS OF THE FUND TO PUTNAM INTERMEDIATE U.S. GOVERNMENT
INCOME FUND (THE "INTERMEDIATE FUND") IN EXCHANGE FOR SHARES
OF THE INTERMEDIATE FUND AND THE ASSUMPTION BY THE
INTERMEDIATE FUND OF ALL OF THE LIABILITIES OF THE FUND, AND
THE DISTRIBUTION OF SUCH SHARES TO THE SHAREHOLDERS OF THE
FUND IN COMPLETE LIQUIDATION OF THE FUND. SEE PAGE .
2. TRANSACTING SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING.
By the Trustees
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter Robert E. Patterson
Hans H. Estin Donald S. Perkins
John A. Hill George Putnam, III
Ronald J. Jackson Eli Shapiro
Elizabeth T. Kennan A.J.C. Smith
Lawrence J. Lasser W. Nicholas Thorndike
WE URGE YOU TO MARK, SIGN, DATE, AND MAIL THE ENCLOSED PROXY
IN THE POSTAGE-PAID ENVELOPE PROVIDED SO THAT YOU WILL BE
REPRESENTED AT THE MEETING.
July , 1996
<PAGE>
PROSPECTUS/PROXY STATEMENT
July , 1996
ACQUISITION OF THE ASSETS OF
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
One Post Office Square
Boston, Massachusetts 02109
(617) 292-1000
BY AND IN EXCHANGE FOR SHARES OF
PUTNAM INTERMEDIATE U.S. GOVERNMENT INCOME FUND
One Post Office Square
Boston, Massachusetts 02109
(617) 292-1000
TABLE OF CONTENTS
Synopsis
Risk factors
Introduction
Proposal regarding approval or disapproval of
Agreement and Plan of Reorganization
Background and reasons for the proposed reorganization
Information about the reorganization
Voting information
Agreement and Plan of Reorganization A-1
THIS DOCUMENT WILL GIVE YOU THE INFORMATION YOU NEED TO VOTE ON
THE PROPOSED MERGER. MUCH OF THE INFORMATION IS REQUIRED UNDER
RULES OF THE SECURITIES AND EXCHANGE COMMISSION ("SEC"); SOME OF
IT IS TECHNICAL. IF THERE IS ANYTHING YOU DON'T UNDERSTAND,
PLEASE CONTACT US AT OUR SPECIAL TOLL-FREE NUMBER, 1-800-225-
1581, OR CALL YOUR FINANCIAL ADVISOR.
This Prospectus/Proxy Statement relates to the proposed merger of
Putnam Adjustable Rate U.S. Government Fund (the "Adjustable Rate
Fund") into Putnam Intermediate U.S. Government Income Fund (the
"Intermediate Fund") through the transfer of all of the assets
of the Adjustable Rate Fund to the Intermediate Fund in exchange
for Class A and Class B shares of the Intermediate Fund (the
"Merger Shares") and the assumption by the Intermediate Fund of
all of the liabilities of the Adjustable Rate Fund. Following
this transfer, the Merger Shares received by the Adjustable Rate
Fund will be distributed to the Adjustable Rate Fund's
shareholders in liquidation of the Adjustable Rate Fund. (The
Intermediate Fund and the Adjustable Rate Fund are collectively
referred to herein as the "Funds," and each is referred to
individually as a "Fund.") As a result of the proposed
transaction, each Class A and Class B shareholder of the
Adjustable Rate Fund will receive a number of full and fractional
Class A and Class B Merger Shares, respectively, equal in value
at the date of the exchange to the aggregate value of the
shareholder's Adjustable Rate Fund shares.
This Prospectus/Proxy Statement explains concisely what you
should know before investing in the Intermediate Fund. Please
read it and keep it for future reference. This Prospectus/Proxy
Statement is accompanied by (i) the Prospectus, dated April 1,
1996, of the Intermediate Fund (the "Intermediate Fund
Prospectus"), and (ii) the Report of Independent Accountants and
financial statements included in the Intermediate Fund's Annual
Report to Shareholders for the fiscal year ended November 30,
1995. The Intermediate Fund Prospectus and the Intermediate
Fund's Annual Report are incorporated into this Prospectus/Proxy
Statement by reference.
The following documents have been filed with the Securities and
Exchange Commission and are also incorporated into this
Prospectus/Proxy Statement by reference:
(i) the Prospectus, dated March 1, 1996, of the Adjustable
Rate Fund;
(ii) the Statement of Additional Information of the
Adjustable Rate Fund, dated March 1, 1996;
(iii) the Statement of Additional Information of the
Intermediate Fund, dated April 1, 1996;
(iv) the Report of Independent Accountants and financial
statements included in the Adjustable Rate Fund's Annual
Report to Shareholders for the fiscal year ended October 31,
1995; and
(v) a Statement of Additional Information, dated July ,
1996, relating to the proposed merger.
FOR A FREE COPY OF ANY OF THE ABOVE, PLEASE CONTACT US AT THE
SPECIAL TOLL-FREE NUMBER WE HAVE SET UP FOR YOU (1-800-225-1581).
Proxy materials, information statements and other information
filed by the Funds can be inspected and copied at the Public
Reference Facilities maintained by the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of such material can also be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C.
20549 at prescribed rates.
<PAGE>
THE SECURITIES OFFERED BY THE ACCOMPANYING PROSPECTUS/PROXY
STATEMENT 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 SUCH PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE INTERMEDIATE 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.
<PAGE>
SYNOPSIS
THE RESPONSES TO THE QUESTIONS THAT FOLLOW PROVIDE AN OVERVIEW OF
KEY POINTS TYPICALLY OF CONCERN TO SHAREHOLDERS CONSIDERING A
PROPOSED MERGER BETWEEN FUNDS. THESE RESPONSES ARE QUALIFIED IN
THEIR ENTIRETY BY THE REMAINDER OF THE PROSPECTUS/PROXY
STATEMENT, WHICH CONTAINS ADDITIONAL INFORMATION AND FURTHER
DETAILS REGARDING THE PROPOSED MERGER.
1. WHAT IS BEING PROPOSED?
The Trustees of the Funds are recommending that shareholders
approve the merger of the Adjustable Rate Fund into the
Intermediate Fund. The merger is proposed to be accomplished
pursuant to an Agreement and Plan of Reorganization providing for
the transfer of all of the assets of the Adjustable Rate Fund to
the Intermediate Fund in exchange for shares of the Intermediate
Fund and for the assumption by the Intermediate Fund of all of
the liabilities of the Adjustable Rate Fund. The completion of
these transactions, followed by the distribution of the
Intermediate Fund shares received by the Adjustable Rate Fund to
its shareholders, will result in the complete liquidation of the
Adjustable Rate Fund.
2. WHAT WILL HAPPEN TO MY SHARES OF THE ADJUSTABLE RATE FUND AS A
RESULT OF THE MERGER?
Your shares of the Adjustable Rate Fund will, in effect, be
exchanged on a tax-free basis for shares of the Intermediate Fund
with an equal aggregate net asset value.
3. WHY ARE THE TRUSTEES PROPOSING THE MERGER?
The Trustees of both Funds recommend approval of the merger
because the merger offers shareholders of the Adjustable Rate
Fund the opportunity to pursue a similar investment objective in
a fund with greater investment flexibility and that Putnam
Investment Management, Inc. ("Putnam Management") believes has
greater potential, over the longterm, to become significantly
larger and achieve possible economies of scale and lower
expenses.
4. HOW DO THE INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
OF THE TWO FUNDS COMPARE?
The Adjustable Rate Fund seeks attractive current income and
preservation of capital. The Intermediate Fund seeks as high a
level of current income as Putnam Management believes is
consistent with preservation of capital. The Adjustable Rate
Fund seeks its investment objective by investing primarily in
adjustable rate mortgage securities that are U.S. government
securities (as defined below) and seeks to maintain an average
portfolio duration of four years or less, while the Intermediate
Fund seeks its investment objective by investing primarily in
U.S. government securities with a dollar-weighted average
maturity of three to ten years (corresponding to an average
duration of approximately to years under current market
conditions, "Duration" and "Maturity" are two commonly used
measures of the longevity of a fund's debt instruments.
As a result, the Intermediate Fund's portfolio may at times have
a higher dollar-weighted average maturity and duration, and
therefore is likely to experience greater fluctuations in value
in response to changes in interest rates, than the Adjustable
Rate Fund's portfolio. However, the yields on securities with
longer maturities and durations are also generally higher. See
"Risk Factors -- Market Risk" on page 18. As of May 31, 1996,
the dollar-weighted average portfolio durations of the Funds were
4.02 years for the Intermediate Fund and 1.94 years for the
Adjustable Rate Fund. The thirty-day SEC yields at net asset
value for the Funds at May 31, 1996 were as follows:
Intermediate Fund -- Class A -- 4.93% and Class B -- 4.32%;
Adjustable Rate Fund -- Class A -- 4.93% and Class B -- 4.32%.
U.S. government securities are debt obligations issued or
guaranteed by the U.S. government, by various of its agencies, or
by various instrumentalities established or sponsored by the U.S.
government. A more detailed description of U.S. government
securities is contained in the Intermediate Fund Prospectus.
Each Fund may invest in mortgage-backed securities, including
collateralized mortgage obligations ("CMOs") and certain stripped
mortgage-backed securities. CMOs and other mortgage-backed
securities represent a participation in, or are secured by,
mortgage loans. Stripped mortgage-backed securities are usually
structured with two classes that receive different portions of
the interest and principal distributions on a pool of mortgage
loans. Both Funds may invest in both the interest-only or "IO"
class and the principal-only or "PO" class.
Both Funds may engage in securities lending, enter into
repurchase agreements and forward commitments, and hold a portion
of their assets in cash or money market instruments.
5. HOW DO THE MANAGEMENT FEES AND OTHER EXPENSES OF THE TWO FUNDS
COMPARE, AND WHAT ARE THEY ESTIMATED TO BE FOLLOWING THE MERGER?
As shown in the table below, the Funds currently have nearly
identical management fees. On assets in excess of $500 million,
however, the marginal management fee paid by the Intermediate
Fund would exceed that of the Adjustable Rate Fund by 0.10% of
average net assets less than $1 billion and 0.05% of average net
assets in excess of $1 billion. As of May 31, 1996, the
Intermediate Fund and the Adjustable Rate Fund had net assets of
$98,490,677 and $93,012,832, respectively.
The maximum amounts payable under the Class B distribution plans,
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940, of the Adjustable Rate Fund and the Intermediate Fund
are 1.00% and 0.85% of average net assets attributable to Class B
shares, respectively, although the Trustees of the Adjustable
Rate Fund currently limit payments under its Class B distribution
plan to 0.85% of such average net assets. The Funds have adopted
identical Class A distribution plans pursuant to Rule 12b-1 under
the Investment Company Act of 1940.
The following table summarizes your maximum transaction costs
from investing in the Funds, expenses that each of the Funds
incurred in its past fiscal year and estimated expenses that
Putnam Management expects the combined fund to incur in the first
year following the merger. The Examples show the estimated
cumulative expenses attributable to a hypothetical $1,000
investment over specified periods.
<PAGE>
CLASS A CLASS B
SHARES SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price)
ADJUSTABLE RATE FUND 3.25% NONE*
INTERMEDIATE FUND 3.25% NONE*
(Not applicable
to Merger Shares)
Deferred Sales Charge (as a
percentage of the lower of
original purchase price or
redemption proceeds)
ADJUSTABLE RATE FUND 3.0% in the first
year, declining
to 1.0% in the
fourth year, and
NONE** eliminated thereafter+
INTERMEDIATE FUND 3.0% in the first
year, declining
to 1.0% in the
fourth year, and
NONE** eliminated thereafter+
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
MANAGEMENT 12B-1 OTHER TOTAL FUND
FEES FEES EXPENSES OPERATING EXPENSES
ADJUSTABLE
RATE FUND
Class A 0.60% 0.25% 0.35% 1.20%
Class B 0.60% 0.85% 0.35% 1.80%
INTERMEDIATE
FUND
Class A 0.60% 0.25% 0.35% 1.20%
Class B 0.60% 0.85% 0.36% 1.81%
<PAGE>
INTERMEDIATE
FUND
(PRO FORMA COMBINED)
Class A 0.60% 0.25% 0.28% 1.13%
Class B 0.60% 0.85% 0.28% 1.73%
The tables are provided to help you understand the expenses of
investing in the Funds and your share of the operating expenses
which each Fund incurs and which Putnam Management expects the
combined fund to incur in the first year following the merger.
The expenses shown in the table do not reflect the application of
credits related to expense offset arrangements that reduce
certain fund expenses. The 12b-1 fees shown in the table reflect
the amounts to which the Trustees currently limit payments under
each Fund's Class A and Class B Distribution Plans.
EXAMPLES
An investment of $1,000 would incur the following expenses,
assuming 5% annual return and, except as indicated, redemption at
the end of each period. The front-end sales charge and CDSC
schedule applicable to the Intermediate Fund, which would not
apply to Merger Shares, are reflected in the Examples.
1 3 5 10
year years years years
ADJUSTABLE RATE
FUND
Class A $44 $69 $96 $174
Class B $48 $77 $97 $196***
Class B (no redemption) $18 $57 $97 $196***
INTERMEDIATE
FUND
Class A $44 $69 $96 $174
Class B $48 $77 $98 $197***
Class B (no redemption) $18 $57 $98 $197***
INTERMEDIATE
FUND
(PRO FORMA COMBINED)
Class A $44 $67 $93 $165
Class B $48 $75 $94 $188***
Class B (no redemption) $18 $55 $94 $188***
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.
<PAGE>
* Class B shares are sold without a front-end sales charge, but
their higher 12b-1 fees may cause long-term shareholders to pay
more than the economic equivalent of the maximum permitted front-
end sales charge for 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 as part of an investment of $1 million or
more.
*** Reflects conversion of Class B shares to Class A shares
(which pay lower ongoing expenses) approximately eight years
after purchase.
+ For purposes of determining the CDSC applicable to Class B
Merger Shares, such shares will be treated as having been
acquired as of the dates the corresponding Class B shares of the
Adjustable Rate Fund were originally acquired. See "Information
about the reorganization - Description of the Merger Shares."
6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED
MERGER?
For federal income tax purposes, no gain or loss will be
recognized by the Adjustable Rate Fund or its shareholders as a
result of the merger.
7. WILL MY DIVIDEND BE AFFECTED BY THE MERGER?
Like the Adjustable Rate Fund, the Intermediate Fund pays monthly
dividend from net investment income and distributes any net
realized capital gains at least annually. Of course, the amount
of these distributions will reflect the investment policies of
the Intermediate Fund.
THE INTERMEDIATE FUND WILL NOT PERMIT ANY ADJUSTABLE RATE FUND
SHAREHOLDER HOLDING CERTIFICATES FOR ADJUSTABLE RATE FUND SHARES
AT THE TIME OF THE MERGER TO RECEIVE CASH DIVIDENDS OR OTHER
DISTRIBUTIONS, RECEIVE CERTIFICATES FOR MERGER SHARES, EXCHANGE
MERGER SHARES FOR SHARES OF OTHER INVESTMENT COMPANIES MANAGED BY
PUTNAM MANAGEMENT, OR PLEDGE OR REDEEM MERGER SHARES UNTIL SUCH
CERTIFICATES FOR ADJUSTABLE RATE FUND SHARES HAVE BEEN
SURRENDERED, OR, IN THE CASE OF LOST CERTIFICATES, AN ADEQUATE
SURETY BOND HAS BEEN POSTED.
