As filed with the Securities and Exchange Commission on
August 2, 1995
Registration No. 33-49583
811-7061
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 3 / X /
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940 ----
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Amendment No. 4 / X /
(Check appropriate box or boxes) ----
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PUTNAM CAPITAL APPRECIATION FUND
(Exact name of registrant as specified in charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
(617) 292-1000
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<PAGE>
It is proposed that this filing will become effective
(check appropriate box)
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/ / immediately upon filing pursuant to paragraph (b)
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/ / on pursuant to paragraph (b)
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/ / 60 days after filing pursuant to paragraph
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/ X /on October 1, 1995 pursuant to paragraph (a)
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/ / 75 days after filing pursuant to paragraph (a)(2)
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/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
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/ / this post-effective amendment designates a new
- ---- effective date for a previously filed post-effective
amendment.
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JOHN R. VERANI, Vice President
PUTNAM CAPITAL APPRECIATION 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
The Registrant has registered an indefinite number or amount
of securities under the Securities Act of 1933 pursuant to Rule
24f-2. A Rule 24f-2 notice for the fiscal year ended May 31,
1995 was filed on July 28, 1995 .
<PAGE>
PUTNAM CAPITAL APPRECIATION FUND
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
PART A
N-1A ITEM NO. LOCATION
1. Cover Page....................... Cover Page
2. Synopsis......................... Expenses summary
3. Condensed Financial Information.. Financial highlights;
How performance is shown
4. General Description of
Registrant....................... Objective; How objective
is pursued; Organization
and history
5. Management of the Fund........... Expenses summary; How
the fund is
managed; About Putnam
Investments, Inc.
5A. Management's Discussion
of Fund Performance............. (Contained in the
annual report of
the Registrant)
6. Capital Stock and Other
Securities....................... Cover page ;
Organization and
history; How
distributions are made;
tax information
7. Purchase of Securities Being
Offered.......................... How to buy shares;
Distribution
plans ; How to
sell shares; How to
exchange shares; How the
fund values its
shares
8. Redemption or Repurchase......... How to buy shares; How
to sell shares; How to
exchange shares;
Organization and history
9. Pending Legal Proceedings........ Not applicable
PART B
N-1A ITEM NO. LOCATION
10. Cover Page....................... Cover page
11. Table of Contents................ Cover page
12. General Information and History.. Organization and history
(Part A)
13. Investment Objectives and
Policies......................... How objective is pursued
(Part A); Investment
restrictions;
Miscellaneous
investment
practices
14. Management of the Registrant..... Management
(Trustees;
Officers); Additional
officers
15. Control Persons and Principal
Holders of Securities............ Management
(Trustees;
Officers);
Charges and
expenses
(Ownership of fund
shares)
16. Investment Advisory and Other
Services......................... Management
(Trustees;
Officers; The
management
contract; Principal
underwriter; Investor
servicing agent and
custodian); Charges
and expenses ;
Distribution
plans; Independent
accountants and
financial statements
17. Brokerage Allocation............. Management
(Portfolio
transactions);
Charges and
expenses
18. Capital Stock and Other
Securities....................... Organization and history
(Part A); How
distributions are made;
tax information (Part A);
Suspension of
redemptions
19. Purchase, Redemption and Pricing
of Securities Being Offered...... How to buy shares (Part
A); How to sell shares
(Part A); How to exchange
shares (Part A); How to
buy shares;
Determination of net
asset value;
Suspension of
redemptions
20. Tax Status....................... How distributions are
made; tax information
(Part A); Taxes
21. Underwriters..................... Management
(Principal
underwriter);
Charges and
expenses
22. Calculation of Performance Data.. How performance is shown
(Part A); Investment
performance;
Standard performance
measures
23. Financial Statements............. Independent
accountants and
financial statements
PART C
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C of the
Registration Statement.
<PAGE>
PROSPECTUS
OCTOBER 1, 1995
PUTNAM CAPITAL APPRECIATION FUND
CLASS A , B AND M SHARES
INVESTMENT STRATEGY: GROWTH
This prospectus explains concisely what you should know
before investing in Putnam Capital Appreciation Fund (the
"fund") . Please read it carefully and keep it for future
reference. You can find more detailed information in the
October 1, 1995 statement of additional information (the
"SAI") , as amended from time to time. For a free copy of the
SAI or other information, call Putnam Investor Services at
1-800-225-1581. The SAI has been filed with the Securities
and Exchange Commission and is incorporated into this
prospectus by reference.
The fund may close to new investments from time to time,
if deemed appropriate by Putnam Management due to unavailability
of portfolio investments suitable for the fund .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED .
BOSTON * LONDON * TOKYO
<PAGE>
ABOUT THE FUND
EXPENSES SUMMARY 4
.............................................................
This section describes the sales charges, management fees, and
annual operating expenses that apply to the fund's various
classes of shares. Use it to help you estimate the impact of
transaction costs on your investment over time.
FINANCIAL HIGHLIGHTS 5
.............................................................
Study this table to see, among other things, how the fund
performed each year for the past 10 years or since it began
investment operations if it has been in operation for less than
10 years.
OBJECTIVE 7
.............................................................
Read this section to make sure the fund's objective is consistent
with your own.
HOW THE FUND PURSUES ITS OBJECTIVE 7
.............................................................
This section explains in detail how the fund seeks its investment
objective .
RISK FACTORS. 9
.............................................................
All investments entail some risk. Read this section to make sure
you understand certain risks that may be involved when investing
in the fund.
HOW PERFORMANCE IS SHOWN 12
..............................................................
This section describes and defines the measures used to assess
the fund's performance. All data are based on the fund's past
investment results and do not predict future performance.
HOW THE FUND IS MANAGED 13
..............................................................
Consult this section for information about the fund's management,
allocation of the fund's expenses, and how purchases and sales of
securities are made for the fund .
ORGANIZATION AND HISTORY 13
..............................................................
In this section, you will learn when the fund was introduced, how
it is organized, how it may offer shares, and who its Trustees
are .
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS 15
..............................................................
Read this section for descriptions of the classes of shares this
prospectus offers and for points you should consider when making
your choice.
HOW TO BUY SHARES 16
..............................................................
This section describes the ways you may purchase shares and tells
you the minimum amounts required to open various types of
accounts. It explains how sales charges are determined and how
you may become eligible for reduced sales charges on each class
of shares.
DISTRIBUTION PLANS 20
..............................................................
This section tells you what distribution fees are charged against
each class of shares.
HOW TO SELL SHARES 22
..............................................................
In this section you can learn how to sell shares of the fund,
either directly to the fund or through an investment dealer .
HOW TO EXCHANGE SHARES 23
..............................................................
Find out in this section how you may exchange shares of the fund
for shares of other Putnam funds. The section also explains how
exchanges can be made without sales charges and the conditions
under which sales charges may be required.
HOW THE FUND VALUES ITS SHARES 24
..............................................................
This section explains how the fund determines the value of its
shares.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS;
TAX INFORMATION 24
..............................................................
This section describes the various options you have in choosing
how to receive dividends from the fund. It also discusses the
federal tax status of the payments and counsels shareholders to
seek specific advice about their own situation .
ABOUT PUTNAM INVESTMENTS, INC. 25
Read this section to learn more about the companies that
provide the marketing, investment management, and shareholder
account services to Putnam funds and their shareholders.
<PAGE>
ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing
. The following table summarizes your maximum transaction
costs from investing in the fund and expenses incurred
in the most recent fiscal year. The examples show
the cumulative expenses attributable to a hypothetical $1,000
investment over specified periods.
CLASS A CLASS B CLASS M
SHARES SHARES SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 5.75% NONE* 3.50%*
Deferred sales charge 5.0% in the first
(as a percentage year, declining
of the lower of to 1.0% in the
original purchase sixth year, and
price or redemption eliminated
proceeds) NONE** thereafter
NONE
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Total
fund
Management 12b-1 Other operating
fees fees expenses expenses
--------- ----- -------- --------
Class A 0.65% 0.25% 0.23% 1.13%
Class B 0.65% 1.00% 0.23% 1.88%
Class M 0.65% 0.75% 0.23% 1.63%
The table is provided to help you understand the expenses of
investing in the fund and your share of the operating
expenses that the fund incurs. The management fees and "Other
expenses" in the table reflect the termination of an
expense limitation in effect during the last fiscal year.
The 12b-1 fees for class A, class B and class M shares reflect
amounts currently payable under each distribution plan. For
class B and class M shares, management fees and "Other expenses"
are based on the corresponding expenses for class A shares.
<PAGE>
EXAMPLES
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and , except as indicated,
redemption at the end of each period:
1 3 5 10
year years years years
CLASS A $68 $91 $114 $187
CLASS B $69 $89 $122
$201***
CLASS B (NO REDEMPTION) $19 $59 $102 $201***
CLASS M $51 $85 $121 $222
The examples do not represent past or future expense
levels. Actual expenses may be greater or less than those
shown. Federal regulations require the examples to assume
a 5% annual return, but actual annual return varies .