If a shareholder is not for that reason permitted to receive cash
dividends or other distributions on Merger Shares, the
Intermediate Fund will pay all such dividends and distributions
in additional shares, notwithstanding any election the
shareholder may have made previously to receive dividends and
distributions on Adjustable Rate Fund shares in cash.
8. DO THE PROCEDURES FOR PURCHASING, REDEEMING AND EXCHANGING
SHARES OF THE TWO FUNDS DIFFER?
No. The procedures for purchasing and redeeming shares of each
Fund, and for exchanging such shares of each Fund for shares of
other Putnam funds, are identical.
The Adjustable Rate Fund currently offers two classes of shares
and the Intermediate Fund currently offers four classes of
shares. Shares of both Funds may be purchased either through
investment dealers that have sales agreements with Putnam Mutual
Funds Corp. ("Putnam Mutual Funds") or directly through Putnam
Mutual Funds at prices based on net asset value, plus varying
sales charges, depending on the class and number of shares
purchased. Reinvestment of distributions by the Funds are made
at net asset value for all classes of shares.
Shares of each Fund may be redeemed any day the New York Stock
Exchange is open at their net asset value next determined after
receipt by the Fund of a properly completed redemption request
either directly by a Fund or through an investment dealer.
Shares of both Funds may be exchanged after a ten-day holding
period for shares of the same class of certain other Putnam
funds.
9. HOW WILL I BE NOTIFIED OF THE OUTCOME OF THE MERGER?
If the proposed merger is approved by shareholders, you will
receive confirmation after the reorganization is completed,
indicating your new account number. If the merger is not
approved, shareholders will be notified, and the results of the
meeting will be provided in the next annual report of the
Adjustable Rate Fund.
10. WILL THE NUMBER OF SHARES I OWN CHANGE?
Yes, but the total value of the shares of the Intermediate Fund
you receive will equal the total value of the shares of the
Adjustable Rate Fund that you hold at the time of the merger.
EVEN THOUGH THE NET ASSET VALUE PER SHARE OF EACH FUND IS
DIFFERENT, THE TOTAL VALUE OF A SHAREHOLDER'S HOLDINGS WILL NOT
CHANGE AS A RESULT OF THE MERGER.
RISK FACTORS
WHAT ARE THE PRINCIPAL RISK FACTORS ASSOCIATED WITH AN INVESTMENT
IN THE INTERMEDIATE FUND, AND HOW DO THEY COMPARE WITH THOSE FOR
THE ADJUSTABLE RATE FUND?
Because the Funds share similar investment objectives and
policies, the risks of an investment in the Intermediate Fund are
similar to the risks of an investment in the Adjustable Rate
Fund, except for the risks associated with investments by the
Intermediate Fund in a portfolio of potentially longer-term
securities, including possible increased sensitivity to changes
in interest rates. A more detailed description of certain risks
associated with an investment in the Intermediate Fund is
contained in the Intermediate Fund Prospectus.
MARKET RISK. U.S. government securities are considered among the
safest of fixed income investments, but their values, like those
of other debt securities, will fluctuate with changes in interest
rates. Thus, a decrease in interest rates will generally result
in an increase in the value of the Intermediate Fund's shares.
Conversely, during periods of rising interest rates, the value of
the Intermediate Fund's shares will generally decline.
The value of the Intermediate Fund's portfolio may be more
sensitive to changes in interest rates than the Adjustable Rate
Fund's portfolio. This interest rate "volatility" is typically
measured by a portfolio's average dollar-weighted duration, and,
to a lesser extent, its average dollar-weighted maturity.
Whereas maturity measures only the period of time until the last
payment of interest or principal on a security, duration measures
the timing of all payments of interest and principal to be
received on a security, based on their present values, and is
therefore a more accurate measure of the volatility of the
security. As a general rule, a 1% increase or decrease in
interest rates will result in approximately a 1% decrease or
increase, respectively, in the value of a security for each year
of duration. For example, a 1% increase in interest rates will
result in approximately a 5% decrease in the value of a security
having a five-year duration. As of May 31, 1996, the average
dollar-weighted portfolio durations of the Intermediate Fund and
the Adjustable Rate Fund were 1.94 years and 4.02 years,
respectively. Consequently, the net asset value of the
Intermediate Fund will typically increase or decrease to a
greater degree in response to changes in interest rates than the
net asset value of the Adjustable Rate Fund.
DEFAULT RISK. Like the Adjustable Rate Fund, the Intermediate
Fund may invest in both U.S. government securities, such as U.S.
Treasury obligations, that are backed by the full faith and
credit of the U.S. government and in other securities that are
subject to varying degrees of risk of default. Risk factors
relating to these securities include the creditworthiness of the
issuer and, in the case of mortgage-backed securities, the
ability of the mortgagor or other borrower to meet its
obligations.
PREPAYMENT RISK. Like the Adjustable Rate Fund, the Intermediate
Fund may invest in mortgage-backed securities. Prepayments on
mortgage-backed securities may require reinvestment of principal
under less attractive terms. Prepayments may also significantly
shorten the effective maturities of these securities, especially
during periods of declining interest rates. Conversely, during
periods of rising interest rates, a reduction in prepayments may
increase the effective maturities of these securities.
Prepayments may cause losses in securities purchased at a
premium.
Prepayments could result in losses on stripped mortgage-backed
securities. The yield-to-maturity on an IO class of stripped
mortgage-backed securities is extremely sensitive not only to
changes in prevailing interest rates but also to the rate of
principal payments (including prepayments) on the underlying
assets.
INVESTMENTS IN PREMIUM SECURITIES
Like the Adjustable Rate Fund, the Intermediate Fund may at times
invest in securities bearing coupon rates higher than prevailing
market rates. Such "premium" securities are typically purchased
at prices greater than the principal amounts payable on maturity.
Because the value of premium securities tends to approach the
principal amount as they approach maturity (or call price in the
case of securities approaching their first call date), the
purchase of such securities may increase the Intermediate Fund's
risk of capital loss if such securities are held to maturity (or
first call date).
OTHER INVESTMENT PRACTICES
SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS.
Finally, like the Adjustable Rate Fund, the Intermediate Fund may
engage in securities lending and enter into repurchase agreements
and forward commitments. These transactions involve some risk to
the Intermediate Fund if the other party should default on its
obligation and the Intermediate Fund is delayed or prevented from
recovering the collateral or completing the transaction.
INTRODUCTION
This Prospectus/Proxy Statement is furnished in connection with
the proposed reorganization of the Adjustable Rate Fund by the
transfer of all of its assets and liabilities to the Intermediate
Fund for shares of the Intermediate Fund and the solicitation of
proxies by and on behalf of the Trustees of the Adjustable Rate
Fund for use at the Meeting of Shareholders. The Meeting is to
be held on October 3, 1996 at 2:00 p.m. at One Post Office
Square, 8th Floor, Boston, Massachusetts. The Notice of the
Meeting, the combined Prospectus/Proxy Statement and the enclosed
form of proxy are being mailed to shareholders on or about July
, 1996.
Any shareholder giving a proxy has the power to revoke it by mail
(addressed to the Fund's Clerk at the principal office of the
Adjustable Rate Fund, One Post Office Square, Boston,
Massachusetts 02109) or in person at the Meeting, by executing a
superseding proxy, or by submitting a notice of revocation to the
Adjustable Rate Fund. All properly executed proxies received in
time for the Meeting will be voted as specified in the proxy, or,
if no specification is made, FOR the proposal (set forth in
Proposal 1 of the Notice of Meeting) to implement the
reorganization of the Adjustable Rate Fund by the transfer of all
of its assets to the Intermediate Fund in exchange for the Merger
Shares and the assumption by the Intermediate Fund of all of the
liabilities of the Adjustable Rate Fund.
At May 31, 1996, there were outstanding 9,035,116 shares of
beneficial interest of the Adjustable Rate Fund. Only
shareholders of record on July 5, 1996 will be entitled to notice
of and to vote at the Meeting. Each share is entitled to one
vote, with fractional shares voting proportionally.
The Trustees of the Adjustable Rate Fund know of no matters other
than those set forth herein to be brought before the Meeting.
If, however, any other matters properly come before the Meeting,
it is the Trustees' intention that proxies will be voted on such
matters in accordance with the judgment of the persons named in
the enclosed form of proxy.
PROPOSAL REGARDING APPROVAL OR DISAPPROVAL OF AGREEMENT AND PLAN
OF REORGANIZATION
The shareholders of the Adjustable Rate Fund are being asked to
approve or disapprove a merger between the Adjustable Rate Fund
and the Intermediate Fund pursuant to an Agreement and Plan of
Reorganization between the Funds, dated as of June 7, 1996 (the
"Agreement"), a copy of which is attached to this
Prospectus/Proxy Statement as Exhibit A.
The Agreement provides, among other things, for the transfer of
all of the assets of the Adjustable Rate Fund to the Intermediate
Fund in exchange for the assumption by the Intermediate Fund of
all of the liabilities of the Adjustable Rate Fund and for the
Class A and Class B Merger Shares, the number of which will be
calculated based on the value of the net assets attributable to
the Class A and Class B shares of the Adjustable Rate Fund
acquired by the Intermediate Fund and the net asset value per
Class A and Class B share of the Intermediate Fund, all as more
fully described below under "Information about the
reorganization."
After receipt of the Merger Shares, the Adjustable Rate Fund will
cause the Class A Merger Shares to be distributed to its Class A
shareholders and the Class B Merger Shares to be distributed to
its Class B shareholders, in complete liquidation of the
Adjustable Rate Fund, and the legal existence of the Adjustable
Rate Fund as a separate business trust under Massachusetts law
will be terminated. Each shareholder of the Adjustable Rate Fund
will receive a number of full and fractional Class A or Class B
Merger Shares equal in value at the date of the exchange to the
aggregate value of the shareholder's Adjustable Rate Fund shares.
Prior to the date of the transfer (the "Exchange Date"), the
Adjustable Rate Fund will declare a distribution to shareholders
which, together with all previous distributions, will have the
effect of distributing to shareholders all of its investment
company taxable income (computed without regard to the deduction
for dividends paid) and net realized capital gains, if any,
through the Exchange Date.
The Trustees have voted unanimously to approve the proposed
transaction and to recommend that shareholders also approve the
transaction. The affirmative vote of two-thirds (66 2/3%) of the
outstanding shares of beneficial interest of the Adjustable Rate
Fund that are entitled to be voted at the Meeting is necessary
for the consummation of the proposed transaction.
In the event that this proposal is not approved by the
shareholders of the Adjustable Rate Fund, the Adjustable Rate
Fund will continue to be managed as a separate fund in accordance
with its current investment objectives and policies, and the
Trustees may consider such alternatives as may be in the best
interests of its shareholders.
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION
The Trustees of each Fund, including all Trustees who are not
"interested persons" of the Funds, have determined that the
reorganization would be in the best interests of each Fund's
shareholders, and that the interests of existing shareholders of
each of the Funds would not be diluted as a result of effecting
the reorganization. The Trustees have unanimously approved the
proposed reorganization and have recommended its approval by
shareholders. The Intermediate Fund and the Adjustable Rate Fund
have the same Trustees.
The principal reasons why the Trustees are recommending the
reorganization are:
INCREASED INVESTMENT FLEXIBILITY. The proposed merger will
provide Adjustable Rate Fund shareholders with the opportunity to
own shares of a mutual fund with greater investment flexibility
than the Adjustable Rate Fund. The Adjustable Rate Fund's
investment policies require, under normal market conditions, that
at least 65% of its assets be invested in adjustable rate
mortgage securities that are U.S. government securities. The
Intermediate Fund, however, may invest in a wider range of U.S.
government securities. Putnam Management believes that this
flexibility provides greater opportunities for shareholders of
the Intermediate Fund to derive value from Putnam Management's
selection of U.S. government securities, while limiting the
Intermediate Fund's exposure to price and liquidity shifts in any
one segment of the market for U.S. government
securities,
such as
the adjustable rate mortgage securities market.
ECONOMIES OF SCALE. The proposed merger will provide
shareholders of the Adjustable Rate Fund an opportunity to
benefit from economies of scale and reduced operating expenses
associated with an investment in a larger fund. In addition,
Putnam Management believes that the Intermediate Fund has greater
potential to become significantly larger and achieve additional
economies of scale. Putnam Management believes that these
potential economies of scale will outweigh the Intermediate
Fund's higher marginal management fee on assets in excess of $500
million.
Putnam Management does not believe that the Adjustable Rate Fund
is likely to reach in the near future a net asset level
sufficient to achieve comparable economies of scale. Putnam
Management believes that bond fund investors are concerned
principally with yield, with volatility being only a secondary
consideration. As a result, investor demand for intermediate-
term bond funds has been greater than the demand for adjustable
rate mortgage funds, whose lower yields have made them less
attractive. Putnam Management does not expect a shift in current
investor preferences in the near future, making it unlikely that
the Adjustable Rate Fund would achieve economies of scale
comparable to those it expects for the Intermediate Fund in that
time.
EXCHANGE WITHOUT RECOGNITION OF GAIN OR LOSS FOR FEDERAL INCOME
TAX PURPOSES. If an Adjustable Rate Fund shareholder were to
redeem his or her shares to invest in another fund, like the
Intermediate Fund, gain or loss would be recognized by that
shareholder for federal income tax purposes. Also, if the
Adjustable Rate Fund were liquidated or were reorganized in a
taxable reorganization, the transaction would likely result in a
taxable event for its shareholders. By contrast, the proposed
merger will permit the Adjustable Rate Fund's shareholders to
exchange their investment for an investment in the Intermediate
Fund without recognition of gain or loss for federal income tax
purposes. After the merger, shareholders will be free to redeem
any or all of the Intermediate Fund shares at net asset value at
any time, at which point a taxable gain or loss would be
recognized.
INFORMATION ABOUT THE REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION. The proposed Agreement and
Plan of Reorganization provides that the Intermediate Fund will
acquire all of the assets of the Adjustable Rate Fund in exchange
for the assumption by the Intermediate Fund of all of the
liabilities of the Adjustable Rate Fund and for the issuance of
Class A and Class B Merger Shares all as of the Exchange Date
(defined in the Agreement to be the next full business day
following the Valuation Time, which is defined in the Agreement
as 4:00 p.m. Boston time on October 3, 1996 or such other date as
may be agreed upon by the parties). The following discussion of
the Agreement is qualified in its entirety by the full text of
the Agreement, which is attached as Exhibit A to this
Prospectus/Proxy Statement.
The Adjustable Rate Fund will sell all of its assets to the
Intermediate Fund, and in exchange, the Intermediate Fund will
assume all of the liabilities of the Adjustable Rate Fund and
deliver to the Adjustable Rate Fund (i) a number of full and
fractional Class A Merger Shares having an aggregate net asset
value equal to the value of assets of the Adjustable Rate Fund
attributable to its Class A shares, less the value of the
liabilities of the Adjustable Rate Fund assumed by the
Intermediate Fund attributable to such Class A shares and (ii) a
number of full and fractional Class B Merger Shares having a net
asset value equal to the value of assets of the Adjustable Rate
Fund attributable to its Class B shares, less the value of the
liabilities of the Adjustable Rate Fund assumed by the
Intermediate Fund attributable to such Class B shares.