* The higher 12b-1 fees borne by class B and
class M shares may cause long-term shareholders to
pay more than the economic equivalent of the maximum
permitted front-end sales charge on class A
shares .
** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of class A shares that were
purchased without an initial sales charge as part of an
investment of $1 million or more. See "How to buy
shares -- Class A shares."
*** Reflects conversion of class B shares to class A
shares (which pay lower ongoing expenses)
approximately eight years after purchase. See
"Alternative sales arrangements."
FINANCIAL HIGHLIGHTS
The following table presents per share financial
information for class A and B shares. No class
M shares were outstanding during these periods . This
information has been audited and reported on by the fund's
independent accountants. The " Report of independent
accountants" and financial statements included in the
fund's annual report to shareholders for the 1995
fiscal year are incorporated by reference into this
prospectus. The fund's annual report , which contains
additional unaudited performance information, is available
without charge upon request.
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 2, 1994 AUGUST 5, 1993
(COMMENCEMENT OF (COMMENCEMENT OF
OPERATIONS) TO YEAR ENDED OPERATIONS) TO
MAY 31 MAY 31 MAY 31
1995 1995 1994
CLASS B CLASS A
NET ASSET VALUE,
BEGINNING OF PERIOD $11.08 $10.74 $8.53
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .06 .06 .07(A)(B)
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 1.20 1.59 2.27
TOTAL FROM INVESTMENT
OPERATIONS 1.26 1.65 2.34
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME (.03) (.03) (.04)
FROM NET REALIZED GAIN
ON INVESTMENTS (.10) (.10) (.09)
IN EXCESS OF REALIZED GAIN
ON INVESTMENTS (.02) (.02) --
TOTAL DISTRIBUTIONS (.15) (.15) (.13)
NET ASSET VALUE, END
OF PERIOD $12.19 $12.24 $10.74
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(C) 11.55(D) 15.61 27.58(D)
NET ASSETS, END OF
PERIOD (IN THOUSANDS) $89,962 $103,555 $3,062
RATIO OF EXPENSES TO
AVERAGE NET ASSETS (%)1.12(B)(D) 1.13(B) .78(B)(D)
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET ASSETS(%) .65(D) 1.89 .73(B)(D)
PORTFOLIO TURNOVER (%) 15.32 15.32 102.99(D)
[FN]
(A) PER SHARE NET INVESTMENT INCOME FOR THE PERIOD ENDED MAY
31, 1994 HAS BEEN DETERMINED ON THE BASIS OF THE WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD.
(B) REFLECTS AN EXPENSE LIMITATION DURING THE PERIOD. AS A
RESULT OF THIS LIMITATION, EXPENSES OF THE FUND FOR THE
PERIOD ENDED MAY 31, 1994 REFLECT A REDUCTION OF $0.11 PER
SHARE. FOR THE PERIOD ENDED MAY 31, 1995 THE REDUCTION WAS LESS
THAN $0.01 PER SHARE FOR BOTH CLASS A AND CLASS B.
(C) TOTAL INVESTMENT RETURN ASSUMES DIVIDEND REINVESTMENT
AND DOES NOT REFLECT THE EFFECTS OF SALES CHARGES.
(D) NOT ANNUALIZED.
OBJECTIVE
PUTNAM CAPITAL APPRECIATION FUND SEEKS CAPITAL APPRECIATION.
Current income is only an incidental consideration in selecting
investments for the fund. The fund is not intended
to be a complete investment program, and there is no assurance it
will achieve its objective.
HOW THE FUND PURSUES ITS OBJECTIVE
BASIC INVESTMENT STRATEGY
UNDER NORMAL MARKET CONDITIONS, THE FUND INVESTS AT LEAST
65% OF ITS TOTAL ASSETS IN COMMON STOCKS THAT OFFER POTENTIAL FOR
CAPITAL APPRECIATION. In selecting such securities for the
fund , Putnam Investment Management, Inc., the
fund's investment manager ("Putnam Management"), will
consider, among other things, an issuer's financial strength,
competitive position and projected future earnings and dividends.
Although common stocks will normally be the fund's
principal investments, the fund may also purchase
convertible bonds, convertible preferred stocks, preferred stocks
and debt securities if Putnam Management believes they would help
achieve the fund's objective. The fund may also
hold a portion of its assets in cash or money market instruments.
The fund will not limit its investments to any particular
type of company. It may invest in companies, large or small,
whose earnings are believed to be in a relatively strong growth
trend, or in companies in which significant further growth is not
anticipated but whose market value per share is thought to be
undervalued. It may invest in small and relatively less well-
known companies. Smaller companies may present greater
opportunities for capital appreciation, but may also involve
greater risks. They may have limited product lines, markets or
financial resources, or may depend on a limited management group.
Their securities may trade less frequently and in limited volume.
As a result, the prices of these securities may fluctuate more
than prices of securities of larger, more established companies.
At times Putnam Management may judge that conditions in the
securities markets make pursuing the fund's basic
investment strategy inconsistent with the best interests of its
shareholders. At such times, Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of the fund's assets. In
implementing these "defensive" strategies, the fund may
invest primarily in debt securities, preferred stocks, U.S.
government and agency obligations, cash or money market
instruments, or in other securities Putnam Management
considers consistent with such defensive strategies. It is
impossible to predict when, or for how long, the fund will
use these alternative strategies.
FOREIGN INVESTMENTS
THE FUND MAY INVEST UP TO 20% OF ITS ASSETS IN SECURITIES
PRINCIPALLY TRADED IN FOREIGN MARKETS. The fund may also
purchase Eurodollar certificates of deposit without regard to the
20% limit. Since foreign securities are normally denominated and
traded in foreign currencies, the values of fund assets
may be affected favorably or unfavorably by currency exchange
rates and exchange control regulations. There may be less
information publicly available about a foreign company than about
a U.S. company, and foreign companies are not generally subject
to accounting, auditing , and financial reporting standards
and practices comparable with those in the United
States.
The securities of some foreign companies are less liquid and
at times more volatile than securities of comparable U.S.
companies . Foreign brokerage commissions and other fees
are also generally higher than those in the United States.
Foreign settlement procedures and trade regulations may involve
certain risks (such as delay in payment or delivery of securities
or in the recovery of fund assets held abroad) and
expenses not present in the settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial
instability and diplomatic developments that could affect
the value of investments in certain foreign
countries .
Legal remedies available to investors in certain foreign
countries may be more limited than those available with respect
to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit
investments in securities of certain issuers located in
those foreign countries. Special tax considerations apply to
foreign securities.
The risks described above are typically increased for
investments in securities principally traded in, or issued by
issuers located in, underdeveloped and developing nations, which
are sometimes referred to as "emerging markets."
The fund may buy or sell foreign currencies, futures
contracts, foreign currency forward contracts and call
options on foreign currencies for hedging purposes in connection
with its foreign investments.
A MORE DETAILED EXPLANATION OF FOREIGN INVESTMENTS, AND THE RISKS
AND SPECIAL TAX CONSIDERATIONS ASSOCIATED WITH THEM, IS INCLUDED
IN THE SAI .
PORTFOLIO TURNOVER
The length of time the fund has held a particular security
is not generally a consideration in investment decisions. A
change in the securities held by the fund is known as
"portfolio turnover." As a result of the fund's
investment policies, under certain market conditions the
fund's portfolio turnover rate may be higher than that of
other mutual funds.
Portfolio turnover generally involves some expense to the
fund , including brokerage commissions or dealer
markups and other transaction costs on the sale of
securities and reinvestment in other securities. These
transactions may result in realization of taxable capital gains.
Portfolio turnover rates for the life of the
fund are shown in the section , "Financial
highlights."
STOCK INDEX FUTURES AND OPTIONS
THE FUND MAY BUY AND SELL STOCK INDEX FUTURES CONTRACTS
. An "index future" is a contract to buy or sell units of
a particular stock index at an agreed price on a specified future
date. Depending on the change in value of the index between the
time the fund enters into and terminates an index
future transaction, the fund realizes a gain or
loss. In addition to or as an alternative to purchasing or
selling index futures, the fund may buy and sell call and put
options on index futures or stock indexes. The fund may
engage in index futures and options transactions for
hedging purposes and for nonhedging purposes, such as to earn
additional income.
THE USE OF INDEX FUTURES AND RELATED OPTIONS INVOLVES CERTAIN
SPECIAL RISKS. FUTURES AND OPTIONS TRANSACTIONS INVOLVE COSTS
AND MAY RESULT IN LOSSES.
Certain risks arise because of the possibility of imperfect
correlations between movements in the prices of index futures and
options and movements in the prices of the underlying stock index
or of the portfolio securities that are the
subject of a hedge. The successful use of the strategies
described above further depends on Putnam Management's ability to
forecast market movements correctly.