Immediately following the Exchange Date, the Adjustable Rate Fund
will distribute pro rata to its shareholders of record as of the
close of business on the Exchange Date the full and fractional
Merger Shares received by the Adjustable Rate Fund, with Class A
Merger Shares being distributed to holders of Class A shares of
the Adjustable Rate Fund and Class B Merger Shares being
distributed to holders of Class B shares of the Adjustable Rate
Fund. As a result of the proposed transaction, each holder of
Class A and Class B shares of the Adjustable Rate Fund will
receive a number of Class A and Class B Merger Shares equal in
aggregate value at the Exchange Date to the value of the Class A
and Class B shares, respectively, of the Adjustable Rate Fund
held by the shareholder. This distribution will be accomplished
by the establishment of accounts on the share records of the
Intermediate Fund in the name of such Adjustable Rate Fund
shareholders, each account representing the respective number of
full and fractional Class A or Class B Merger Shares due such
shareholder. New certificates for Merger Shares will be issued
only upon written request.
The Trustees of Adjustable Rate Fund have determined that the
interests of Adjustable Rate Fund shareholders will not be
diluted as a result of the transactions contemplated by the
reorganization, and the Trustees of both Funds have determined
that the proposed reorganization is in the best interests of each
Fund.
The consummation of the reorganization is subject to the
conditions set forth in the Agreement. The Agreement may be
terminated and the reorganization abandoned at any time, before
or after approval by the shareholders, prior to the Exchange Date
by mutual consent of the Intermediate Fund and the Adjustable
Rate Fund or, if any condition set forth in the Agreement has not
been fulfilled and has not been waived by the party entitled to
its benefits, by such party.
The fees and expenses for the transaction are estimated to be
$155,000. All fees and expenses, including legal and accounting
expenses, portfolio transfer taxes (if any) or other similar
expenses incurred in connection with the consummation of the
transactions contemplated by the Agreement will be allocated
ratably between the two Funds in proportion to their net assets
as of the day of the transfer, except that the costs of proxy
materials and proxy solicitations will be borne by the Adjustable
Rate Fund. However, to the extent that any payment by either
Fund of such fees or expenses would result in the
disqualification of the Intermediate Fund or the Adjustable Rate
Fund as a "regulated investment company" within the meaning of
Section 851 of the Internal Revenue Code of 1986, as amended (the
"Code"), such fees and expenses will be paid directly by the
party incurring them.
DESCRIPTION OF THE MERGER SHARES. Merger Shares will be issued
to the Adjustable Rate Fund's shareholders in accordance with the
procedure under the Agreement as described above. The Merger
Shares are Class A and Class B shares of the Intermediate Fund.
Investors purchasing Class A shares pay a sales charge at the
time of purchase, but Adjustable Rate Fund shareholders receiving
Class A Merger Shares in the merger will not pay a sales charge
on such shares. Class A shares of the Intermediate Fund
generally are not subject to redemption fees and such shares are
subject to a 12b-1 fee at the annual rate of 0.25% of the Fund's
average daily net assets attributable to Class A shares. Class B
shares of the Intermediate Fund are sold without a sales charge,
but are subject to a CDSC of up to 3% if redeemed within four
years of purchase. For purposes of determining the CDSC payable
on redemption of Class B Merger Shares received by holders of
Class B shares of the Adjustable Rate Fund, as well as the
conversion date of such shares described below, such shares will
be treated as having been acquired as of the dates such
shareholders originally acquired their Class B shares of the
Adjustable Rate Fund. Class B shares are also subject to a 12b-1
fee at the annual rate of 0.85% of the Fund's average daily net
assets attributable to Class B shares. Class B shares will
automatically convert to Class A shares, based on relative net
asset value, approximately eight years after purchase.
In connection with the sale of Class B shares, Putnam Mutual
Funds pays commissions to broker-dealers from its own assets that
it expects to recover over time through the receipt of
distribution fees in connection with its Class B shares and the
receipt of any CDSC on Class B shares. The total amount of such
commissions paid by Putnam Mutual Funds with respect to the
Adjustable Rate Fund before the consummation of the proposed
reorganization will likely exceed the amounts recovered by Putnam
Mutual Funds by that time. Such unrecovered amounts do not
represent a liability of the Adjustable Rate Fund and,
consequently, the Intermediate Fund will not assume any such
liability in connection with the consummation of the
reorganization. However, to the extent Putnam Mutual Funds has
not fully recovered such commissions before the consummation of
the proposed reorganization, it is anticipated that the Trustees
will consider such unrecovered amounts, among other factors, in
determining whether to continue payments of distribution fees in
the future with respect to Class B shares of the Intermediate
Fund.
Each of the Merger Shares will be fully paid and nonassessable
when issued, will be transferable without restriction, and will
have no preemptive or conversion rights, except that Class B
Merger Shares will have the conversion rights specified above.
The Agreement and Declaration of Trust of the Intermediate Fund
permits the Intermediate Fund to divide its shares, without
shareholder approval, into two or more classes of shares having
such preferences and special or relative rights and privileges as
the Trustees may determine. The Intermediate Fund's shares are
currently divided into four classes--Class A, Class B, Class M,
and Class Y shares. Only Class A and Class B shares of the
Intermediate Fund will be distributed in connection with the
merger.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Intermediate Fund. However, the Agreement and Declaration of
Trust disclaims shareholder liability for acts or obligations of
the Intermediate Fund and requires that notice of such disclaimer
be given in each agreement, obligation, or instrument entered
into or executed by the Intermediate Fund or its Trustees. The
Agreement and Declaration of Trust provides for indemnification
out of Fund property for all loss and expense of any shareholder
held personally liable for the obligations of the Intermediate
Fund. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances
in which the Intermediate Fund would be unable to meet its
obligations. The likelihood of such circumstances is remote.
The shareholders of the Adjustable Rate Fund are currently
subject to this same risk of shareholder liability.
FEDERAL INCOME TAX CONSEQUENCES. As a condition to the
Adjustable Rate Fund's obligation to consummate the
reorganization, the Adjustable Rate Fund will receive an opinion
from Ropes & Gray, counsel to the Funds, to the effect that, on
the basis of the existing provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), current administrative rules
and court decisions, for federal income tax purposes:
(i) under Section 361 of the Code, no gain or loss will be
recognized by the Adjustable Rate Fund as a result of the
reorganization;
(ii) under Section 354 of the Code, no gain or loss will be
recognized by shareholders of the Adjustable Rate Fund on
the distribution of Merger Shares to them in exchange for
their shares of the Adjustable Rate Fund;
(iii) under Section 358 of the Code, the tax basis of the
Merger Shares that the Adjustable Rate Fund's shareholders
receive in place of their Adjustable Rate Fund shares will
be the same as the basis of the Adjustable Rate Fund shares
exchanged; and
(iv) under Section 1223(1) of the Code, a shareholder's
holding period for the Merger Shares received pursuant to
the Agreement will be determined by including the holding
period for the Adjustable Rate Fund shares exchanged for the
Merger Shares, provided that the shareholder held the
Adjustable Rate Fund shares as a capital asset.
CAPITALIZATION. The following table shows the capitalization of
the Funds as of May 31, 1996, and on a pro forma combined basis,
giving effect to the proposed acquisition of assets at net asset
value as of that date (no Class Y shares of the Intermediate Fund
were outstanding as of that date):
(UNAUDITED)
Intermediate Adjustable Rate Pro Forma
Fund Fund+ Combined*
Net assets
(000's omitted)
Class A $68,717 $66,720 $135,371
Class B $27,236 $26,232 $53,442
Class M $2,537 -- $2,536
Shares outstanding
(000's omitted)
Class A 14,384 6,483 28,336
Class B 5,702 2,553 11,199
Class M 531 -- 531
Net asset value
per share
Class A $4.78 $10.29 $4.78
Class B $4.78 $10.28 $4.77
Class M $4.78 -- $4.78
+ Adjustable Rate Fund assets reflect proxy-related costs.
* Pro forma combined net assets reflect legal and accounting
merger-related costs.
Unaudited pro forma combining financial statements of the Funds
as of May 31, 1996 and for the six month period then ended are
included in the Statement of Additional Information relating to
the proposed merger. Because the Agreement provides that the
Intermediate Fund will be the surviving Fund following the merger
and because the Intermediate Fund's investment objectives and
policies will remain unchanged, the pro forma combining financial
statements reflect the transfer of the assets and liabilities of
the Adjustable Rate Fund to the Intermediate Fund as contemplated
by the Agreement.
THE TRUSTEES OF PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND,
INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMEND
APPROVAL OF THE AGREEMENT.
VOTING INFORMATION
REQUIRED VOTE. Proxies are being solicited from the Adjustable
Rate Fund's shareholders by its Trustees for the Meeting of
Shareholders to be held on October 3, 1996 at 2:00 p.m. (the
"Meeting"), at One Post Office Square, 8th Floor, Boston,
Massachusetts, or at such later time made necessary by
adjournment. Unless revoked, all valid proxies will be voted in
accordance with the specification thereon or, in the absence of
specifications, FOR approval of the Agreement and Plan of
Reorganization. The transactions contemplated by the Agreement
and Plan of Reorganization will be consummated only if approved
by the affirmative vote of the holders of at least two-thirds (66
2/3%) of the outstanding shares of the Adjustable Rate Fund that
are outstanding at the close of business of the record date.
RECORD DATE, QUORUM AND METHOD OF TABULATION. Shareholders of
record of the Adjustable Rate Fund at the close of business on
July 5, 1996 (the "record date") will be entitled to vote at the
Meeting or any adjournment thereof. The holders of 30% of the
shares of the Adjustable Rate Fund outstanding at the close of
business on the record date present in person or represented by
proxy will constitute a quorum for the Meeting; however, as noted
above, the affirmative vote of at least two-thirds (66 2/3%) of
the shares outstanding at the close of business on the record
date is necessary to approve the merger. Shareholders are
entitled to one vote for each share held, with fractional shares
voting proportionally.
Votes cast by proxy or in person at the meeting will be counted
by persons appointed by the Adjustable Rate Fund as tellers for
the Meeting. The tellers will count the total number of votes
cast "for" approval of the proposal for purposes of determining
whether sufficient affirmative votes have been cast. The tellers
will count shares represented by proxies that reflect abstentions
and "broker non-votes" (i.e., shares held by brokers or nominees
as to which (i) instructions have not been received from the
beneficial owners or the persons entitled to vote and (ii) the
broker or nominee does not have the discretionary voting power on
a particular matter) as shares that are present and entitled to
vote on the matter for purposes of determining the presence of a
quorum. Abstentions and broker non-votes have the effect of a
negative vote on the proposal.
As of May 31, 1996, the officers and Trustees of the Adjustable
Rate Fund as a group beneficially owned less than 1% of the
outstanding shares of the Adjustable Rate Fund and to the best of
the knowledge of the Adjustable Rate Fund, no person owned of
record or beneficially 5% or more of the outstanding shares of
the Adjustable Rate Fund.
The votes of the shareholders of the Intermediate Fund are not
being solicited, since their approval or consent is not necessary
for this transaction. As of June 30, 1996, the officers and
Trustees of the Intermediate Fund as a group beneficially owned
less than 1% of the outstanding shares of the Intermediate Fund
and to the best of the knowledge of the Intermediate Fund, no
person beneficially owned 5% or more of the outstanding shares of
the Intermediate Fund.
SOLICITATION OF PROXIES. In addition to soliciting proxies by
mail, the Trustees and employees of Putnam Management, Putnam
Fiduciary Trust Company and Putnam Mutual Funds may solicit
proxies in person or by telephone. The Adjustable Rate Fund may
also arrange to have votes recorded by telephone. The telephonic
voting procedure is designed to authenticate shareholders'
identities, to allow shareholders to authorize the voting of
their shares in accordance with their instructions and to confirm
that their instructions have been properly recorded. The
Adjustable Rate Fund has been advised by counsel that these
procedures are consistent with the requirements of applicable
law. If these procedures were subject to a successful legal
challenge, such votes would not be counted at the Meeting. The
Adjustable Rate Fund is unaware of any such challenge at this
time. Shareholders would be called at the phone number Putnam
Investments has in its records for their accounts, and would be
asked for their Social Security numbers or other identifying
information. The shareholders would then be given an opportunity
to authorize their proxies to vote their shares in accordance
with their instructions. To ensure that the shareholders'
instructions have been recorded correctly, they will also receive
a confirmation of their instructions in the mail. A special
toll-free number will be available in the event the information
in the confirmation is incorrect.
Persons holding shares as nominees will upon request be
reimbursed for their reasonable expenses in soliciting
instructions from their principals. The Adjustable Rate Fund has
retained at its expense Tritech Services, Four Corporate Place,
Corporate Park 287, Piscataway, New Jersey 08854, to aid in the
solicitation of instructions for nominee accounts for a fee not
to exceed $5,000 plus reasonable out-of-pocket expenses. The
Adjustable Rate Fund has also retained D.F. King & Co., Inc., 77
Water Street, New York, New York 10005, to aid in the
solicitation of instructions for nominee and registered accounts
for a fee not to exceed $2,500, plus reasonable out-of-pocket
expenses for mailing and phone costs.
REVOCATION OF PROXIES. Proxies, including proxies given by
telephone, may be revoked at any time before they are voted by a
written revocation received by the Clerk of the Adjustable Rate
Fund, by properly executing a later-dated proxy or by attending
the Meeting and voting in person.
<PAGE>
ADJOURNMENT. If sufficient votes in favor of the proposal are not
received by the time scheduled for the Meeting, the persons named
as proxies may propose adjournments of the Meeting for a period
or periods of not more than 60 days in the aggregate to permit
further solicitation of proxies. Any adjournment will require
the affirmative vote of a majority of the votes cast on the
question in person or by proxy at the session of the Meeting to
be adjourned. The persons named as proxies will vote in favor of
such adjournment those proxies which they are entitled to vote in
favor of the proposal. They will vote against any such
adjournment those proxies required to be voted against the
proposal. The Adjustable Rate Fund pays the costs of any
additional solicitation and of any adjourned session. <PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is
made as of June 7, 1996 in Boston, Massachusetts, by and among
Putnam Intermediate U.S. Government Income Fund, a Massachusetts
business trust (the "Intermediate Fund"), Putnam Adjustable Rate
U.S. Government Fund, a Massachusetts business trust (the
"Adjustable Rate Fund"), and, exclusively with respect to Section
5 of the Agreement, Putnam Investment Management, Inc. ("Putnam
Management").
PLAN OF REORGANIZATION
(a) The Adjustable Rate Fund will sell, assign, convey, transfer
and deliver to the Intermediate Fund on the Exchange Date (as
defined in Section 6) all of its properties and assets existing
at the Valuation Time (as defined in Section 3(c)). In
consideration therefor, the Intermediate Fund shall, on the
Exchange Date, assume all of the liabilities of the Adjustable
Rate Fund existing at the Valuation Time and deliver to the
Adjustable Rate Fund (i) a number of full and fractional Class A
shares of beneficial interest of the Intermediate Fund (the
"Class A Merger Shares") having an aggregate net asset value
equal to the value of the assets of the Adjustable Rate Fund
attributable to Class A shares of the Adjustable Rate Fund
transferred to the Intermediate Fund on such date less the value
of the liabilities of the Adjustable Rate Fund attributable to
Class A shares of the Adjustable Rate Fund assumed by the
Intermediate Fund on such date, and (ii) a number of full and
fractional Class B shares of beneficial interest of the
Intermediate Fund (the "Class B Merger Shares") having an
aggregate net asset value equal to the value of the assets of the
Adjustable Rate Fund attributable to Class B shares of the
Adjustable Rate Fund transferred to the Intermediate Fund on such
date less the value of the liabilities of the Adjustable Rate
Fund attributable to Class B shares of the Adjustable Rate Fund
assumed by the Intermediate Fund on that date. The Class A
Merger Shares and the Class B Merger Shares shall be referred to
collectively as the "Merger Shares." It is intended that the
reorganization described in this Plan shall be a reorganization
within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code").
(b) Upon consummation of the transactions described in paragraph
(a) of this Agreement, the Adjustable Rate Fund shall distribute
in complete liquidation to its Class A and Class B shareholders
of record as of the Exchange Date Class A and Class B Merger
Shares, each shareholder being entitled to receive that
proportion of such Class A or B Merger Shares which the number of
Class A or Class B shares of beneficial interest of the
Adjustable Rate Fund held by such shareholder bears to the number
of such Class A or Class B shares of the Adjustable Rate Fund
outstanding on such date. Certificates representing the Merger
Shares will be issued only if the shareholder so requests.
AGREEMENT
The Intermediate Fund and the Adjustable Rate Fund agree as
follows:
1. REPRESENTATIONS AND WARRANTIES OF THE INTERMEDIATE FUND. The
Intermediate Fund represents and warrants to and agrees with the
Adjustable Rate Fund that:
(a) The Intermediate Fund is a business trust duly established
and validly existing under the laws of The Commonwealth of
Massachusetts, and has power to own all of its properties and
assets and to carry out its obligations under this Agreement.
The Intermediate Fund is not required to qualify as a foreign
association in any jurisdiction. The Intermediate Fund has all
necessary federal, state and local authorizations to carry on its
business as now being conducted and to carry out this Agreement.
(b) The Intermediate Fund is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) A statement of assets and liabilities, statements of
operations, and statements of changes in net assets and schedule
of investments (indicating their market values) of the
Intermediate Fund for the fiscal year ended November 30, 1995,
such statements and schedule having been audited by Coopers &
Lybrand L.L.P, independent accountants, have been furnished to
the Adjustable Rate Fund. Such statements of assets and
liabilities and schedule fairly present the financial position of
the Intermediate Fund as of November 30, 1995 and said statements
of operations and changes in net assets fairly reflect the
results of its operations and changes in net assets for the
period covered thereby in conformity with generally accepted
accounting principles.
(d) The prospectus and statement of additional information dated
April 1, 1996, previously furnished to the Adjustable Rate Fund,
and any amendment or supplement thereto or any superseding
prospectus or statement of additional information in respect
thereof in effect prior to the Exchange Date, which will be
furnished to the Adjustable Rate Fund (collectively, the
"Intermediate Fund Prospectus") does not and will not, as of the
relevant date contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided
however, that the Intermediate Fund makes no representation or
warranty as to any information in the Intermediate Fund
Prospectus that does not specifically relate to the Intermediate
Fund.
(e) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Intermediate
Fund, threatened against the Intermediate Fund which assert
liability on the part of the Intermediate Fund.
(f) The Intermediate Fund has no known liabilities of a material
nature, contingent or otherwise, other than those shown as
belonging to it on its statement of assets and liabilities as of
November 30, 1995 and those incurred in the ordinary course of
the Intermediate Fund's business as an investment company since
November 30, 1995.
(g) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Intermediate Fund of the transactions contemplated by this
Agreement, except such as may be required under the Securities
Act of 1933, as amended (the "1933 Act"), the Securities Exchange
Act of 1934, as amended (the "1934 Act"), the 1940 Act, state
securities or blue sky laws (which term as used herein shall
include the laws of the District of Columbia and of Puerto Rico)
or the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"H-S-R Act").
(h) The registration statement (the "Registration Statement")
filed with the Securities and Exchange Commission (the
"Commission") by the Intermediate Fund on Form N-14 relating to
the Merger Shares issuable hereunder, and the proxy statement of
the Adjustable Rate Fund included therein (the "Proxy
Statement"), on the effective date of the Registration Statement
(i) will comply in all material respects with the provisions of
the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7(a) and at the Exchange Date, the
prospectus contained in the Registration Statement of which the
Proxy Statement is a part (the "Prospectus"), as amended or
supplemented by any amendments or supplements filed or requested
to be filed with the Commission by the Adjustable Rate Fund, will
not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided, however,
that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the
Registration Statement, the Prospectus or the Proxy Statement
made in reliance upon and in conformity with information
furnished by the Adjustable Rate Fund for use in the Registration
Statement, the Prospectus or the Proxy Statement.
(i) There are no material contracts outstanding to which the
Intermediate Fund is a party, other than as disclosed in the
Registration Statement, the Prospectus, or the Proxy Statement.
(j) All of the issued and outstanding shares of beneficial
interest of the Intermediate Fund have been offered for sale and
sold in conformity with all applicable federal securities laws.
(k) The Intermediate Fund is and will at all times through the
Exchange Date qualify for taxation as a "regulated investment
company" under Sections 851 and 852 of the Code.
(l) The issuance of the Merger Shares pursuant to this Agreement
will be in compliance with all applicable federal securities
laws.
(m) The Merger Shares to be issued to the Adjustable Rate Fund
have been duly authorized and, when issued and delivered pursuant
to this Agreement, will be legally and validly issued and will be
fully paid and nonassessable by the Intermediate Fund, and no
shareholder of the Intermediate Fund will have any preemptive
right of subscription or purchase in respect thereof.
2. REPRESENTATIONS AND WARRANTIES OF THE ADJUSTABLE RATE FUND.
The Adjustable Rate Fund represents and warrants to and agrees
with the Intermediate Fund that:
(a) The Adjustable Rate Fund is a business trust duly
established and validly existing under the laws of The
Commonwealth of Massachusetts, and has power to carry on its
business as it is now being conducted and to carry out this
Agreement. The Adjustable Rate Fund is not required to qualify
as a foreign association in any jurisdiction. The Adjustable
Rate Fund has all necessary federal, state and local
authorizations to own all of its properties and assets and to
carry on its business as now being conducted and to carry out
this Agreement.
(b) The Adjustable Rate Fund is registered under the 1940 Act as
an open-end management investment company, and such registration
has not been revoked or rescinded and is in full force and
effect.
(c) A statement of assets and liabilities, statement of
operations, and statement of changes in net assets and schedule
of investments (indicating their market values) of the Adjustable
Rate Fund for the fiscal year ended October 31, 1995, such
statements and schedule having been audited by Price Waterhouse
LLP, independent accountants, will be furnished to the
Intermediate Fund. Such statements of assets and liabilities and
schedule fairly present the financial position of the Adjustable
Rate Fund as of October 31, 1995, and said statements of
operations and changes in net assets fairly reflect the results
of its operations and changes in financial position for the
periods covered thereby in conformity with generally accepted
accounting principles.
(d) The Prospectus and Statement of Additional Information dated
March 1, 1996 (the "Adjustable Rate Fund Prospectus"), previously
furnished to the Intermediate Fund, does not and will not contain
as of the relevant date any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided
however, that the Adjustable Rate Fund makes no representation or
warranty as to any information in the Adjustable Rate Fund
Prospectus that does not specifically relate to the Adjustable
Rate Fund.
(e) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Adjustable Rate
Fund, threatened against the Adjustable Rate Fund which assert
liability or may, if successfully prosecuted to their conclusion,
result in liability on the part of the Adjustable Rate Fund,
other than as have been disclosed in the Prospectus.
(f) There are no material contracts outstanding to which the
Adjustable Rate Fund is a party, other than as will be disclosed
in the Proxy Statement.
(g) The Adjustable Rate Fund has no known liabilities of a
material nature, contingent or otherwise, other than those shown
on the Adjustable Rate Fund's statement of assets and liabilities
as of October 31, 1995 referred to above and those incurred in
the ordinary course of the business of the Adjustable Rate Fund
as an investment company since such date. Prior to the Exchange
Date, the Adjustable Rate Fund will advise the Intermediate Fund
of all material liabilities, contingent or otherwise, incurred by
it subsequent to October 31, 1995, whether or not incurred in the
ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall mean
the Adjustable Rate Fund's investments shown on the schedule of
its investments as of October 31, 1995 referred to in Section
2(c) hereof, as supplemented with such changes as the Adjustable
Rate Fund shall make, and changes resulting from stock dividends,
stock splits, mergers and similar corporate actions.
(i) The Adjustable Rate Fund has filed or will file all federal
and state tax returns which, to the knowledge of the Adjustable
Rate Fund's officers, are required to be filed by the Adjustable
Rate Fund and has paid or will pay all federal and state taxes
shown to be due on said returns or on any assessments received by
the Adjustable Rate Fund. All tax liabilities of the Adjustable
Rate Fund have been adequately provided for on its books, and to
the knowledge of the Adjustable Rate Fund, no tax deficiency or
liability of the Adjustable Rate Fund has been asserted, and no
question with respect thereto has been raised, by the Internal
Revenue Service or by any state or local tax authority for taxes
in excess of those already paid.
(j) At both the Valuation Time and the Exchange Date, the
Adjustable Rate Fund will have full right, power and authority to
sell, assign, transfer and deliver the Investments and any other
assets and liabilities of the Adjustable Rate Fund to be
transferred to the Intermediate Fund pursuant to this Agreement.
At the Exchange Date, subject only to the delivery of the
Investments and any such other assets and liabilities as
contemplated by this Agreement, the Intermediate Fund will
acquire the Investments and any such other assets and liabilities
subject to no encumbrances, liens or security interests
whatsoever and without any restrictions upon the transfer
thereof.
(k) No registration under the 1933 Act of any of the Investments
would be required if they were, as of the time of such transfer,
the subject of a public distribution by either of the
Intermediate Fund or the Adjustable Rate Fund, except as
previously disclosed to the Intermediate Fund by the Adjustable
Rate Fund.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Adjustable Rate Fund of the transactions contemplated by this
Agreement, except such as may be required under the 1933 Act, the
1934 Act, the 1940 Act, state securities or blue sky laws or the
H-S-R Act.
(m) The Registration Statement, the Prospectus and the Proxy
Statement, on the Effective Date of the Registration Statement
and insofar as they do not relate to the Intermediate Fund (i)
will comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7(a) below and on the Exchange
Date, the Prospectus, as amended or supplemented by any
amendments or supplements filed or required to be filed with the
Commission by the Intermediate Fund, will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the
representations and warranties in this subsection shall apply
only to statements of fact relating to the Adjustable Rate Fund
contained in the Registration Statement, the Prospectus or the
Proxy Statement, or omissions to state in any thereof a material
fact relating to the Adjustable Rate Fund, as such Registration
Statement, Prospectus and Proxy Statement shall be furnished to
the Adjustable Rate Fund in definitive form as soon as
practicable following effectiveness of the Registration Statement
and before any public distribution of the Prospectus or Proxy
Statement.
(n) The Adjustable Rate Fund is and will at all times through the
Exchange Date qualify for taxation as a "regulated investment
company" under Sections 851 and 852 of the Code.
(o) At the Exchange Date, the Adjustable Rate Fund will have sold
such of its assets, if any, as necessary to assure that, after
giving effect to the acquisition of the assets of the Adjustable
Rate Fund pursuant to this Agreement, the Intermediate Fund will
remain in compliance with its mandatory investment restrictions
as set forth in the Intermediate Fund Prospectus previously
furnished to the Adjustable Rate Fund.
3. REORGANIZATION. (a) Subject to the requisite approval of the
shareholders of the Adjustable Rate Fund and to the other terms
and conditions contained herein (including the Adjustable Rate
Fund's obligation to distribute to its shareholders all of its
investment company taxable income and net capital gain as
described in Section 8(m) hereof), the Adjustable Rate Fund
agrees to sell, assign, convey, transfer and deliver to the
Intermediate Fund, and the Intermediate Fund agrees to acquire
from the Adjustable Rate Fund, on the Exchange Date all of the
Investments and all of the cash and other properties and assets
of the Adjustable Rate Fund, whether accrued or contingent
(including cash received by the Adjustable Rate Fund upon the
liquidation by the Adjustable Rate Fund of any investments
purchased by the Adjustable Rate Fund after October 31, 1995 and
designated by the Intermediate Fund as being unsuitable for it to
acquire), in exchange for that number of Merger Shares provided
for in Section 4 and the assumption by the Intermediate Fund of
all of the liabilities of the Adjustable Rate Fund, whether
accrued or contingent, existing at the Valuation Time. Pursuant
to this Agreement, the Adjustable Rate Fund will, as soon as
practicable after the Exchange Date, distribute all of the Class
A and Class B Merger Shares received by it to the Class A and
Class B shareholders, respectively, of the Adjustable Rate Fund,
in complete liquidation of the Adjustable Rate Fund.
(b) The Adjustable Rate Fund will pay or cause to be paid to the
Intermediate Fund any interest, cash or such dividends, rights
and other payments received by it on or after the Exchange Date
with respect to the Investments and other properties and assets
of the Adjustable Rate Fund, whether accrued or contingent,
received by it on or after the Exchange Date. Any such
distribution shall be deemed included in the assets transferred
to the Intermediate Fund at the Exchange Date and shall not be
separately valued unless the securities in respect of which such
distribution is made shall have gone "ex" such distribution prior
to the Valuation Time, in which case any such distribution which
remains unpaid at the Exchange Date shall be included in the
determination of the value of the assets of the Adjustable Rate
Fund acquired by the Intermediate Fund.
(c) The Valuation Time shall be 4:00 p.m. Boston time on
October 3, 1996 or such earlier or later day as may be mutually
agreed upon in writing by the parties hereto (the "Valuation
Time").
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, the
Intermediate Fund will deliver to the Adjustable Rate Fund (i) a
number of full and fractional Class A Merger Shares having an
aggregate net asset value equal to the value of assets of the
Adjustable Rate Fund attributable to Class A shares of the
Adjustable Rate Fund transferred to the Intermediate Fund on such
date less the value of the liabilities of the Adjustable Rate
Fund attributable to the Class A shares of the Adjustable Rate
Fund assumed by the Intermediate Fund on that date, and (ii) a
number of full and fractional Class B Merger Shares having an
aggregate net asset value equal to the value of the assets of the
Adjustable Rate Fund attributable to Class B shares of the
Adjustable Rate Fund transferred to the Intermediate Fund on such
date less the value of the liabilities of the Adjustable Rate
Fund attributable to Class B shares of the Adjustable Rate Fund
assumed by the Intermediate Fund on that date, determined as
hereafter provided in this Section 4.
(a) The net asset value of the Merger Shares to be delivered to
the Adjustable Rate Fund, the value of the assets attributable to
the Class A and Class B shares of the Adjustable Rate Fund and
the value of the liabilities attributable to the Class A and B
shares of the Adjustable Rate Fund to be assumed by the
Intermediate Fund shall in each case be determined as of the
Valuation Time.
(b) The net asset value of the Class A and Class B Merger Shares
shall be computed in the manner set forth in the Intermediate
Fund Prospectus. The value of the assets and liabilities of the
Class A and Class B shares of the Adjustable Rate Fund shall be
determined by the Intermediate Fund, in cooperation with the
Adjustable Rate Fund, pursuant to procedures which the
Intermediate Fund would use in determining the fair market value
of the Intermediate Fund's assets and liabilities.