Other risks arise from the potential inability to
close out index futures or options positions .
There can be no assurance that a liquid secondary market will
exist for any index future or option at any particular time.
The use of futures and options transactions for purposes other
than hedging entails greater risks. Certain provisions of the
Internal Revenue Code and certain regulatory requirements may
limit the use of index futures and options transactions.
A MORE DETAILED EXPLANATION OF INDEX FUTURES AND OPTIONS
TRANSACTIONS, INCLUDING THE RISKS ASSOCIATED WITH THEM, IS
INCLUDED IN THE SAI.
RISK FACTORS
INVESTMENTS IN FIXED-INCOME SECURITIES. The fund may
invest in both higher-rated and lower-rated fixed-income
securities, and is not subject to any restrictions based
on credit ratings . The values of fixed-income
securities generally fluctuate in response to changes in interest
rates. Thus, a decrease in interest rates will generally result
in an increase in the value of the Fund's assets. Conversely,
during periods of rising interest rates, the value of the Fund's
assets will generally decline. The values of lower-rated fixed
income securities, commonly known as "junk bonds," generally
fluctuate more than those of higher-rated fixed income
securities. Securities in the lower rating categories may,
depending on the rating, have large uncertainties or major risk
exposure to adverse conditions. The rating services'
descriptions of securities in the various rating categories,
including the speculative characteristics of securities in the
lower rating categories, are set forth in the Statement of
Additional Information.
The lower ratings of these securities reflect a greater
possibility that adverse changes in the financial condition of
their issuers, or in general economic conditions, or both, or an
unanticipated rise in interest rates, may impair the ability of
their issuers to make payments of interest and principal. In
addition, under such circumstances the values of such securities
may be more volatile, and the markets for such securities may be
less liquid, than those for higher-rated securities, and the Fund
may as a result find it more difficult to determine the fair
value of such securities. When the Fund invests in securities in
the lower rating categories, the achievement of the Fund's goals
is more dependent on Putnam Management's ability than would be
the case if the Fund were investing in securities in the higher
rating categories.
OTHER INVESTMENT PRACTICES
THE FUND MAY ALSO ENGAGE IN THE FOLLOWING
INVESTMENT PRACTICES, EACH OF WHICH INVOLVES CERTAIN SPECIAL
RISKS. THE SAI CONTAINS MORE DETAILED INFORMATION ABOUT
THESE PRACTICES, INCLUDING LIMITATIONS DESIGNED TO REDUCE THESE
RISKS.
OPTIONS. The fund may seek to increase its current return
by writing covered call and put options on securities it
owns or in which it may invest. The fund receives a
premium from writing a call or put option, which increases the
return if the option expires unexercised or is closed out
at a net profit.
When the fund writes a call option, it gives up the
opportunity to profit from any increase in the price of a
security above the exercise price of the option; when it writes a
put option, the fund takes the risk that it will be
required to purchase a security from the option holder at a price
above the current market price of the security. The fund
may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in
which it purchases an option having the same terms as the option
written.
The fund may also buy and sell put and call options
for hedging purposes. From time to time , the fund may
also buy and sell combinations of put and call options on the
same underlying security to earn additional income. The
aggregate value of the securities underlying the options
may not exceed 25% of fund assets. The
use of these strategies may be limited by applicable law.
SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS.
The fund may lend portfolio securities amounting to not
more than 25% of its assets to broker-dealers and may enter into
repurchase agreements on up to 25% of its assets. These
transactions must be fully collateralized at all times. The
fund may also purchase securities for future delivery,
which may increase its overall investment exposure and involves a
risk of loss if the value of the securities declines prior to the
settlement date. These transactions involve some risk to the
fund if the other party should default on its obligation
and the fund is delayed or prevented from recovering the
collateral or completing the transaction.
DIVERSIFICATION
The fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets the fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government securities). The remaining 25% of the fund's total
assets is not subject to this restriction. To the extent the
fund invests a significant portion of its assets in the
securities of a particular issuer, the fund will be subject to an
increased risk of loss if the market value of such issuer's
securities declines.
DERIVATIVES
Certain of the instruments in which the fund will invest, such as
futures contracts, options and forward contracts, are considered
to be "derivatives." Derivatives are financial instruments whose
value depends upon, or is derived from, the value of an
underlying asset, such as a security or an index. Further
information about these instruments and the risk involved in
their use is included elsewhere in this prospectus and in the
SAI.
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT
INVESTMENT RISKS FOR ITS SHAREHOLDERS. These restrictions
prohibit the fund from acquiring more than 10% of
the voting securities of any one issuer .* They also prohibit
the fund from investing more than:
(a) (with respect to 75% of its total assets) 5% of its total
assets in securities of any one issuer (other than the U.S.
government);*
(b) 15% of its net assets in securities restricted as to
resale (excluding securities determined by the fund's Trustees
(or the person designated by the fund's Trustees to make such
determinations) to be readily marketable);*
(c) 25% of its total assets in any one industry (other than
U.S. government securities);*
(d) 5% of its net assets in warrants or more than 2% of its
net assets in warrants not listed on the New York or American
Stock Exchanges; or
(e) 15% of its net assets in any combination of securities
that are not readily marketable, in securities restricted as to
resale (excluding securities determined by the fund's
Trustees (or the person designated by the fund's Trustees
to make such determinations) to be readily marketable), and in
repurchase agreements maturing in more than seven days.
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the SAI for
the full text of these policies and the fund's other
fundamental investment policies. Except for investment
policies designated as fundamental in this prospectus or
the SAI , the investment policies described in this
prospectus and in the SAI are not fundamental
policies. The Trustees may change any non-fundamental investment
policies without shareholder approval. As a matter of policy,
the Trustees would not materially change the fund's
investment objective without shareholder approval.
HOW PERFORMANCE IS SHOWN
THE FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE
INCLUDED IN ADVERTISEMENTS ABOUT THE FUND . "Total return"
for the one-, five- and ten-year periods (or for the life of a
class, if shorter) through the most recent calendar quarter
represents the average annual compounded rate of return on an
investment of $1,000 in the fund invested at the maximum
public offering price (in the case of class A and class
M shares) or reflecting the deduction of any applicable
contingent deferred sales charge (in the case of class B
shares). Total return may also be presented for other periods or
based on investment at reduced sales charge levels. Any
quotation of investment performance not reflecting the maximum
initial sales charge or contingent deferred sales charge would be
reduced if the sales charge were used.
ALL DATA ARE BASED ON PAST INVESTMENT RESULTS AND
DO NOT PREDICT FUTURE PERFORMANCE.
Investment performance, which will vary, is based on many
factors, including market conditions, the composition of the
fund's portfolio, the fund's operating expenses and
which class of shares the investor purchases . Investment
performance also often reflects the risks associated with the
fund's investment objective and policies. These factors
should be considered when comparing the fund's investment
results with those of other mutual funds and other
investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The fund's performance
may be compared to that of various indexes. See
the SAI .
HOW THE FUND IS MANAGED
THE TRUSTEES OF THE FUND ARE RESPONSIBLE FOR GENERALLY
OVERSEEING THE CONDUCT OF THE FUND'S BUSINESS. Subject to
such policies as the Trustees may determine, Putnam Management
furnishes a continuing investment program for the fund and
makes investment decisions on its behalf. Subject to the control
of the Trustees, Putnam Management also manages the fund's
other affairs and business.
The fund pays Putnam Management a quarterly fee for these
services based on the fund's average net assets. See "Expenses
summary" and the SAI.
The following officers of Putnam Management have had
primary responsibility for the day-to-day management of the
fund's portfolio since the year stated below:
Year Recent experience
---- -----------------
Gerald S. Zukowski 1993 Employed by Putnam
Senior Vice President Management since 1989 .
Michael J. Mufson 1994 Employed by Putnam
Vice President Management since
1993.
Prior to June 1993, Mr.
Mufson was Senior Equity
Analyst at Stein Roe &
Farnham.
The fund pays all expenses not assumed by Putnam
Management, including Trustees' fees, auditing, legal, custodial,
investor servicing and shareholder reporting expenses, and
payments under its distribution plans (which are in turn
allocated to the relevant class of shares). The fund also
reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff
who provide administrative services to the fund . The
total reimbursement is determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of
the fund's securities. In selecting broker-dealers,
Putnam Management may consider research and brokerage services
furnished to it and its affiliates. Subject to seeking the most
favorable price and execution available, Putnam Management may
consider sales of shares of the fund (and, if permitted by
law, of the other Putnam funds) as a factor in the selection of
broker-dealers.
ORGANIZATION AND HISTORY
Putnam Capital Appreciation Fund is a Massachusetts business
trust organized on May 4, 1993. A copy of the Agreement and
Declaration of Trust, which is governed by Massachusetts law, is
on file with the Secretary of State of The Commonwealth of
Massachusetts.
The fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the fund may be
divided without shareholder approval into two or more
series of shares representing separate investment portfolios.
Any such series of shares may be divided without
shareholder approval into two or more classes of shares having
such preferences and special or relative rights and privileges as
the Trustees determine. The fund's shares are currently
divided into three classes.
Each share has one vote, with fractional shares voting
proportionally. Shares of each class will vote together as a
single class except when otherwise required by law or as
determined by the Trustees. Shares are freely transferable, are
entitled to dividends as declared by the Trustees, and, if the
fund were liquidated, would receive the net assets of the
fund. The fund may suspend the sale of shares at
any time and may refuse any order to purchase shares. Although
the fund is not required to hold annual meetings of its
shareholders, shareholders holding at least 10% of the
outstanding shares entitled to vote have the right to call a
meeting to elect or remove Trustees, or to take other actions as
provided in the Agreement and Declaration of Trust.
If you own fewer shares than a minimum amount set by the Trustees
(presently 20 shares), the fund may choose to redeem your
shares . You will receive at least 30 days' written notice
before the fund redeems your shares, and you may purchase
additional shares at any time to avoid a redemption. The
fund may also redeem shares if you own shares above a
maximum amount set by the Trustees. There is presently no
maximum, but the Trustees may establish one at any time, which
could apply to both present and future shareholders.
THE FUND'S TRUSTEES: GEORGE PUTNAM,* CHAIRMAN. President
of the Putnam funds. Chairman and Director of Putnam Management
and Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; WILLIAM F. POUNDS, VICE
CHAIRMAN. Professor of Management, Alfred P. Sloan School of
Management, Massachusetts Institute of Technology ; JAMESON
ADKINS BAXTER, President, Baxter Associates, Inc.; HANS H. ESTIN,
Vice Chairman, North American Management Corp. ; JOHN A.
HILL, Principal and Managing Director, First Reserve Corporation;
ELIZABETH T. KENNAN, President Emeritus and Professor ,
Mount Holyoke College; LAWRENCE J. LASSER,* Vice President of the
Putnam funds. President, Chief Executive Officer and Director of
Putnam Investments, Inc. and Putnam Management. Director, Marsh
& McLennan Companies, Inc.; ROBERT E. PATTERSON, Executive Vice
President, Cabot Partners Limited Partnership; DONALD S.
PERKINS, * Director of various corporations, including
AT&T, Kmart Corporation and Time Warner Inc.; GEORGE
PUTNAM, III,* President, New Generation Research, Inc. ; ELI
SHAPIRO, Alfred P. Sloan Professor of Management, Emeritus,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology ; A.J.C. SMITH,* Chairman, Chief Executive Officer
and Director, Marsh & McLennan Companies, Inc. ; and W.
NICHOLAS THORNDIKE, Director of various corporations and
charitable organizations, including Data General Corporation,
Bradley Real Estate, Inc. and Providence Journal Co. Also,
Trustee of Massachusetts General Hospital and Eastern
Utilities Associates. The fund's Trustees are also
Trustees of the other Putnam funds. Those marked with an
asterisk (*) are or may be deemed to be "interested
persons" of the fund , Putnam Management or Putnam Mutual
Funds.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
This prospectus offers investors three classes of
shares that bear sales charges in different forms and
amounts and that bear different levels of expenses:
CLASS A SHARES. An investor who purchases class A shares
pays a sales charge at the time of purchase. As a result,
class A shares are not subject to any charges when they
are redeemed , except for sales at net asset value in
excess of $1 million that are subject to a contingent
deferred sales charge ("CDSC") . Certain purchases of
class A shares qualify for reduced sales charges. Class A
shares bear a lower 12b-1 fee than class B and
class M shares. See "How to buy shares -- Class A
shares " and "Distribution plans."
CLASS B SHARES. Class B shares are sold without an initial sales
charge, but are subject to a CDSC if redeemed within a
specified period after purchase . Class B shares also bear a
higher 12b-1 fee than class A and class M shares. Class B
shares automatically convert into class A shares,
based on relative net asset value, approximately eight years
after purchase. For more information about the conversion of
class B shares, see the SAI. This discussion will include
information about how shares acquired through reinvestment of
distributions are treated for conversion purposes. The
discussion will also note certain circumstances under which a
conversion may not occur. Class B shares provide an investor
the benefit of putting all of the investor's dollars to work from
the time the investment is made . Until conversion, class B
shares will have a higher expense ratio and pay lower
dividends than class A and class M shares
because of the higher 12b-1 fee. See "How to buy shares -
- - Class B shares " and "Distribution plans."
CLASS M SHARES. An investor who purchases class M shares pays a
sales charge at the time of purchase that is lower than the sales
charge applicable to class A shares. Certain purchases of class
M shares qualify for reduced sales charges. Class M shares bear
a 12b-1 fee that is lower than class B shares but higher than
class A shares. Class M shares are not subject to any CDSC and
do not convert into any other class of shares. See "How to buy
shares -- Class M shares" and "Distribution plans."
WHICH ARRANGEMENT IS BEST FOR YOU? The decision as to
which class of shares provides a more suitable investment for an
investor depends on a number of factors, including the amount and
intended length of the investment. Investors making investments
that qualify for reduced sales charges might consider
class A or class M shares. Investors who prefer
not to pay an initial sales charge might consider class B
shares. Orders for class B shares for $250,000 or more
will be treated as orders for class A shares or declined.
For more information about these sales arrangements, consult your
investment dealer or Putnam Investor Services. Sales personnel
may receive different compensation depending on which class of
shares they sell. Shares may only be exchanged for shares of the
same class of another Putnam fund. See "How to exchange shares."
HOW TO BUY SHARES
You can open a fund account with as little as $500 and
make additional investments at any time with as little as $50.
You can buy fund shares three ways - through most
investment dealers, through Putnam Mutual Funds (at 1-800-225-
1581), or through a systematic investment plan. If you do not
have a dealer, Putnam Mutual Funds can refer you to one.
BUYING SHARES THROUGH PUTNAM MUTUAL FUNDS. Complete an order
form and write a check for the amount you wish to
invest, payable to the fund. Return the completed form
and check to Putnam Mutual Funds, which will act as your
agent in purchasing shares through your designated investment
dealer.
BUYING SHARES THROUGH SYSTEMATIC INVESTING. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking account. Application forms are available
from your investment dealer or through Putnam Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange to receive that
day's public offering price.
CLASS A SHARES
The public offering price of class A shares is the net
asset value plus a sales charge that varies depending on
the size of your purchase . The fund receives the net asset
value. The sales charge is allocated between your investment
dealer and Putnam Mutual Funds as shown in the following table,
except when Putnam Mutual Funds, in its discretion, allocates the
entire amount to your investment dealer.
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED
TO
NET DEALERS
AS A
AMOUNT OF TRANSACTION AMOUNT OFFERING PERCENTAGE
OF
AT OFFERING PRICE ($) INVESTED PRICE OFFERING
PRICE
- -----------------------------------------------------------------
Under 50,000 6.10% 5.75% 5.00%
50,000 under 100,000 4.71
4.50 3.75
100,000 under 250,0003.63 3.50 2.75
250,000 under 500,0002.56 2.50 2.00
500,000 under 1,000,000 2.04 2.00 1.75
There is no initial sales charge on purchases of
class A shares of $1 million or more. However, a
CDSC of 1.00% or 0.50%, respectively, will be
imposed if you redeem these shares within the first or
second year after purchase, based on the lower of the shares'
cost and current net asset value. Any shares acquired by
reinvestment of distributions will be redeemed without a CDSC.
Shares purchased by certain investors investing $1 million
or more who have made arrangements with Putnam Mutual
Funds and whose dealer of record waived the commission as
described below are not subject to the CDSC. In
determining whether a CDSC is payable, the fund will first
redeem shares not subject to any charge. Putnam Mutual Funds
receives the entire amount of any CDSC you pay. See the
SAI for more information about the CDSC.
Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of class A shares
of $1 million or more based on an investor's cumulative purchases
during the one-year period beginning with the date of the initial
purchase at net asset value . Each subsequent one-year
measuring period for these purposes will begin with
the first net asset value purchase following the end of the prior
period. Such commissions are paid at the rate of 1.00% of the
amount under $3 million, 0.50% of the next $47 million and 0.25%
thereafter.
On sales at net asset value to a participant-directed
qualified retirement plan initially investing less than $20
million in Putnam funds and other investments managed by Putnam
Management or its affiliates (including a plan sponsored by an
employer with more than 750 employees), Putnam Mutual Funds pays
commissions on cumulative purchases during the life of the
account at the rate of 1.00% of the amount under $3 million and
0.50% thereafter. On sales at net asset value to all other
participant-directed qualified retirement plans, Putnam Mutual
Funds pays commissions on the initial investment and on
subsequent net quarterly sales at the rate of 0.15%
CLASS B SHARES
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within a specified
period after purchase , as shown in the table below .