<PAGE>
(c) No adjustment shall be made in the net asset value of either
the Adjustable Rate Fund or the Intermediate Fund to take into
account differences in realized and unrealized gains and losses.
(d) The Intermediate Fund shall issue the Merger Shares to the
Adjustable Rate Fund in two certificates registered in the name
of the Adjustable Rate Fund, one for Class A Merger Shares and
one for Class B Merger Shares (excluding any fractional shares).
The Adjustable Rate Fund shall distribute the Class A Merger
Shares to the Class A shareholders of the Adjustable Rate Fund by
redelivering such certificates to the Intermediate Fund's
transfer agent which will as soon as practicable set up open
accounts for each Class A Adjustable Rate Fund shareholder in
accordance with written instructions furnished by the Adjustable
Rate Fund. The Adjustable Rate Fund shall distribute the Class B
Merger Shares to the Class B shareholders of the Adjustable Rate
Fund by redelivering such certificates to the Intermediate Fund's
transfer agent which will as soon as practicable set up open
accounts for each Class B Adjustable Rate Fund shareholder in
accordance with written instructions furnished by the Adjustable
Rate Fund. With respect to any Adjustable Rate Fund shareholder
holding share certificates as of the Exchange Date, the
Intermediate Fund will not permit such shareholder to receive
dividends and other distributions on the Merger Shares (although
such dividends and other distributions shall be credited to the
account of such shareholder), receive certificates representing
the Merger Shares, exchange the Merger Shares credited to such
shareholder's account for shares of other investment companies
managed by Putnam Investment Management, Inc. ("Putnam"), or
pledge or redeem such Merger Shares until notified by the
Adjustable Rate Fund or the shareholder's agent that such
shareholder has surrendered his or her outstanding Adjustable
Rate Fund certificates or, in the event of lost, stolen, or
destroyed certificates, posted adequate bond. In the event that
a shareholder shall not be permitted to receive dividends and
other distributions on the Merger Shares as provided in the
preceding sentence, the Intermediate Fund shall pay any such
dividends or distributions in additional Merger Shares,
notwithstanding any election such shareholder shall have made
previously with respect to the payment, in cash or otherwise, of
dividends and distributions on shares of the Adjustable Rate
Fund. The Adjustable Rate Fund will, at its expense, request the
shareholders of the Adjustable Rate Fund to surrender their
outstanding Adjustable Rate Fund certificates, or post adequate
bond, as the case may be.
(e) The Intermediate Fund shall assume all liabilities of the
Adjustable Rate Fund, whether accrued or contingent, in
connection with the acquisition of assets and subsequent
dissolution of the Adjustable Rate Fund or otherwise.
<PAGE>
5. EXPENSES, FEES, ETC. (a) All fees and expenses, including
legal and accounting expenses, portfolio transfer taxes (if any)
or other similar expenses incurred in connection with the
consummation by the Adjustable Rate Fund and the Intermediate
Fund of the transactions contemplated by this Agreement will be
allocated ratably between the Intermediate Fund and the
Adjustable Rate Fund in proportion to their net assets as of the
Valuation Time, except that the costs of proxy materials and
proxy solicitation will be borne by the Adjustable Rate Fund,
and; provided, however, that such expenses will in any event be
paid by the party directly incurring such expenses if and to the
extent that the payment by the other party of such expenses would
result in the disqualification of the Intermediate Fund or the
Adjustable Rate Fund, as the case may be, as a "regulated
investment company" within the meaning of Section 851 of the
Code.
(b) In the event the transactions contemplated by this Agreement
are not consummated by reason of the Intermediate Fund's being
either unwilling or unable to go forward (other than by reason of
the nonfulfillment or failure of any condition to the
Intermediate Fund's obligations referred to in Section 7(a) or
Section 8) the Intermediate Fund shall pay directly all
reasonable fees and expenses incurred by the Adjustable Rate Fund
in connection with such transactions, including, without
limitation, legal, accounting and filing fees.
(c) In the event the transactions contemplated by this Agreement
are not consummated by reason of the Adjustable Rate Fund's being
either unwilling or unable to go forward (other than by reason of
the nonfulfillment or failure of any condition to the Adjustable
Rate Fund's obligations referred to in Section 7(a) or Section 9)
the Adjustable Rate Fund shall pay directly all reasonable fees
and expenses incurred by the Intermediate Fund in connection with
such transactions, including without limitation legal, accounting
and filing fees.
(d) In the event the transactions contemplated by this Agreement
are not consummated for any reason other than (i) the
Intermediate Fund's or the Adjustable Rate Fund's being either
unwilling or unable to go forward or (ii) the nonfulfillment or
failure of any condition to the Intermediate Fund's or the
Adjustable Rate Fund's obligations referred to in Section 7(a),
Section 8 or Section 9 of this Agreement, then each of the
Intermediate Fund and the Adjustable Rate Fund shall bear all of
its own expenses incurred in connection with such transactions,
except that expenses which exceed 0.25% of the net assets of the
Adjustable Rate Fund which are otherwise allocated to the
Adjustable Rate Fund under this subsection (d) will be borne by
Putnam Management.
(e) Notwithstanding any other provisions of this Agreement, if
for any reason the transactions contemplated by this Agreement
are not consummated, no party shall be liable to the other party
for any damages resulting therefrom, including without limitation
consequential damages, except as specifically set forth above.
6. EXCHANGE DATE. Delivery of the assets of the Adjustable Rate
Fund to be transferred, assumption of the liabilities of the
Adjustable Rate Fund to be assumed and the delivery of the Merger
Shares to be issued shall be made at the offices of Ropes & Gray,
One International Place, Boston, Massachusetts, at 10:00 A.M. on
the next full business day following the Valuation Time, or at
such other time and date agreed to by the Intermediate Fund and
the Adjustable Rate Fund, the date and time upon which such
delivery is to take place being referred to herein as the
"Exchange Date."
7. MEETING OF SHAREHOLDERS; DISSOLUTION. (a) The Adjustable Rate
Fund agrees to call a meeting of its shareholders as soon as is
practicable after the effective date of the Registration
Statement for the purpose of considering the sale of all of its
assets to and the assumption of all of its liabilities by the
Intermediate Fund as herein provided, adopting this Agreement,
and authorizing the liquidation and dissolution of the Adjustable
Rate Fund.
(b) The Adjustable Rate Fund agrees that the liquidation and
dissolution of the Adjustable Rate Fund will be effected in the
manner provided in the Agreement and Declaration of Trust of the
Adjustable Rate Fund in accordance with applicable law and that
on and after the Exchange Date, the Adjustable Rate Fund shall
not conduct any business except in connection with its
liquidation and dissolution.
(c) The Intermediate Fund has, after the preparation and
delivery to the Intermediate Fund by the Adjustable Rate Fund of
a preliminary version of the Proxy Statement which was
satisfactory to the Intermediate Fund and to Ropes & Gray for
inclusion in the Registration Statement, filed the Registration
Statement with the Commission. Each of the Adjustable Rate Fund
and the Intermediate Fund has cooperated with the other, and each
has furnished to the other the information relating to itself
required by the 1933 Act, the 1934 Act and the 1940 Act and the
rules and regulations thereunder set forth in the Registration
Statement, including the Prospectus and the Proxy Statement.
<PAGE>
8. CONDITIONS TO THE INTERMEDIATE FUND'S OBLIGATIONS. The
obligations of the Intermediate Fund hereunder shall be subject
to the following conditions:
(a) That this Agreement shall have been adopted and the
transactions contemplated hereby shall have been approved by the
affirmative vote of the holders of at least two-thirds (66 2/3%)
of the outstanding shares of beneficial interest of the
Adjustable Rate Fund entitled to vote.
(b) That the Adjustable Rate Fund shall have furnished to the
Intermediate Fund a statement of the Adjustable Rate Fund's
assets and liabilities, with values determined as provided in
Section 4 of this Agreement, together with a list of Investments
with their respective tax costs, all as of the Valuation Time,
certified on the Adjustable Rate Fund's behalf by the Adjustable
Rate Fund's President (or any Vice President) and Treasurer, and
a certificate of both such officers, dated the Exchange Date,
that there has been no material adverse change in the financial
position of the Adjustable Rate Fund since October 31, 1995 other
than changes in the Investments and other assets and properties
since that date or changes in the market value of the Investments
and other assets of the Adjustable Rate Fund, or changes due to
dividends paid or losses from operations.
(c) That the Adjustable Rate Fund shall have furnished to the
Intermediate Fund a statement, dated the Exchange Date, signed on
behalf of the Adjustable Rate Fund by the Adjustable Rate Fund's
President (or any Vice President) and Treasurer certifying that
as of the Valuation Time and as of the Exchange Date all
representations and warranties of the Adjustable Rate Fund made
in this Agreement are true and correct in all material respects
as if made at and as of such dates and the Adjustable Rate Fund
has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior
to such dates.
(d) That the Adjustable Rate Fund shall have delivered to the
Intermediate Fund a letter from Price Waterhouse LLP dated the
Exchange Date, stating that on the basis of an examination under
attestation standards established by the American Institute of
Certified Public Accountants ("AICPA"), management's assertions
that for the fiscal period from November 1, 1995 to the Exchange
Date the Adjustable Rate Fund (1) qualified as a regulated
investment company under the Internal Revenue Code (the "Code"),
(2) as of the Exchange Date, has no liability other than
liabilities stated for federal or state income taxes and (3) the
Adjustable Rate Fund, as of the Exchange Date, has no liability
for federal excise tax purposes under section 4982 of the Code
are fairly stated.
<PAGE>
(e) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(f) That the Intermediate Fund shall have received an opinion of
Ropes & Gray, in form satisfactory to the Intermediate Fund and
dated the Exchange Date, to the effect that (i) the Adjustable
Rate Fund is a business trust duly established and validly
existing under the laws of The Commonwealth of Massachusetts,
and, to the knowledge of such counsel, is not required to qualify
to do business as a foreign association in any jurisdiction, (ii)
this Agreement has been duly authorized, executed, and delivered
by the Adjustable Rate Fund and, assuming that the Registration
Statement, the Prospectus and the Proxy Statement comply with the
1933 Act, the 1934 Act and the 1940 Act and assuming due
authorization, execution and delivery of this Agreement by the
Intermediate Fund, is a valid and binding obligation of the
Adjustable Rate Fund, (iii) the Adjustable Rate Fund has power to
sell, assign, convey, transfer and deliver the assets
contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this
Agreement, the Adjustable Rate Fund will have duly sold,
assigned, conveyed, transferred and delivered such assets to the
Intermediate Fund, (iv) the execution and delivery of this
Agreement did not, and the consummation of the transactions
contemplated hereby will not, violate the Adjustable Rate Fund's
Agreement and Declaration of Trust, as amended, or any provision
of any agreement known to such counsel to which the Adjustable
Rate Fund is a party or by which it is bound, and (v) no consent,
approval, authorization or order of any court or governmental
authority is required for the consummation by the Adjustable Rate
Fund of the transactions contemplated hereby, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act
and such as may be required under state securities or blue sky
laws and the H-S-R Act, it being understood that with respect to
investment restrictions as contained in the Adjustable Rate
Fund's Agreement and Declaration of Trust, Bylaws or then-current
Registration Statement, such counsel may rely upon a certificate
of an officer of the Adjustable Rate Fund's whose responsibility
it is to advise the Adjustable Rate Fund with respect to such
matters.
(g) That the Intermediate Fund shall have received an opinion of
Ropes & Gray, in form satisfactory to the Intermediate Fund, with
respect to the matters specified in Section 9(f) of this
Agreement, and such other matters as the Intermediate Fund may
reasonably deem necessary or desirable.
(h) That the Intermediate Fund shall have received an opinion of
Ropes & Gray dated the Exchange Date (which opinion would be
based upon certain factual representations and subject to certain
qualifications), to the effect that, on the basis of the existing
provisions of the Code, current administrative rules and court
decisions, for federal income tax purposes: (i) no gain or loss
will be recognized by the Intermediate Fund upon receipt of the
Investments transferred to the Intermediate Fund pursuant to this
Agreement in exchange for the Merger Shares, (ii) the basis to
the Intermediate Fund of the Investments will be the same as the
basis of the Investments in the hands of the Adjustable Rate Fund
immediately prior to such exchange, and (iii) the Intermediate
Fund's holding periods with respect to the Investments will
include the respective periods for which the Investments were
held by the Adjustable Rate Fund.
(i) That the assets of the Adjustable Rate Fund to be acquired
by the Intermediate Fund will include no assets which the
Intermediate Fund, by reason of charter limitations or of
investment restrictions disclosed in the Intermediate Fund
Prospectus in effect on the Exchange Date, may not properly
acquire.
(j) That the Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of
the Intermediate Fund, threatened by the Commission.
(k) That the Intermediate Fund shall have received from the
Commission, any relevant state securities administrator, the
Federal Trade Commission (the "FTC") and the Department of
Justice (the "Department") such order or orders as Ropes & Gray
deems reasonably necessary or desirable under the 1933 Act, the
1934 Act, the 1940 Act, any applicable state securities or blue
sky laws and the H-S-R Act in connection with the transactions
contemplated hereby, and that all such orders shall be in full
force and effect.
(l) That all proceedings taken by the Adjustable Rate Fund in
connection with the transactions contemplated by this Agreement
and all documents incidental thereto shall be satisfactory in
form and substance to the Intermediate Fund and Ropes & Gray.
(m) That, prior to the Exchange Date, the Adjustable Rate Fund
shall have declared a dividend or dividends which, together with
all previous such dividends, shall have the effect of
distributing to the shareholders of the Adjustable Rate Fund all
of the Adjustable Rate Fund's investment company taxable income
for its taxable years ending on or after October 31, 1995 and on
or prior to the Exchange Date (computed without regard to any
deduction for dividends paid), and all of its net capital gain
realized in each of its taxable years ending on or after October
31, 1995 and on or prior to the Exchange Date.
(n) That the Adjustable Rate Fund shall have furnished to the
Intermediate Fund a certificate, signed by the President (or any
Vice President) and the Treasurer of the Adjustable Rate Fund, as
to the tax cost to the Adjustable Rate Fund of the securities
delivered to the Intermediate Fund pursuant to this Agreement,
together with any such other evidence as to such tax cost as the
Intermediate Fund may reasonably request.
(o) That the Adjustable Rate Fund's custodian shall have
delivered to the Intermediate Fund a certificate identifying all
of the assets of the Adjustable Rate Fund held by such custodian
as of the Valuation Time.
(p) That the Adjustable Rate Fund's transfer agent shall have
provided to the Intermediate Fund (i) the originals or true
copies of all of the records of the Adjustable Rate Fund in the
possession of such transfer agent as of the Exchange Date, (ii) a
certificate setting forth the number of shares of the Adjustable
Rate Fund outstanding as of the Valuation Time, and (iii) the
name and address of each holder of record of any such shares and
the number of shares held of record by each such shareholder.
(q) That all of the issued and outstanding shares of beneficial
interest of the Adjustable Rate Fund shall have been offered for
sale and sold in conformity with all applicable state securities
or blue sky laws and, to the extent that any audit of the records
of the Adjustable Rate Fund or its transfer agent by the
Intermediate Fund or its agents shall have revealed otherwise,
either (i) the Adjustable Rate Fund shall have taken all actions
that in the opinion of the Intermediate Fund or its counsel are
necessary to remedy any prior failure on the part of the
Adjustable Rate Fund to have offered for sale and sold such
shares in conformity with such laws or (ii) the Adjustable Rate
Fund shall have furnished (or caused to be furnished) surety, or
deposited (or caused to be deposited) assets in escrow, for the
benefit of the Intermediate Fund in amounts sufficient and upon
terms satisfactory, in the opinion of the Intermediate Fund or
its counsel, to indemnify the Intermediate Fund against any
expense, loss, claim, damage or liability whatsoever that may be
asserted or threatened by reason of such failure on the part of
the Adjustable Rate Fund to have offered and sold such shares in
conformity with such laws.