The following types of shares may be redeemed without charge at
any time: (i) shares acquired by reinvestment of distributions
and (ii) shares otherwise exempt from the CDSC, as described in
"How to buy shares - - General" below. For other shares,
the amount of the charge is determined as a percentage of the
lesser of the current market value or the cost of the shares
being redeemed.
Year 1 2 3 4 5 6 7+
- -------------------------------------- ---------------------
Charge 5% 4% 3% 3% 2% 1% 0%
In determining whether a CDSC is payable on any redemption, the
fund will first redeem shares not subject to any charge,
and then shares held longest during the CDSC period. For
this purpose, the amount of any increase in a share's value above
its initial purchase price is not regarded as a share exempt from
the CDSC. Thus, when a share that has appreciated
in value is redeemed during the CDSC period, a CDSC
is assessed only on its initial purchase price. For
information on how sales charges are calculated if you exchange
your shares, see "How to exchange shares." Putnam Mutual Funds
receives the entire amount of any CDSC you pay.
CLASS M SHARES
The public offering price of class M shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, at its discretion, allocates the entire amount to
your investment dealer.
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED TO
NET DEALERS AS A
AMOUNT OF TRANSACTION AMOUNT OFFERING PERCENTAGE OF
AT OFFERING PRICE ($) INVESTED PRICE OFFERING PRICE
- -----------------------------------------------------------------
Under 50,000 3.63% 3.50% 3.00%
50,000 under 100,000 2.56 2.50 2.00
100,000 under 250,000 1.52 1.50 1.00
250,000 under 500,000 1.01 1.00 1.00
500,000 under 1,000,000 NONE NONENONE
GENERAL
YOU MAY BE ELIGIBLE TO BUY CLASS A SHARES AND CLASS M SHARES
AT REDUCED SALES CHARGES.
Consult your investment dealer or Putnam Mutual Funds for details
about Putnam's combined purchase privilege, cumulative quantity
discount, statement of intention, group sales plan, employee
benefit plans, and other plans. Descriptions are also included
in the order form and in the SAI.
In addition, sales charges will not apply to class M shares
purchased with redemption proceeds received within the prior 90
days from non-Putnam mutual funds on which the investor paid a
front-end or contingent deferred sales charge.
The fund may sell class A, class B and class M shares
at net asset value without an initial sales charge or a CDSC to
the fund's current and retired Trustees (and their
families), current and retired employees (and their families) of
Putnam Management and affiliates, registered representatives and
other employees (and their families) of broker-dealers having
sales agreements with Putnam Mutual Funds, employees (and their
families) of financial institutions having sales agreements with
Putnam Mutual Funds (or otherwise having an arrangement with a
broker-dealer or financial institution with respect to sales of
fund shares), financial institution trust departments
investing an aggregate of $1 million or more in Putnam funds,
clients of certain administrators of tax-qualified plans,
employee benefit plans of companies with more than 750 employees,
tax-qualified plans when proceeds from repayments of loans to
participants are invested (or reinvested) in Putnam funds, "wrap
accounts" for the benefit of clients of broker-dealers, financial
institutions or financial planners adhering to certain standards
established by Putnam Mutual Funds, and investors meeting certain
requirements who sold shares of certain Putnam closed-end funds
pursuant to a tender offer by the closed-end fund.
In addition, the fund may sell shares at net asset
value without an initial sales charge or a CDSC in connection
with the acquisition by the fund of assets of an
investment company or a personal holding company, and the CDSC
will be waived on redemptions of shares arising out of death or
disability or in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of class B
shares subject to a systematic withdrawal plan may also be
redeemed each year without a CDSC. See the SAI .
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
shares of the fund at net asset value.
If you are considering redeeming or exchanging shares or
transferring shares to another person shortly after purchase, you
should pay for those shares with a certified check to avoid any
delay in redemption, exchange or transfer. Otherwise the
fund may delay payment until the purchase price of those
shares has been collected or, if you redeem by telephone, until
15 calendar days after the purchase date.
To eliminate the need for safekeeping, the fund will not
issue certificates for your shares unless you request them.
Putnam Mutual Funds will from time to time , at its
expense, provide additional promotional incentives or payments to
dealers that sell shares of the Putnam funds. These
incentives or payments may include payments for travel expenses,
including lodging, incurred in connection with trips taken by
invited registered representatives and their guests to locations
within and outside the United States for meetings or seminars of
a business nature. In some instances, these incentives or
payments may be offered only to certain dealers who have sold or
may sell significant amounts of shares. Certain dealers may not
sell all classes of shares.
DISTRIBUTION PLANS
CLASS A DISTRIBUTION PLAN. The class A plan
provides for payments by the fund to Putnam Mutual Funds
at the annual rate of up to 0.35% of the fund's average
net assets attributable to class A shares. The Trustees
currently limit payments under the class A plan to
the annual rate of 0.25% of such assets.
Putnam Mutual Funds makes quarterly payments to
qualifying dealers (including for this
purpose, certain financial institutions) to compensate
them for services provided in connection with sales of
class A shares and the maintenance of shareholders
accounts . The payments are based on the average
net asset value of class A shares attributable to
shareholders for whom the dealers are designated as the dealer of
record.
This calculation excludes until one year after purchase
shares purchased at net asset value , known as "NAV"
shares, by shareholders investing $1 million or more .
Also excluded until one year after purchase are NAV shares
purchased by participant-directed qualified retirement plans
sponsored by employers with more than 750 employees . NAV
shares are not subject to the one-year exclusion provision in
cases where certain shareholders who invested $1
million or more have made arrangements with Putnam Mutual
Funds and the dealer of record waived the sales
commission.
Except as stated below, Putnam Mutual Funds makes the
quarterly payments at the annual rate of 0.25% of such
average net asset value for class A shares.
For participant-directed qualified retirement plans initially
investing less than $20 million in Putnam funds and other
investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to qualifying dealers on NAV
shares are 100% of the rate stated above if average plan
assets in Putnam funds (excluding money market funds) during the
quarter are less than $20 million, 60% of the stated rate if
average plan assets are at least $20 million but under $30
million, and 40% of the stated rate if average plan assets are
$30 million or more.
For all other participant-directed qualified retirement plans
purchasing NAV shares , Putnam Mutual Funds makes quarterly
payments to qualifying dealers at the annual rate of 0.10% of the
average net asset value of such shares.
CLASS B AND CLASS M DISTRIBUTION PLANS. The class B and class
M plans provide for payments by the fund to Putnam
Mutual Funds at the annual rate of up to 1.00% of average
net assets attributable to class B shares and class M
shares, as the case may be. The Trustees currently limit
payments under the class M plan to the annual rate of 0.75% of
such assets .
Although class B shares are sold without an initial sales
charge, Putnam Mutual Funds pays a sales commission equal to
4.00% of the amount invested to dealers who sell class B
shares. These commissions are not paid on exchanges from other
Putnam funds or on sales to investors exempt from the
CDSC.
The amount paid to dealers at the time of the sale of class M
shares is set forth above under "How to buy shares -- class M
shares". In addition, to further compensate dealers
(including qualifying financial institutions) for services
provided in connection with sales of class B shares and class
M shares and the maintenance of shareholder accounts, Putnam
Mutual Funds makes quarterly payments to qualifying dealers .
The payments are based on the average net asset value of
class B shares and class M shares attributable to
shareholders for whom the dealers are designated as the dealer of
record. Putnam Mutual Funds makes the payments at an
annual rate of 0.25% of such average net asset value of class
B shares and class M shares, as the case may be.
Putnam Mutual Funds also pays to dealers, as additional
compensation with respect to the sale of class M shares, 0.40% of
such average net asset value of class M shares . For class
M shares, the total annual payment to dealers equals 0.65% of
such average net asset value.
GENERAL. Payments under the plans are intended to
compensate Putnam Mutual Funds for services provided and expenses
incurred by it as principal underwriter of fund shares,
including the payments to dealers mentioned above. Putnam Mutual
Funds may suspend or modify such payments to dealers.
The payments are also subject to the continuation of the
relevant distribution plan , the terms of service
agreements between dealers and Putnam Mutual Funds, and any
applicable limits imposed by the National Association of
Securities Dealers, Inc. Banks and other financial service
firms may be subject to various state laws regarding the services
described above, and may be required to register as dealers
pursuant to state law.
HOW TO SELL SHARES
You can sell your shares to the fund any day the New York
Stock Exchange is open, either directly to the fund or
through your investment dealer. The fund will only redeem
shares for which it has received payment.
SELLING SHARES DIRECTLY TO THE FUND . Send a signed letter
of instruction or stock power form to Putnam Investor Services,
along with any certificates that represent shares you want to
sell. The price you will receive is the next net asset value
calculated after the fund receives your request in proper
form less any applicable CDSC. In order to receive that day's
net asset value, Putnam Investor Services must receive your
request before the close of regular trading on the New York Stock
Exchange.
If you sell shares having a net asset value of $100,000 or
more, the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer or
certain other financial institutions. See the SAI for
more information about where to obtain a signature guarantee.
Stock power forms are available from your investment dealer,
Putnam Investor Services and many commercial banks.
If you want your redemption proceeds sent to an address other
than your address as it appears on Putnam's records, a signature
guarantee is required. Putnam Investor Services usually requires
additional documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
THE FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES THE
BUSINESS DAY AFTER YOUR REQUEST IS RECEIVED. Under unusual
circumstances, the fund may suspend redemptions, or
postpone payment for more than seven days, as permitted by
federal securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 from your account unless you have
notified Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on the
account application , Putnam Investor Services will be
authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming
to act as his or her representative, who can provide Putnam
Investor Services with his or her account registration and
address as it appears on Putnam Investor Services' records.
Putnam Investor Services will employ these and other
reasonable procedures to confirm that instructions communicated
by telephone are genuine; if it fails to employ reasonable
procedures, Putnam Investor Services may be liable for any losses
due to unauthorized or fraudulent instructions. For information,
consult Putnam Investor Services.
During periods of unusual market changes and shareholder
activity, you may experience delays in contacting Putnam Investor
Services by telephone . In this event you may wish to
submit a written redemption request, as described above, or
contact your investment dealer, as described below. The
Telephone Redemption Privilege is not available if you were
issued certificates for your shares that remain
outstanding. The Telephone Redemption Privilege may be modified
or terminated without notice.
SELLING SHARES THROUGH YOUR INVESTMENT DEALER. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange to receive that day's net asset value.
Your dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge
you for its services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same class of
certain other Putnam funds at net asset value beginning 15 days
after purchase. Not all Putnam funds offer all classes of
shares. If you exchange shares subject to a CDSC, the
transaction will not be subject to the CDSC. However, when you
redeem the shares acquired through the exchange, the redemption
may be subject to the CDSC, depending upon when you originally
purchased the shares . The CDSC will be computed using
the schedule of any fund into or from which you have exchanged
your shares that would result in your paying the highest CDSC
applicable to your class of shares. For purposes of computing
the CDSC, the length of time you have owned your shares will be
measured from the date of original purchase and will not be
affected by any exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services.
The form is available from Putnam Investor
Services. For federal income tax purposes, an exchange is
treated as a sale of shares and generally results in a capital
gain or loss. A Telephone Exchange Privilege is currently
available for amounts up to $500,000. Putnam Investor Services'
procedures for telephonic transactions are described above under
"How to sell shares." The Telephone Exchange Privilege is not
available if you were issued certificates for shares that
remain outstanding. Ask your investment dealer or Putnam
Investor Services for prospectuses of other Putnam funds. Shares
of certain Putnam funds are not available to residents of all
states.
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the Trustees
believe doing so would be in the best interests of the
fund, the fund reserves the right to revise or
terminate the exchange privilege, limit the amount or number of
exchanges or reject any exchange. Shareholders would be notified
of any such action to the extent required by law. Consult Putnam
Investor Services before requesting an exchange. See the
SAI to find out more about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH
CLASS BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS
LIABILITIES, BY THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE
VALUED AS OF THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK
EXCHANGE EACH DAY THE EXCHANGE IS OPEN.
Portfolio securities for which market quotations are readily
available are valued at market value. Short-term
investments that will mature in 60 days or less are stated at
amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following
procedures approved by the Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS ;
TAX INFORMATION
The fund distributes any net investment income and any net
realized capital gains at least annually. Distributions from net
investment income, if any, are expected to be small.
Distributions from net capital gains are made after applying any
available capital loss carryovers. Distributions paid on
class A shares will generally be greater than those paid
on class B and class M shares because expenses
attributable to class B and class M shares will
generally be higher.
YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS:
- Reinvest all distributions in additional shares
without a sales charge;
- Receive distributions from net investment income in cash
while reinvesting capital gains distributions in additional
shares without a sales charge; or
- Receive all distributions in cash.
You can change your distribution option by notifying Putnam
Investor Services in writing. If you do not select an option
when you open your account, all distributions will be reinvested.
All distributions not paid in cash will be reinvested in shares
of the class on which the distributions are paid. You
will receive a statement confirming reinvestment of distributions
in additional shares (or in shares of other Putnam funds
for Dividend Plus accounts) promptly following the quarter in
which reinvestment occurs.
If a check representing a fund distribution is not cashed
within a specified period, Putnam Investor Services will notify
you that you have the option of requesting another check or
reinvesting the distribution in the fund or in another
Putnam fund. If Putnam Investor Services does not receive your
election, the distribution will be reinvested in the fund .
Similarly, if correspondence sent by the fund or Putnam
Investor Services is returned as "undeliverable," fund
distributions will automatically be reinvested in the fund
or in another Putnam fund.
The fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gains it distributes to shareholders. The
fund will distribute substantially all of its ordinary
income and capital gain net income on a current basis.
All fund distributions will be taxable to you as ordinary
income, except that any distributions of net long-term capital
gains will be taxable as such, regardless of how long you have
held the shares. Distributions will be taxable as described
above whether received in cash or in shares through the
reinvestment of distributions.
Early in each year Putnam Investor Services will notify
you of the amount and tax status of distributions paid to you
for the preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in the fund . You should consult
your tax adviser to determine the precise effect of an investment
in the fund on your particular tax situation (including
possible liability for state and local taxes).
ABOUT PUTNAM INVESTMENTS, INC.
PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937.
Putnam Mutual Funds is the principal underwriter of the
fund and of other Putnam funds. Putnam Fiduciary Trust
Company is the fund's custodian. Putnam Investor
Services, a division of Putnam Fiduciary Trust Company, is the
fund's investor servicing and transfer agent.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., which is
wholly-owned by Marsh & McLennan Companies, Inc., a publicly -
owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
<PAGE>
PUTNAM CAPITAL APPRECIATION FUND
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
INVESTOR SERVICING AGENT
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
CUSTODIAN
Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581<PAGE>
PUTNAM CAPITAL APPRECIATION FUND
ONE POST OFFICE SQUARE, BOSTON, MA 02109
CLASS A SHARES
INVESTMENT STRATEGY: GROWTH
PROSPECTUS - OCTOBER
1, 1995
This prospectus explains concisely what you should know
before investing in class A shares of Putnam Capital
Appreciation Fund (the "fund") which are offered without a
sales charge through eligible employer-sponsored defined
contribution plans ("defined contribution plans"). Please read
it carefully and keep it for future reference. You can find more
detailed information about the fund in the October 1,
1995 statement of additional information (the "SAI") , as
amended from time to time. For a free copy of the SAI or
other information, including a prospectus regarding
class A shares for other investors, call Putnam
Investor Services at 1-800-752-9894. The SAI has been
filed with the Securities and Exchange Commission and is
incorporated into this prospectus by reference.
The fund may close to new investments from time to
time if deemed appropriate by Putnam Management due to
unavailability of portfolio investments suitable for the
fund .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PUTNAMINVESTMENTS
PUTNAM DEFINED
CONTRIBUTION PLANS
<PAGE>
ABOUT THE FUND
Expenses summary..................................... 2
Financial Highlights .................................
3
Objective............................................ 5
How objective is pursued............................. 5
Risk factors......................................... 7
How performance is shown............................. 9
How the fund is managed..............................
10
Organization and history............................. 11
ABOUT YOUR INVESTMENT
How to buy shares.................................... 12
Distribution Plan.................................... 13
How to sell shares................................... 14
How to exchange shares............................... 15
How shares are valued................................ 15
How distributions are made; tax information.......... 15
ABOUT PUTNAM INVESTMENTS, INC........................ 16
<PAGE>
ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing in
the fund . The following table summarizes expenses
attributable to class A shares, based on the fund's
most recent fiscal year. The example shows the
cumulative expenses attributable to a hypothetical $1,000
investment in class A shares of the fund over
specified periods.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.65%
12b-1 fees 0.25%
Other expenses 0.23%
Total fund operating expenses 1.13%
The table is provided to help you understand the expenses of
investing in the fund and your share of the operating
expenses that the fund incurs . The 12b-1 fees shown in
the table reflect the amount to which the Trustees currently
limit payments under the class A distribution plan.
EXAMPLE
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of each
period:
1 3 5 10
YEAR YEARS YEARS YEARS
$12 $36 $62 $137
The example does not represent past or future expense
levels, and actual expenses may be greater or less than those
shown. Federal regulations require the example to assume
a 5% annual return, but actual annual return varies. The
example does not reflect any charges or expenses related
to your employer's plan.
See "Organization and history" for information about any other
class of shares offered by the fund .