(r) That the Intermediate Fund shall have received from Price
Waterhouse LLP a letter addressed to the Intermediate Fund dated
as of the Exchange Date satisfactory in form and substance to the
Intermediate Fund to the effect that, on the basis of an
examination under attestation standards established by the AICPA,
management's assertion that as of the Valuation Time the value of
the assets of the Adjustable Rate Fund to be exchanged for the
Merger Shares has been determined in accordance with the
provisions of Article 10 section 5 (10.5) of the Intermediate
Fund's By-laws pursuant to the procedures customarily utilized by
the Intermediate Fund in valuing its assets and issuing its
shares is fairly stated.
(s) That the Adjustable Rate Fund shall have executed and
delivered to the Intermediate Fund an instrument of transfer
dated as of the Exchange Date pursuant to which the Adjustable
Rate Fund will assign, transfer and convey all of the assets and
other property to the Intermediate Fund at the Valuation Time in
connection with the transactions contemplated by this Agreement.
9. CONDITIONS TO THE ADJUSTABLE RATE FUND'S OBLIGATIONS. The
obligations of the Adjustable Rate Fund hereunder shall be
subject to the following conditions:
(a) That this Agreement shall have been adopted and the
transactions contemplated hereby shall have been approved by the
affirmative vote of the holders of at least two-thirds (66 2/3%)
of the outstanding shares of beneficial interest of the
Adjustable Rate Fund entitled to vote.
(b) That the Intermediate Fund shall have furnished to the
Adjustable Rate Fund a statement of the Intermediate Fund's net
assets, together with a list of portfolio holdings with values
determined as provided in Section 4, all as of the Valuation
Time, certified by the Intermediate Fund's President (or any Vice
President) and Treasurer (or any Assistant Treasurer), and a
certificate of both such officers, dated the Exchange Date, to
the effect that as of the Valuation Time and as of the Exchange
Date there has been no material adverse change in the financial
position of the Intermediate Fund since November 30, 1995, other
than changes in its portfolio securities since that date, changes
in the market value of its portfolio securities, changes due to
net redemptions, dividends paid or losses from operations.
(c) That the Intermediate Fund shall have executed and delivered
to the Adjustable Rate Fund an Assumption of Liabilities dated as
of the Exchange Date pursuant to which the Intermediate Fund will
assume all of the liabilities of the Adjustable Rate Fund
existing at the Valuation Time in connection with the
transactions contemplated by this Agreement.
(d) That the Intermediate Fund shall have furnished to the
Adjustable Rate Fund a statement, dated the Exchange Date, signed
on behalf of the Intermediate Fund by the Intermediate Fund's
President (or any Vice President) and Treasurer (or any Assistant
Treasurer) certifying that as of the Valuation Time and as of the
Exchange Date all representations and warranties of the
Intermediate Fund made in this Agreement are true and correct in
all material respects as if made at and as of such dates, and
that the Intermediate Fund has complied with all of the
agreements and satisfied all of the conditions on its part to be
performed or satisfied at or prior to each of such dates.
(e) That there shall not be any material litigation pending or
threatened with respect to the matters by this Agreement.
(f) That the Adjustable Rate Fund shall have received an opinion
of Ropes & Gray, in form satisfactory to the Adjustable Rate Fund
and dated the Exchange Date, to the effect that (i) the
Intermediate Fund is a business trust duly established and
validly existing in conformity with the laws of The Commonwealth
of Massachusetts, and, to the knowledge of such counsel, is not
required to qualify to do business as a foreign association in
any jurisdiction except as may be required by state securities or
blue sky laws, (ii) the Merger Shares to be delivered to the
Adjustable Rate Fund as provided for by this Agreement are duly
authorized and upon such delivery will be validly issued and will
be fully paid and nonassessable by the Intermediate Fund and no
shareholder of the Intermediate Fund has any preemptive right to
subscription or purchase in respect thereof, (iii) this Agreement
has been duly authorized, executed and delivered by the
Intermediate Fund and, assuming that the Prospectus, the
Registration Statement and the Proxy Statement comply with the
1933 Act, the 1934 Act and the 1940 Act and assuming due
authorization, execution and delivery of this Agreement by
Adjustable Rate Fund, is a valid and binding obligation of the
Intermediate Fund, (iv) the execution and delivery of this
Agreement did not, and the consummation of the transactions
contemplated hereby will not, violate the Intermediate Fund's
Agreement and Declaration of Trust, as amended, or By-laws, or
any provision of any agreement known to such counsel to which the
Intermediate Fund is a party or by which it is bound, it being
understood that with respect to investment restrictions as
contained in the Intermediate Fund's Agreement and Declaration of
Trust, as amended, By-Laws or then-current prospectus or
statement of additional information, such counsel may rely upon a
certificate of an officer of the Intermediate Fund whose
responsibility it is to advise the Intermediate Fund with respect
to such matters, (v) no consent, approval, authorization or order
of any court or governmental authority is required for the
consummation by the Intermediate Fund of the transactions
contemplated herein, except such as have been obtained under the
1933 Act, the 1934 Act and the 1940 Act and such as may be
required under state securities or blue sky laws, and (vi) the
Registration Statement has become effective under the 1933 Act,
and to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the 1933 Act.
(g) That the Adjustable Rate Fund shall have received an opinion
of Ropes & Gray dated the Exchange Date (which opinion would be
based upon certain factual representations and subject to certain
qualifications), to the effect that, on the basis of the existing
provisions of the Code, current administrative rules and court
decisions, for federal income tax purposes: (i) no gain or loss
will be recognized by the Adjustable Rate Fund or its
shareholders upon the transfer of the Investments to the
Intermediate Fund and the assumption by the Intermediate Fund of
the liabilities of the Adjustable Rate Fund, or upon the
distribution of the Merger Shares by the Adjustable Rate Fund to
its shareholders, pursuant to this Agreement, (ii) the basis of
the Merger Shares an Adjustable Rate Fund shareholder receives in
connection with the transaction will be the same as the basis of
his or her Adjustable Rate Fund shares exchanged therefor, and
(iii) an Adjustable Rate Fund shareholder's holding period for
his or her Merger Shares will be determined by including the
period for which he or she held the Adjustable Rate Fund shares
exchanged therefor.
(h) That all proceedings taken by or on behalf of the
Intermediate Fund in connection with the transactions
contemplated by this Agreement and all documents incidental
thereto shall be satisfactory in form and substance to the
Adjustable Rate Fund and Ropes & Gray.
(i) That the Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of
the Intermediate Fund, threatened by the Commission.
(j) That the Adjustable Rate Fund shall have received from the
Commission, any relevant state securities administrator, the FTC
and the Department such order or orders as Ropes & Gray deems
reasonably necessary or desirable under the 1933 Act, the 1934
Act, the 1940 Act, any applicable state securities or blue sky
laws and the H-S-R Act in connection with the transactions
contemplated hereby, and that all such orders shall be in full
force and effect.
10. INDEMNIFICATION. (a) The Adjustable Rate Fund will
indemnify and hold harmless, out of the assets of the Adjustable
Rate Fund but no other assets, the Intermediate Fund, its
trustees and its officers (for purposes of this subparagraph, the
"Indemnified Parties") against any and all expenses, losses,
claims, damages and liabilities at any time imposed upon or
reasonably incurred by any one or more of the Indemnified Parties
in connection with, arising out of, or resulting from any claim,
action, suit or proceeding in which any one or more of the
Indemnified Parties may be involved or with which any one or more
of the Indemnified Parties may be threatened by reason of any
untrue statement or alleged untrue statement of a material fact
relating to the Adjustable Rate Fund contained in the
Registration Statement, the Prospectus or the Proxy Statement or
any amendment or supplement to any of the foregoing, or arising
out of or based upon the omission or alleged omission to state in
any of the foregoing a material fact relating to the Adjustable
Rate Fund required to be stated therein or necessary to make the
statements relating to the Adjustable Rate Fund therein not
misleading, including, without limitation, any amounts paid by
any one or more of the Indemnified Parties in a reasonable
compromise or settlement of any such claim, action, suit or
proceeding, or threatened claim, action, suit or proceeding made
with the consent of the Adjustable Rate Fund. The Indemnified
Parties will notify the Adjustable Rate Fund in writing within
ten days after the receipt by any one or more of the Indemnified
Parties of any notice of legal process or any suit brought
against or claim made against such Indemnified Party as to any
matters covered by this Section 10(a). The Adjustable Rate Fund
shall be entitled to participate at its own expense in the
defense of any claim, action, suit or proceeding covered by this
Section 10(a), or, if it so elects, to assume at its expense by
counsel satisfactory to the Indemnified Parties the defense of
any such claim, action, suit or proceeding, and if the Adjustable
Rate Fund elects to assume such defense, the Indemnified Parties
shall be entitled to participate in the defense of any such
claim, action, suit or proceeding at their expense. The
Adjustable Rate Fund's obligation under this Section 10(a) to
indemnify and hold harmless the Indemnified Parties shall
constitute a guarantee of payment so that the Adjustable Rate
Fund will pay in the first instance any expenses, losses, claims,
damages and liabilities required to be paid by it under this
Section 10(a) without the necessity of the Indemnified Parties'
first paying the same.
(b) The Intermediate Fund will indemnify and hold harmless, out
of the assets of the Intermediate Fund but no other assets, the
Adjustable Rate Fund, its trustees and its officers (for purposes
of this subparagraph, the "Indemnified Parties") against any and
all expenses, losses, claims, damages and liabilities at any time
imposed upon or reasonably incurred by any one or more of the
Indemnified Parties in connection with, arising out of, or
resulting from any claim, action, suit or proceeding in which any
one or more of the Indemnified Parties may be involved or with
which any one or more of the Indemnified Parties may be
threatened by reason of any untrue statement or alleged untrue
statement of a material fact relating to the Intermediate Fund
contained in the Registration Statement, the Prospectus or the
Proxy Statement, or any amendment or supplement to any thereof,
or arising out of, or based upon, the omission or alleged
omission to state in any of the foregoing a material fact
relating to the Intermediate Fund required to be stated therein
or necessary to make the statements relating to the Intermediate
Fund therein not misleading, including without limitation any
amounts paid by any one or more of the Indemnified Parties in a
reasonable compromise or settlement of any such claim, action,
suit or proceeding, or threatened claim, action, suit or
proceeding made with the consent of the Intermediate Fund. The
Indemnified Parties will notify the Intermediate Fund in writing
within ten days after the receipt by any one or more of the
Indemnified Parties of any notice of legal process or any suit
brought against or claim made against such Indemnified Party as
to any matters covered by this Section 10(b). The Intermediate
Fund shall be entitled to participate at its own expense in the
defense of any claim, action, suit or proceeding covered by this
Section 10(b), or, if it so elects, to assume at its expense by
counsel satisfactory to the Indemnified Parties the defense of
any such claim, action, suit or proceeding, and, if the
Intermediate Fund elects to assume such defense, the Indemnified
Parties shall be entitled to participate in the defense of any
such claim, action, suit or proceeding at their own expense. The
Intermediate Fund's obligation under this Section 10(b) to
indemnify and hold harmless the Indemnified Parties shall
constitute a guarantee of payment so that the Intermediate Fund
will pay in the first instance any expenses, losses, claims,
damages and liabilities required to be paid by it under this
Section 10(b) without the necessity of the Indemnified Parties'
first paying the same.
11. NO BROKER, ETC. Each of the Adjustable Rate Fund and the
Intermediate Fund represents that there is no person who has
dealt with it who by reason of such dealings is entitled to any
broker's or finder's or other similar fee or commission arising
out of the transactions contemplated by this Agreement.
12. TERMINATION. The Adjustable Rate Fund and the Intermediate
Fund may, by mutual consent of their trustees, terminate this
Agreement, and the Adjustable Rate Fund or the Intermediate Fund,
after consultation with counsel and by consent of their trustees
or an officer authorized by such trustees, may waive any
condition to their respective obligations hereunder. If the
transactions contemplated by this Agreement have not been
substantially completed by , 1996, this Agreement shall
automatically terminate on that date unless a later date is
agreed to by the Adjustable Rate Fund and the Intermediate Fund.
13. RULE 145. Pursuant to Rule 145 under the 1933 Act, the
Intermediate Fund will, in connection with the issuance of any
Merger Shares to any person who at the time of the transaction
contemplated hereby is deemed to be an affiliate of a party to
the transaction pursuant to Rule 145(c), cause to be affixed upon
the certificates issued to such person (if any) a legend as
follows:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT TO PUTNAM INTERMEDIATE U.S. GOVERNMENT
INCOME FUND OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (II) IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO PUTNAM
INTERMEDIATE U.S. GOVERNMENT INCOME FUND SUCH REGISTRATION
IS NOT REQUIRED."
and, further, the Intermediate Fund will issue stop transfer
instructions to the Intermediate Fund's transfer agent with
respect to such shares. The Adjustable Rate Fund will provide
the Intermediate Fund on the Exchange Date with the name of any
Adjustable Rate Fund shareholder who is to the knowledge of the
Adjustable Rate Fund an affiliate of the Adjustable Rate Fund on
such date.
14. COVENANTS, ETC. DEEMED MATERIAL. All covenants, agreements,
representations and warranties made under this Agreement and any
certificates delivered pursuant to this Agreement shall be deemed
to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their
behalf.
15. SOLE AGREEMENT; AMENDMENTS. This Agreement supersedes all
previous correspondence and oral communications between the
parties regarding the subject matter hereof, constitutes the only
understanding with respect to such subject matter, may not be
changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by
the laws of The Commonwealth of Massachusetts.
16. AGREEMENT AND DECLARATION OF TRUST. Copies of the
Agreements and Declarations of Trust of the Adjustable Rate Fund
and the Intermediate Fund are on file with the Secretary of State
of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed by the Trustees of each Fund,
respectively, as Trustees and not individually and that the
obligations of this instrument are not binding upon any of the
Trustees, officers or shareholders of the Adjustable Rate Fund or
the Intermediate Fund individually but are binding only upon the
assets and property of the Adjustable Rate Fund and the
Intermediate Fund, respectively.
<PAGE>
This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be deemed to be
an original.
PUTNAM INTERMEDIATE U.S.
GOVERNMENT INCOME FUND
By:
___________________________
Executive Vice President
PUTNAM ADJUSTABLE RATE U.S.
GOVERNMENT FUND
By:
___________________________
Executive Vice President
PUTNAM INVESTMENT MANAGEMENT, INC.
By:
___________________________
Senior Managing Director<PAGE>
PUTNAMINVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581<PAGE>
PUTNAM INVESTMENTS (LOGO)
THIS IS YOUR PROXY CARD.
PLEASE VOTE THIS PROXY, SIGN IT BELOW, AND RETURN IT PROMPTLY IN
THE ENVELOPE PROVIDED.
YOUR VOTE IS IMPORTANT.