FINANCIAL HIGHLIGHTS
The following table presents per share financial
information for class A shares. This information has been
derived from the fund's financial statements, which have
been audited and reported on by the fund's independent
accountants. The " Report of independent
accountants" and financial statements included in the
fund's annual report to shareholders for the 1995
fiscal year are incorporated by reference into this
prospectus. The fund's annual report , which contains
additional unaudited performance information, is available
without charge upon request.
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
FOR THE PERIOD
AUGUST 5, 1993
(COMMENCEMENT OF
YEAR ENDEDOPERATIONS) TO
MAY 31 MAY 31
1995 1994
CLASS A
NET ASSET VALUE,
BEGINNING OF PERIOD $10.74 $8.53
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .06 .07(A)(B)
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 1.59 2.27
TOTAL FROM INVESTMENT
OPERATIONS 1.65 2.34
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME (.03) (.04)
FROM NET REALIZED GAIN
ON INVESTMENTS (.10) (.09)
IN EXCESS OF REALIZED GAIN
ON INVESTMENTS (.02) --
TOTAL DISTRIBUTIONS (.15) (.13)
NET ASSET VALUE, END
OF PERIOD $12.24 $10.74
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(C) 15.61 27.58(D)
NET ASSETS, END OF
PERIOD (IN THOUSANDS) $103,555 $3,062
RATIO OF EXPENSES TO
AVERAGE NET ASSETS (%) 1.13(B) .78(B)(D)
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET ASSETS(%) 1.89 .73(B)(D)
PORTFOLIO TURNOVER (%) 15.32 102.99(D)
[FN]
(A) PER SHARE NET INVESTMENT INCOME FOR THE PERIOD ENDED MAY
31, 1994 HAS BEEN DETERMINED ON THE BASIS OF THE WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD.
(B) REFLECTS AN EXPENSE LIMITATION DURING THE PERIOD. AS A
RESULT OF THIS LIMITATION, EXPENSES OF THE FUND FOR THE
PERIOD ENDED MAY 31, 1994 REFLECT A REDUCTION OF $0.11 PER
SHARE. FOR THE PERIOD ENDED MAY 31, 1995 THE REDUCTION WAS LESS
THAN $0.01 PER SHARE FOR BOTH CLASS A AND CLASS B.
(C) TOTAL INVESTMENT RETURN ASSUMES DIVIDEND REINVESTMENT
AND DOES NOT REFLECT THE EFFECTS OF SALES CHARGES.
(D) NOT ANNUALIZED. <PAGE>
OBJECTIVE
PUTNAM CAPITAL APPRECIATION FUND SEEKS CAPITAL APPRECIATION.
Current income is only an incidental consideration in selecting
investments for the fund. The fund is not intended
to be a complete investment program, and there is no assurance it
will achieve its objective.
HOW OBJECTIVE IS PURSUED
BASIC INVESTMENT STRATEGY
UNDER NORMAL MARKET CONDITIONS, THE FUND INVESTS AT LEAST
65% OF ITS TOTAL ASSETS IN COMMON STOCKS THAT OFFER POTENTIAL FOR
CAPITAL APPRECIATION. In selecting such securities for the
fund , Putnam Investment Management, Inc., the
fund's investment manager ("Putnam Management"), will
consider, among other things, an issuer's financial strength,
competitive position and projected future earnings and dividends.
Although common stocks will normally be the fund's
principal investments, the fund may also purchase
convertible bonds, convertible preferred stocks, preferred stocks
and debt securities if Putnam Management believes they would help
achieve the fund's objective. The fund may also
hold a portion of its assets in cash or money market instruments.
The fund will not limit its investments to any particular
type of company. It may invest in companies, large or small,
whose earnings are believed to be in a relatively strong growth
trend, or in companies in which significant further growth is not
anticipated but whose market value per share is thought to be
undervalued. It may invest in small and relatively less
well-known companies. Smaller companies may present greater
opportunities for capital appreciation, but may also involve
greater risks. They may have limited product lines, markets or
financial resources, or may depend on a limited management group.
Their securities may trade less frequently and in limited volume.
As a result, the prices of these securities may fluctuate more
than prices of securities of larger, more established companies.
At times Putnam Management may judge that conditions in the
securities markets make pursuing the fund's basic
investment
strategy inconsistent with the best interests of its
shareholders. At such times, Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of the fund's assets. In
implementing these "defensive" strategies, the fund may
invest primarily in debt securities, preferred stocks, U.S.
government and agency obligations, cash or money market
instruments, or in other securities Putnam Management
considers consistent with such defensive strategies. It is
impossible to predict when, or for how long, the fund will
use these alternative strategies.
FOREIGN INVESTMENTS
THE FUND MAY INVEST UP TO 20% OF ITS ASSETS IN SECURITIES
PRINCIPALLY TRADED IN FOREIGN MARKETS. The fund
may also purchase Eurodollar certificates of deposit
without regard to the 20% limit. Since foreign
securities are normally denominated and traded in foreign
currencies, the values of the fund's assets may be
affected favorably or unfavorably by currency exchange rates
and exchange control regulations. There may be less
information publicly available about a foreign company
than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing , and
financial reporting standards and practices comparable
with those in the United States.
The securities of some foreign companies are less
liquid and at times more volatile than securities of
comparable U.S. companies . Foreign brokerage commissions
and other fees are also generally higher than
those in the United States. Foreign settlement
procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities
or in the recovery of the fund's assets held abroad)
and expenses not present in the settlement of domestic
investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial
instability and diplomatic developments that could
affect the value of investments in certain
foreign countries .
Legal remedies available to investors in certain
foreign countries may be more limited than those
available with respect to investments in the United States
or in other foreign countries. The laws of some foreign
countries may limit investments in securities of
certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities.
The risks described above are typically increased for
investments in securities principally traded in, or issued by
issuers located in, underdeveloped and developing nations, which
are sometimes referred to as "emerging markets."
The fund may buy or sell foreign currencies, futures
contracts, foreign currency , forward contracts and
call options on foreign currencies for hedging purposes
in connection with its foreign investments.
A MORE DETAILED EXPLANATION OF FOREIGN INVESTMENTS, AND THE RISKS
AND SPECIAL TAX CONSIDERATIONS ASSOCIATED WITH THEM, IS
INCLUDED IN THE SAI .
PORTFOLIO TURNOVER
The length of time the fund has held a particular security
is not generally a consideration in investment decisions.
A change in the securities held by the fund is
known as "portfolio turnover." As a result of the
fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be
higher than that of other mutual funds.
Portfolio turnover generally involves some expense to
the fund , including brokerage commissions or
dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. These
transactions may result in realization of taxable capital
gains. Portfolio turnover rates for the life of
the fund are shown in the section "Financial
Highlights. "
STOCK INDEX FUTURES AND OPTIONS
THE FUND MAY BUY AND SELL STOCK INDEX FUTURES CONTRACTS
. An "index future" is a contract to buy or sell
units of a particular stock index at an agreed price on a
specified future date. Depending on the change in value of the
index between the time the fund enters
into and terminates an index future transaction,
the fund realizes a gain or loss. In addition
to or as an alternative to purchasing or selling index futures,
the fund may buy and sell call and put options on index
futures or stock indexes. The fund may engage in
index futures and options transactions for hedging
purposes and for nonhedging purposes, such as to earn
additional income.
THE USE OF INDEX FUTURES AND RELATED OPTIONS INVOLVES CERTAIN
SPECIAL RISKS. FUTURES AND OPTIONS TRANSACTIONS INVOLVE
COSTS AND MAY RESULT IN LOSSES.
Certain risks arise because of the possibility of
imperfect correlations between movements in the prices of
index futures and options and movements in the prices of
the underlying stock index or of the portfolio
securities that are the subject of a hedge. The
successful use of the strategies described above further
depends on Putnam Management's ability to forecast market
movements correctly.
Other risks arise from the potential inability to close
out index futures or options positions .
There can be no assurance that a liquid secondary
market will exist for any index future or option at any
particular time. The use of futures and options transactions
for purposes other than hedging entails greater risks.
Certain provisions of the Internal Revenue Code and
certain regulatory requirements may limit the use
of index futures and options transactions.
A MORE DETAILED EXPLANATION OF INDEX FUTURES AND OPTIONS
TRANSACTIONS, INCLUDING THE RISKS ASSOCIATED WITH THEM, IS
INCLUDED IN THE SAI.
RISK FACTORS
INVESTMENTS IN FIXED-INCOME SECURITIES. The fund may
invest in both higher-rated and lower-rated fixed-income
securities, and is not subject to any restrictions based
on credit ratings . The values of fixed-income
securities generally fluctuate in response to changes in interest
rates. Thus, a decrease in interest rates will generally
result in an increase in the value of the fund's
assets. Conversely, during periods of rising interest
rates, the value of the fund's assets will
generally decline. The values of lower-rated fixed
income securities, commonly known as "junk bonds," generally
fluctuate more than those of higher-rated fixed income
securities. Securities in the lower rating categories
may, depending on the rating, have large uncertainties or
major risk exposure to adverse conditions. The rating
services' descriptions of securities in the various
rating categories, including the speculative
characteristics of securities in the lower rating
categories, are set forth in the SAI .