PLEASE FOLD AT PERFORATION BEFORE DETACHING
- -----------------------------------------------------------------
Proxy for a meeting of shareholders, October 3, 1996, for PUTNAM
ADJUSTABLE RATE U.S. GOVERNMENT FUND.
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF PUTNAM
ADJUSTABLE RATE U.S. GOVERNMENT FUND
The undersigned shareholder hereby appoints George Putnam, Hans
H. Estin, and Robert E. Patterson, and each of them separately,
proxies, with power of substitution, and hereby authorizes them
to represent and to vote, as designated below, at the meeting of
shareholders of Putnam Adjustable Rate U.S. Government Fund on
October 3, 1996, at 2:00 p.m., Boston time, and at any
adjournments thereof, all of the shares of the fund that the
undersigned shareholder would be entitled to vote if personally
present.
PLEASE BE SURE TO SIGN AND DATE
THIS PROXY.
Please sign your name exactly as it appears on this card. If you
are a joint owner, each of you should sign. When signing as
executor, administrator, attorney, trustee, or guardian, or as
custodian for a minor, please give your full title as such. If
you are signing for a corporation, please sign the full corporate
name and indicate the signer's office. If you are a partner,
sign the partnership name.
----------------------------------
Shareholder sign here Date
-------- --------------------------
Co-owner sign here Date<PAGE>
HAS YOUR ADDRESS CHANGED?
Please use this form to notify us of any change in address or
telephone number or to provide us with your comments. Detach
this form from the proxy ballot and return it with your signed
proxy in the enclosed envelope.
- -----------------------------------------------------------------
Street
- -----------------------------------------------------------------
City State Zip
- -----------------------------------------------------------------
Telephone
DO YOU HAVE ANY COMMENTS?
- -----------------------------------------------------------------
- -----------------------------------------------------------------
DEAR SHAREHOLDER:
Your vote is important. Please help us to eliminate the expense
of follow-up mailings by signing and returning this proxy as soon
as possible. A postage-paid envelope is enclosed for your
convenience.
THANK YOU!
- -----------------------------------------------------------------
PLEASE FOLD AT PE RFORATION BEFORE DETACHING
<PAGE>
IF YOU COMPLETE AND SIGN THE PROXY, WE'LL VOTE IT EXACTLY AS YOU
TELL US. IF YOU SIMPLY SIGN THE PROXY, IT WILL BE VOTED FOR
PROPOSAL 1. THE PROXIES WILL ALSO BE AUTHORIZED TO VOTE UPON
SUCH OTHER MATTERS THAT MAY COME BEFORE THE MEETING.
THE TRUSTEES RECOMMEND A VOTE FOR THE PROPOSAL LISTED BELOW:
PLEASE MARK YOUR CHOICES X IN BLUE OR BLACK INK.
1. APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION
PROVIDING FOR THE TRANSFER OF ALL OF THE ASSETS OF PUTNAM
ADJUSTABLE RATE U.S. GOVERNMENT FUND (THE "FUND") TO PUTNAM
INTERMEDIATE U.S. GOVERNMENT INCOME FUND (THE "INTERMEDIATE
FUND") IN EXCHANGE FOR SHARES OF THE INTERMEDIATE FUND AND
THE ASSUMPTION BY THE INTERMEDIATE FUND OF ALL OF THE
LIABILITIES OF THE FUND, AND THE DISTRIBUTION OF SUCH
SHARES TO THE SHAREHOLDERS OF THE FUND IN LIQUIDATION OF
THE FUND.
FOR AGAINST ABSTAIN
[BOX] [BOX] [BOX]
NOTE: If you have questions on the proposal, please call 1-800-
225-1581.
<PAGE>
PUTNAM INTERMEDIATE U.S. GOVERNMENT INCOME FUND
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
JULY , 1996
This Statement of Additional Information contains material which
may be of interest to investors but which is not included in the
Prospectus/Proxy Statement (the "Prospectus") of Putnam
Intermediate U.S. Government Income Fund (the "Intermediate
Fund") dated July , 1996 relating to the sale of all or
substantially all of the assets of Putnam Adjustable Rate U.S.
Government Fund (the "Adjustable Rate Fund") to the Intermediate
Fund. The Intermediate Fund's Statement of Additional
Information dated April 1, 1996, and the Adjustable Rate Fund's
Statement of Additional Information dated March 1, 1996, have
been filed with the Securities and Exchange Commission and are
incorporated herein by reference. This Statement is not a
Prospectus and is authorized for distribution only when it
accompanies or follows delivery of the Prospectus. This
Statement should be read in conjunction with the Prospectus.
Investors may obtain a free copy of the Prospectus or either or
both of the Statements of Additional Information by writing
Putnam Investor Services, One Post Office Square, Boston, MA
02109 or by calling 1-800-225-1581.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P. are the independent accountants for the
Intermediate Fund, 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 for the Intermediate Fund. Price Waterhouse
LLP are the independent accountants for the Adjustable Rate Fund,
providing audit services, tax return reviews and other tax
consulting services and assistance and consultation in connection
with the review of various Securities and Exchange Commission
filings for the Adjustable Rate Fund. The following documents
are incorporated by reference into this Statement of Additional
Information: (1) the Report of Independent Accountants and
financial statements included in the Intermediate Fund's Annual
Report for the fiscal year ended November 30, 1995, filed
electronically on February 1, 1996 (File No. 811-6257), and (ii)
the Report of Independent Accountants and financial statements
included in the Adjustable Rate Fund's Annual Report for the
fiscal year ended October 31, 1995, filed electronically on
January 3, 1996 (File No. 811-4531). The audited financial
statements for the Intermediate Fund and the Adjustable Rate Fund
incorporated by reference into the Prospectus/Proxy Statement and
this Statement of Additional Information have been so included
and incorporated in reliance upon the reports of Coopers &
Lybrand L.L.P. and Price Waterhouse LLP, respectively, given on
their authority as experts in auditing and accounting.
TABLE OF CONTENTS
Unaudited Pro Forma combined Financial Statements of the
Intermediate Fund and the Adjustable Rate Fund................
<PAGE>
PUTNAM INTERMEDIATE U.S. GOVERNMENT INCOME FUND
AND
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND
PROFORMA COMBINING FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited proforma combining investment
portfolio and statement of assets and liabilities assumes that
the exchange described in the next paragraph occurred as of May
31, 1996 and the unaudited proforma combining statement of
operations for the six months ended May 31, 1996 presents the
results of operations of Putnam Intermediate U.S. Government
Income Fund as if the combination with Putnam Adjustable Rate
U.S. Government Fund had been consummated at December 1, 1995.
The proforma results of operations are not necessarily indicative
of future operations or the actual results that would have
occurred had the combination been consummated at December 1,
1995. The historical statements have been derived from
Intermediate U.S. Government Income Fund s and Adjustable Rate
U.S. Government Fund s books and records utilized in calculating
daily net asset value at May 31, 1996, and for the six month
period then ended.
The proforma statements give effect to the proposed transfer of
all of the assets of Adjustable Rate U.S. Government Fund to
Intermediate U.S. Government Income Fund in exchange for the
assumption by Intermediate U.S. Government Income Fund of all of
the liabilities of Adjustable Rate U.S. Government Fund and for a
number of Intermediate U.S. Government Income Fund s shares equal
in value to the value of the net assets of Adjustable Rate U.S.
Government Fund transferred to Intermediate U.S. Government
Income Fund. Under generally accepted accounting principles, the
historical cost of investment securities will be carried forward
to the surviving entity and the results of operations of
Intermediate U.S. Government Income Fund for pre-combination
periods will not be restated. The proforma statement of
operations does not reflect the expenses of either fund in
carrying out its obligations under the Agreement and Plan of
Reorganization.
The unaudited proforma combining statements should be read in
conjunction with the separate financial statements of
Intermediate U.S. Government Income Fund and Adjustable Rate U.S.
Government Fund incorporated by reference in this statement of
additional information.
<PAGE>
<TABLE>
<CAPTION>
PUTNAM INTERMEDIATE U.S. GOVERNMENT FUND
(UNAUDITED)
Pro Forma Combining
Statement of
Assets and Liabilities
May 31, 1996
ASSETS Intermediate U.S. Adjustable Rate Pro Forma Pro Forma
Government Income Fund U.S. Government Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investments in securities,
at value (cost, $100,130,158,
$108,407,198 and $208,537,356,
respectively) $96,468,984 $97,126,181 - $193,595,165
Cash 985 970 - 1,955
Dividends and Interest Receivable 684,810 1,388,118 - 2,072,928
Receivable for shares of the
fund sold 1,911,153 27,456 - 1,938,609
Unamortized organization expenses 17,136 - - 17,136
Total assets 99,083,068 98,542,725 - 197,625,793
LIABILITIES
Payable for securities purchased - 4,966,042 - 4,966,042
Payable for shares of the fund
repurchased 210,735 406,550 - 617,285
Payable for compensation
of Manager 138,947 50,097 - 189,044
Distributions payable to
shareholders 108,462 - - 108,462
Payable for distribution fees 47,798 50,809 - 98,607
Payable for administrative
services 854 1,254 - 2,108
Payable for compensation of
Trustees 209 1,540 - 1,749
Payable for investor servicing
and custodian fees 27,397 19,313 - 46,710
Payable for organization expenses 34,973 - - 34,973
Other accrued expenses 23,016 34,288 (c)155,000 212,304
TOTAL LIABILITIES 592,391 5,529,893 155,000 6,277,284
NET ASSETS $98,490,677 $93,012,832 (155,000) $191,348,509
CLASS A
Net Assets $68,717,358 $66,764,247 $135,370,605
Shares outstanding 14,384,409 6,482,615 28,335,716
Net asset value per share $4.78 $10.30 $4.78
CLASS B
Net Assets $27,235,886 $26,248,585 $53,441,471
Shares outstanding 5,702,460 2,552,502 11,199,019
Net asset value per share $4.78 $10.28 $4.77
CLASS M
Net Assets $2,537,433 -- $2,536,433
Shares outstanding 530,648 -- 530,648
Net asset value per share $4.78 -- $4.78
/TABLE
<PAGE>
<TABLE>
<CAPTION>
PUTNAM INTERMEDIATE U.S. GOVERNMENT FUND
(UNAUDITED)
Pro Forma Combining
Statement of Operations
Six months ended May 31, 1996
Intermediate U.S. Adjustable Rate U.S. Pro Forma Pro Forma
Government Fund Government Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investment income:
Interest $2,960,831 $3,604,622 - $6,565,453
Total investment income 2,960,831 3,604,622 - 6,565,453
Expenses:
Compensation of Manager 266,496 314,311 - 580,807
Investor servicing and
custodian fees 66,234 92,590 (A)(13,555) 145,269
Compensation of Trustees 3,870 5,301 (A)(3,268) 5,903
Reports to shareholders 9,093 16,430 (A)(14,659) 10,864
Postage 3,492 8,257 - 11,749
Auditing 16,500 12,038 (A)(11,038) 17,500
Legal 2,928 2,491 (B)7,081 12,500
Administrative services 2,521 3,685 (A)(2,154) 4,052
Distribution fee -
class A 76,655 95,500 - 172,155
Distribution fee -
class B 107,816 121,176 - 228,992
Distribution fee -
class M 4,084 - - 4,084
Amortization of
organization fees 4,945 - - 4,945
Registration fees 6,561 300 (A)(300) 6,561
Other 179 9,395 - 9,574
Total expense 571,374 681,474 (37,893) 1,214,955
Expense reduction (23,156) (47,068) - (70,224)
Net expenses 548,218 634,406 (37,893) 1,144,731
Net investment income 2,412,613 2,970,216 37,893 5,420,722
Net realized gain
on investments 923,920 (452,582) - 471,338
Net unrealized
depreciation of
investments during
the period (3,490,867) (193,802) - (3,684,669)
Net loss on investments (2,566,947) (646,384) - (3,213,331)
Net increase (decrease)
in net assets resulting
from operations $(154,334) $2,323,832 $37,893 $2,207,391
/TABLE
<PAGE>
PUTNAM INTERMEDIATE U.S. GOVERNMENT INCOME FUND
NOTES TO PROFORMA COMBINING STATEMENTS
(UNAUDITED)
MAY 31, 1996
The proforma adjustments to these proforma financial statements
are comprised of the following:
(A) Elimination and reduction of duplicative expenses
as a result of the merger.
(B) Estimated fees are based on aggregate fees for
fiscal year 1995 adjusted to reflect the merger.
(C) $61,000 relates to proxy costs which will be
borne by the Adjustable Rate Fund. The other
$94,000 relate to legal and accounting related
merger costs which will be allocated ratably
between the two funds upon consummation of the
merger.<PAGE>
<TABLE>
<CAPTION>
The pro Forma combining investment portfolio of
Putnam Adjustable Rate U.S. Government Fund and Putnam
Intermediate U.S. Government Income Fund
May 31, 1996
(Unaudited)
ADJUSTABLE RATE INTERMEDIATE U.S. PRO FORMA
U.S. GOVERNMENT FUND GOVERNMENT INCOME FUND COMBINED
U.S. GOVERNMENT AND PRINCIPAL 102.2% PRINCIPAL 89.8%* PRINCIPAL 94.9%*
AGENCY OBLIGATIONS AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal Home Loan Mortgage Association
Adjustable Rate Mortgage Participation
Certificates (ARMS)
7.954s, December 1, 2022 $361,846 $367,556 $361,846 $367,556
7.917s, February 1, 2020 345,975 355,866 345,975 355,866
7.85s, November 1, 2018 $1,726,437 $1,777,160 1,726,437 1,777,160
7.793s, March 1, 2019 4,378,585 4,542,782 4,378,585 4,542,782
7.77s, February 1, 2018 511,877 526,675 511,877 526,675
7 3/4s, September 1, 2021 1,920,690 1,982,805 1,920,690 1,982,805
7.744s, December 1, 2018 213,560 218,632 213,560 218,632
7.72s, March 1, 2019 54,774 55,510 54,774 55,510
7.685s, April 1, 2019 1,125,409 1,150,202 1,125,409 1,150,202
7.603s, January 1, 2018 1,286,936 1,317,500 1,286,936 1,317,500
7.599s, March 1, 2019 2,603,978 2,678,843 2,603,978 2,678,843
7.521s, April 1, 2018 951,521 974,862 951,521 974,862
7.518s, February 1, 2022 4,325,497 4,432,293 4,325,497 4,432,293
7 1/2s, November 1, 2016 2,006,050 2,048,057 2,006,050 2,048,057
7.344s, April 1, 2019 1,349,762 1,381,401 1,349,762 1,381,401
7 1/8s, February 1, 2018 2,313,118 2,358,293 2,313,118 2,358,293
6 7/8s, April 1, 2018 2,934,358 2,985,240 2,934,358 2,985,240
6 3/8s, April 1, 2017 4,463,347 4,484,949 4,463,347 4,484,949
FEDERAL HOUSING AUTHORITY ARMS
6s, November 20, 2025 9,413,279 9,397,089 9,413,279 9,397,089
FEDERAL NATIONAL MORTGAGE ASSOCIATION
PASS-THROUGH CERTIFICATES
11 1/4s, October 1, 2010 155,670 172,890 155,670 172,890
8s, May 1, 2013 1,013,936 1,019,005 1,013,936 1,019,005
6 1/2s, with various due dates from
April 1, 1999 to January 1, 2001 1,858,509 1,813,774 1,858,509 1,813,774
FEDERAL NATIONAL MORTGAGE ASSOCIATION
PASS-THROUGH CERTIFICATES ARMS
7.95s, January 1, 2017 204,472 211,884 204,472 211,884
7.69s, February 1, 2027 198,742 200,698 198,742 200,698
7.686s, April 1, 2019 482,299 492,249 482,299 492,249
7.569s, December 1, 2019 2,253,338 2,326,571 2,253,338 2,326,571
7.559s, May 1, 2020 1,564,156 1,611,816 1,564,156 1,611,816
7.549s, March 1, 2019 611,088 623,787 611,088 623,787
7.458s, May 1, 2016 119,291 120,987 119,291 120,987
7.427s, September 1, 2018 3,503,722 3,624,706 3,503,722 3,624,706
7.276s, June 1, 2018 3,898,008 3,987,545 1,559,203 1,595,019 5,457,211 5,582,564
7.252s, April 1, 2022 2,517,749 2,561,029 2,517,749 2,561,029
7.223s, April 1, 2019 417,681 424,338 417,681 424,338
6.975s, April 1, 2028 6,861,114 7,041,218 6,861,114 7,041,218
6.32s, February 1, 2016 4,234 4,199 4,234 4,199
6.225s, July 1, 2026 203,646 201,993 203,646 201,993
6.225s, November 1, 2024 148,707 147,500 148,707 147,500
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
PASS-THROUGH CERTIFICATES
8s, with various due dates from March 15,
2023 to September 15, 2023 4,529,818 4,577,923 4,529,818 4,577,923
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
PASS-THROUGH CERTIFICATES ARMS
TBA 6s, July 16, 2026 5,000,000 4,956,250 5,000,000 4,956,250
U.S. TREASURY NOTES
8 1/2s, February 15, 2000 5,000,000 5,314,050 5,000,000 5,314,050
8 1/8s, February 15, 1998 10,000,000 10,303,100 10,000,000 10,303,100
8s, May 15, 2001 10,000,000 10,562,500 10,000,000 10,562,500
7 3/8s, November 15, 1997 1,500,000 1,525,785 1,500,000 1,525,785
6 7/8s, May 15, 2006 25,000,000 25,039,000 25,000,000 25,039,000
6 1/4s, April 30, 2001 24,000,000 23,594,880 25,000,000 24,578,000 49,000,000 48,172,880
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(COST $98,092,857,$98,517,745
AND $196,610,602) $95,088,880 $86,579,531 $181,668,411
/TABLE
<PAGE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE INTERMEDIATE U.S. PRO FORMA
U.S. GOVERNMENT FUND GOVERNMENT INCOME FUND COMBINED
PRINCIPAL 2.2%* PRINCIPAL 10.6%* PRINCIPAL 6.2%*
SHORT-TERM INVESTMENTS AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
<C>
Interest in $530,273,000 joint
repurchase agreement dated May
31, 1996 with Morgan Stanley &
Co. Inc. due June 3, 1996 with
respect to various U.S. Treasury
obligations-maturity value of
$9,892,359 for an effective yield
of 5.29%. $9,888,000 $9,889,453 $9,888,000 $9,889,453
Interest in $846,949,000 joint
repurchase agreement dated
May 31, 1996 with Morgan (J.P.)
& Co., Inc. due June 3, 1996
with respect to various U.S.
Treasury obligations-maturity
value of $2,037,903 for an
effective yield of 5.32%. $2,037,000 $2,037,301 2,037,000 2,037,301
TOTAL SHORT-TERM INVESTMENTS
(COST $2,037,301,$9,889,453
AND $11,926,754) $2,037,301 $9,889,453 $11,926,754
TOTAL INVESTMENTS
(COST $100,130,158,
$108,407,198 AND $208,537,356) $97,126,181 $96,468,984 $193,595,165
<PAGE>
* Percentages indicated are based on net assets as follows
NET ASSETS
Adjustable Rate U.S. Government $93,012,832
Intermediate U.S. Government 98,490,677
Pro-Forma $191,503,509
TBA after the name represents to be announced securities.
The rates shown on Adjustable Rate Mortgages (ARMS) are the current interest rates at May 31, 1996, which are subject to
change based on the terms of the security.
/TABLE
<PAGE>
PUTNAM INTERMEDIATE U.S. GOVERNMENT INCOME FUND
FORM N-14
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The information required by this item is incorporated herein by
reference to the Registrant's Initial Registration Statement on
Form N-1A under the Securities Act of 1933 (File No. 33-37991)
and the Investment Company Act of 1940 (File No. 811-6257).
ITEM 16. EXHIBITS
1a. Agreement and Declaration of Trust -- Incorporated
by reference to Registrant's Initial Registration
Statement.
1b. Amendment to the Agreement and Declaration of trust
dated December 21, 1992 -- Incorporated by reference
to Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement.
1c. Amendment to the Agreement and Declaration of Trust
dated January 18, 1993 -- Incorporated by reference
to Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement.
2. By-Laws, as amended through February 1, 1994 --
Incorporated by reference to Post-Effective
Amendment No. 2 to the Registrant's Registration
Statement.
3. Not applicable.
4. Agreement and Plan of Reorganization --
constitutes Exhibit A to Part A hereof.
5a. Portions of Agreement and Declaration of Trust
Relating to Shareholders' Rights -- Incorporated by
reference to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement.
5b. Portions of By-Laws Relating to Shareholders' Rights
-- Incorporated by reference to Post-Effective
Amendment No. 2 to the Registrant's Registration
Statement.
<PAGE>
6. Management Contract dated January 8, 1993 --
Incorporated by reference to Pre-Effective Amendment
No. 1 to the Registrant's Registration Statement.
7a. Distributor's Contract dated May 6, 1994 --
Incorporated by reference to Post-Effective
Amendment No. 3 to the Registrant's Registration
Statement.
7b. Form of Specimen Dealer Sales Contract --
Incorporated by reference to Pre-Effective Amendment
No. 1 to the Registrant's Registration Statement.
7c. Form of Specimen Financial Institution Sales
Contract -- Incorporated by reference to Pre-
Effective Amendment No. 1 to the Registrant's
Registration Statement.
8. Not applicable.
9. Custodian Agreement with Putnam Fiduciary Trust
Company dated May 3, 1991, as amended July 13, 1992
-- Incorporated by reference to Post-Effective
Amendment No. 2 to the Registrant's Registration
Statement.
10a. Class A Distribution Plan and Agreement dated
January 8, 1993 -- Incorporated by reference to Pre-
Effective Amendment No. 1 to the Registrant's
Registration Statement.
10b. Class B Distribution Plan and Agreement dated
January 8, 1993 -- Incorporated by reference to Pre-
Effective Amendment No. 1 to the Registrant's
Registration Statement.
10c. Class M Distribution Plan and Agreement dated March
31, 1995 -- Incorporated by reference to Post-
Effective Amendment No. 3 to the Registrant's
Registration Statement.
10d. Rule 18f-3 (d) Plan -- Incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's
Registration Statement.
11. Opinion of Ropes & Gray, including consent --
Exhibit 1.
12. Opinion of Ropes & Gray as to Tax Matters -- To be
filed by Post-Effective Amendment.
13. Investor Servicing Agreement dated June 3, 1991 with
Putnam Fiduciary Trust Company -- Incorporated by
reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.
14a. Consent of Price Waterhouse LLP Independent
Accountants to the Putnam Adjustable Rate U.S.
Government Fund -- Exhibit 2.
14b. Consent of Coopers & Lybrand L.L.P. Independent
Accountants to the Putnam Intermediate U.S.
Government Income Fund -- Exhibit 3.
15. Not applicable.
16a. Power of Attorney -- Exhibit 4.<PAGE>
17. Copy of Registrant's Declaration under Rule 24f-2 --
Incorporated by reference to Post-Effective
Amendment No. 4 to the Registrant's Registration
Statement on Form N-1A.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant agrees that prior to any
public reoffering of the securities registered through the
use of a prospectus which is a part of this Registration
Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) under the
Act, the reoffering prospectus will contain the
information called for by the applicable registration form
for reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other
items of the applicable form.
(b) The undersigned Registrant agrees that every
prospectus that is filed under paragraph (a) above will be
filed as a part of an amendment to this Registration
Statement and will not be used until the amendment is
effective, and that, in determining any liability under
the Act, each post-effective amendment shall be deemed to
be a new Registration Statement for the securities offered
therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of
them.
(c) The Registrant agrees to file an amendment to this
Registration Statement an opinion of counsel supporting
the tax consequences of the proposed reorganization within
a reasonable time after receipt of such opinion.
- - - - - - - - - - - - - - - - - - - -
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of
Putnam Intermediate U.S. Government Income Fund, is on file with
the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this Registration Statement has been
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 Registration Statement are
not binding upon any of the Trustees, officers, or shareholders
of the Registrant individually, but are binding only upon the
assets and property of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this 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 14th day of June, 1996.
PUTNAM INTERMEDIATE U.S. GOVERNMENT INCOME FUND
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement on Form N-14 has been signed below by
the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE
George Putnam President and Chairman of the Trustees;
Principal Executive Officer; Trustee
William F. Pounds Vice Chairman and Trustee
John D. Hughes Principal Financial Officer; Senior Vice
President; Treasurer
Paul G. Bucuvalas Principal Accounting Officer; Assistant
Treasurer
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
George Putnam, III Trustee
Eli Shapiro Trustee
A.J.C. Smith Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver, as
Attorney-in-Fact
June 18, 1996
Ropes & Gray
One International Place
Boston, Massachusetts 02110
June
18,
1996
Putnam Intermediate U.S. Government Income Fund
One Post Office Square
Boston, Massachusetts 02109
Ladies and Gentlemen:
We have acted as counsel to Putnam Intermediate U.S.
Government Income Fund (the "Fund") in connection with the
Registration Statement of the Fund on Form N-14 (the
"Registration Statement"), under the Securities Act of 1933, as
amended (the "Act"), relating to the proposed combination of the
Fund with Putnam Adjustable Rate U.S. Government Fund (the
"Adjustable Rate Fund"), and the issuance of shares of the Fund
in connection therewith (the "Shares"), all in accordance with
the terms of the Agreement and Plan of Reorganization between the
Fund and the Adjustable Rate Fund
dated
as of June
7,
1996 (the
"Agreement").
We have examined the Fund's Agreement and Declaration of
Trust on file in the office of the Secretary of State of The
Commonwealth of Massachusetts and the Clerk of the City of Boston
and the Fund's By-Laws, as amended, and are familiar with the
actions taken by the Fund's Trustees in connection with the
issuance and sale of the Shares. We have also examined such
other documents and records as we have deemed necessary for the
purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Fund is a duly organized and validly existing
unincorporated association under the laws of The
Commonwealth of Massachusetts and is authorized to issue an
unlimited number of its shares of beneficial interest.
2. The Shares have been duly authorized and, when issued in
accordance with the Agreement, will be validly issued, fully
paid,
and nonassessable by the Fund.
<PAGE>
Putnam Intermediate
U.S. Government Income Fund -2- June 18, 1996
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 note, bond, contract,
instrument, certificate, or undertaking 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 solely by reason of his being or having been a
shareholder. Thus, the risk of a shareholder's incurring
financial loss on account of being a shareholder 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 Act. We consent to the filing of this opinion
with and as part of the Registration Statement and to the
references to our firm in the related prospectus under the
caption "Information about the reorganization -- Federal income
tax consequences."
Very truly yours,
/s/Ropes & Gray
Ropes & Gray
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus/Proxy Statement and Statement of Additional
Information constituting parts of this Registration Statement of
Putnam Intermediate U.S. Government Income Fund on Form N-14
(File No. 33-37991) of our report dated December 15, 1995
relating to the financial statements and financial highlights
appearing in the October 31, 1995 Annual Report of Putnam
Adjustable Rate U.S. Government Fund, which financial statements
and financial highlights are incorporated by reference into the
Registration Statement. We also consent to the references to us
under the heading "Independent Accountants and Financial
Statements" in the Statement of Additional Information and in
clauses 2(c), 8(d) and 8(r) of Exhibit A to the Prospectus/Proxy
Statement. We also consent to the references to us under the
headings "Financial Highlights" and "Independent Accountants and
Financial Statements" in the Prospectus and Statement of
Additional Information of Putnam Adjustable Rate U.S. Government
Fund which are also incorporated by reference into the
Registration Statement.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
June 12, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus
and Statement of Additional Information constituting parts of the
Registration Statement of Putnam Intermediate U.S. Government
Income Fund on Form N-14 of our report dated January 15, 1996, on
our audit of the financial statements and financial highlights of
the Fund, which report is included in the Annual Report for
Putnam Intermediate U.S. Government Income Fund for the year
ended November 30, 1995, which is incorporated by reference in
the Registration Statement.
We also consent to the reference to our firm under the caption
"Independent Accountants and Financial Statements" in the
Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 14, 1996
POWER OF ATTORNEY
We, the undersigned Officers and Trustees of Putnam
Intermediate U.S. Government Income Fund, hereby severally
constitute and appoint George Putnam, Charles E. Porter, Gordon
H. Silver, Edward A. Benjamin, Timothy W. Diggins and John W.
Gerstmayr, and each of them singly, our true and lawful
attorneys, with full power to them and each of them, to sign for
us, and in our names and in the capacities indicated below, the
Registration Statement on Form N-14 of Putnam Intermediate U.S.
Government Income Fund and any and all amendments (including
post-effective amendments) to said Registration Statement and to
file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto our said attorneys, and each of them
acting alone, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in the
premises, as fully to all intents and purposes as he or she might
or could do in person, and hereby ratify and confirm all that
said attorneys or any of them may lawfully do or cause to be done
by virtue thereof.
WITNESS our hands and common seal on the date set forth
below.
Signature Title Date
/s/ George Putnam
- --------------------- Principal Executive May 15, 1996
George Putnam Officer; President
and Chairman of the
Trustees
/s/ John D. Hughes
- --------------------- Principal Financial May 15, 1996
John D. Hughes Officer; Treasurer
/s/ Paul G. Bucuvalas
- -------------------- Principal Accounting
Paul G. Bucuvalas Officer; Assistant May 15, 1996
Treasurer
/s/ Jameson A. Baxter
- --------------------- Trustee May 15, 1996
Jameson A. Baxter
/s/ Hans H. Estin
- --------------------- Trustee May 15, 1996
Hans H. Estin
/s/ John A. Hill
- --------------------- Trustee May 15, 1996
John A. Hill
/s/ Ronald J. Jackson
- --------------------- Trustee May 15, 1996
Ronald J. Jackson
/s/ Elizabeth T. Kennan
- --------------------- Trustee May 15, 1996
Elizabeth T. Kennan
/s/ Lawrence J. Lasser
- --------------------- Trustee May 15, 1996
Lawrence J. Lasser
/s/ Robert E. Patterson
- --------------------- Trustee May 15, 1996
Robert E. Patterson
/s/ Donald S. Perkins
- --------------------- Trustee May 15, 1996
Donald S. Perkins
/s/ William F. Pounds
- --------------------- Trustee May 15, 1996
William F. Pounds
/s/ George Putna, III
- --------------------- Trustee May 15, 1996
George Putnam, III
/s/ Eli Shapiro
- --------------------- Trustee May 15, 1996
Eli Shapiro
/s/ A.J.C. Smith
- --------------------- Trustee May 15, 1996
A.J.C. Smith
/s/ W. Nicholas Thorndike
- --------------------- Trustee May 15, 1996
W. Nicholas Thorndike