The lower ratings of these securities reflect a greater
possibility that adverse changes in the financial condition of
their issuers, or in general economic conditions, or
both, or an unanticipated rise in interest rates, may
impair the ability of their issuers to make payments of
interest and principal. In addition, under such
circumstances the values of such securities may be more
volatile, and the markets for such securities may be less
liquid than those for higher-rated securities, and the
fund may as a result find it more difficult to
determine the fair value of such securities. When the
fund invests in securities in the lower rating
categories, the achievement of the fund's goals is
more dependent on Putnam Management's ability than would be
the case if the fund were investing in securities
in the higher rating categories.
<PAGE>
OTHER INVESTMENT PRACTICES
THE FUND MAY ALSO ENGAGE IN THE FOLLOWING
INVESTMENT PRACTICES, EACH OF WHICH INVOLVES CERTAIN SPECIAL
RISKS. THE SAI CONTAINS MORE DETAILED
INFORMATION ABOUT THESE PRACTICES, INCLUDING LIMITATIONS
DESIGNED TO REDUCE THESE RISKS.
OPTIONS. The fund may seek to increase its current return
by writing covered call and put options on securities it
owns or in which it may invest. The fund receives
a premium from writing a call or put option, which
increases the return if the option expires
unexercised or is closed out at a net profit.
When the fund writes a call option, it gives up the
opportunity to profit from any increase in the price of a
security above the exercise price of the option; when it
writes a put option, the fund takes the risk that
it will be required to purchase a security from the
option holder at a price above the current market price
of the security. The fund may terminate an option
that it has written prior to its expiration by entering
into a closing purchase transaction in which it purchases an
option having the same terms as the option written.
The fund may also buy and sell put and call
options for hedging purposes. From time to
time , the fund may also buy and sell combinations of put
and call options on the same underlying security to earn
additional income. The aggregate value of the securities
underlying the options may not exceed 25%
of fund assets. The use of these
strategies may be limited by applicable law.
SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS.
The fund may lend portfolio securities amounting
to not more than 25% of its assets to broker-dealers and
may enter into repurchase agreements on up to 25% of its
assets. These transactions must be fully collateralized
at all times. The fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement
date. These transactions involve some risk to the
fund if the other party should default on its
obligation and the fund is delayed or prevented
from recovering the collateral or completing the
transaction.
DIVERSIFICATION
The fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets the fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government securities). The remaining 25% of the fund's total
assets is not subject to this restriction. To the extent the
fund invests a significant portion of its assets in the
securities of a particular issuer, the fund will be subject to an
increased risk of loss if the market value of such issuer's
securities declines.
DERIVATIVES
Certain of the instruments in which the fund will invest, such as
futures contracts, options and forward contracts, are considered
to be "derivatives." Derivatives are financial instruments whose
value depends upon, or is derived from, the value of an
underlying asset, such as a security or an index. Further
information about these instruments and the risk involved in
their use is included elsewhere in this prospectus and in the
SAI.
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT
INVESTMENT RISKS FOR ITS SHAREHOLDERS. These
restrictions prohibit the fund from
acquiring more than 10% of the voting securities of any one
issuer* . They also prohibit the fund from
investing more than:
(a) (with respect to 75% of its total assets) 5% of
its total assets in securities of any one issuer (other
than the U.S. government);*
(b) 15% of its net assets in securities restricted as
to resale (excluding securities determined by the
fund's Trustees (or the person designated by the
fund's Trustees to make such determinations) to be
readily marketable);*
(c) 25% of its total assets in any one industry
(other than U.S. government securities);*
(d) 5% of its net assets in warrants or more than 2%
of its net assets in warrants not listed on the New York
or American Stock Exchanges; or
(e) 15% of its net assets in any combination of securities
that are not readily marketable, in securities restricted
as to resale (excluding securities determined by the
fund's Trustees (or the person designated by the
fund's Trustees to make such determinations) to be
readily marketable), and in repurchase agreements
maturing in more than seven days.
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the
SAI for the full text of these policies and the
fund's other fundamental investment
policies. Except for investment policies designated as
fundamental in this prospectus or the SAI ,
the investment policies described in this prospectus and
in the SAI are not fundamental policies. The Trustees may
change any non - fundamental investment policies
without shareholder approval. As a matter of policy, the
Trustees would not materially change the fund's
investment objective without shareholder approval.
HOW PERFORMANCE IS SHOWN
THE FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE
INCLUDED IN ADVERTISEMENTS ABOUT THE FUND . "Total
return" for the one-, five- and ten-year periods (or for
the life of the class A shares of the fund ,
if shorter) through the most recent calendar quarter represents
the average annual compounded rate of return on an
investment of $1,000 in the fund invested at the
maximum public offering price. Total return may also be
presented for other periods or based on investment at
reduced sales charge levels. Any quotation of investment
performance not reflecting the maximum initial sales
charge or contingent deferred sales charge would be reduced if
the sales charge were used.
ALL DATA ARE BASED ON PAST INVESTMENT RESULTS AND
DO NOT PREDICT FUTURE PERFORMANCE.
Investment performance, which will vary, is based on
many factors, including market conditions, the
composition of the fund's portfolio, the fund's
operating expenses and which class of shares the
investor purchases . Investment performance also
often reflects the risks associated with the fund's
investment objective and policies. These factors should
be considered when comparing the fund's investment results
with those of other mutual funds and other
investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if
the limitation had not been in effect. The fund's
performance may be compared to that of various
indexes. See the SAI . Because shares sold
through eligible defined contribution plans are sold
without a sales charge, quotations of investment
performance reflecting the deduction of a sales charge
will be lower than the actual investment performance on shares
purchased through such plans.
HOW THE FUND IS MANAGED
THE TRUSTEES OF THE FUND ARE RESPONSIBLE FOR GENERALLY
OVERSEEING THE CONDUCT OF THE FUND'S BUSINESS.
Subject to such policies as the Trustees may determine,
Putnam Management furnishes a continuing investment
program for the fund and makes investment
decisions on its behalf. Subject to the control of the Trustees,
Putnam Management also manages the fund's other
affairs and business.
The fund pays Putnam Management a quarterly fee for these
services based on the fund's average net assets. See "Expenses
summary" and the SAI.
The following officers of Putnam Management have
had primary responsibility for the day - to -
day management of the fund's portfolio since the
year stated below:
Year Recent experience
---- -----------------
Gerald S. Zukowski 1993 Employed by Putnam
Senior Vice President Management since 1989 .
Michael J. Mufson 1994 Employed by Putnam
Vice President Management since
1993 .
Prior to June 1993, Mr.
Mufson was Senior
Equity Analyst at Stein Roe &
Farnham.
The fund pays all expenses not assumed by Putnam
Management, including Trustees' fees, auditing, legal,
custodial, investor servicing and shareholder reporting
expenses, and payments under its distribution
plans (which are in turn allocated to the relevant
class of shares). The fund also reimburses Putnam
Management for the compensation and related expenses of certain
officers of the fund and their staff who provide
administrative services to the fund . The total
reimbursement is determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of
the fund's securities. In selecting
broker-dealers, Putnam Management may consider research
and brokerage services furnished to it and its
affiliates. Subject to seeking the most favorable price
and execution available, Putnam Management may consider
sales of shares of the fund (and, if permitted by law, of
the other Putnam funds) as a factor in the selection of
broker- dealers.
ORGANIZATION AND HISTORY
Putnam Capital Appreciation Fund is a Massachusetts business
trust organized on May 4, 1993. A copy of the Agreement
and Declaration of Trust, which is governed by
Massachusetts law, is on file with the Secretary of State
of The Commonwealth of Massachusetts.
The fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the fund may be
divided , without shareholder approval, into
two or more series of shares representing separate
investment portfolios.
Any such series of shares may be divided
without shareholder approval into two or more classes of
shares having such preferences and special or relative
rights and privileges as the Trustees determine. The
fund's shares are currently divided into three
classes.
Only the fund's class A shares are offered by this
prospectus. The fund also offers other
classes of shares with different sales charges and
expenses. Because of these different sales
charges and expenses , the investment performance of
the classes will vary. For more information, including your
eligibility to purchase any other class of shares, contact your
investment dealer or Putnam Mutual Funds (1-800-225-1581).
Each share has one vote, with fractional shares voting
proportionally. Shares of each class will vote together as a
single class except when required by law or as determined
by the Trustees. Shares are freely transferable, are
entitled to dividends as declared by the Trustees, and,
if the fund were liquidated, would receive the net
assets of the fund. The fund may suspend
the sale of shares at any time and may refuse any order
to purchase shares. Although the fund is not required to
hold annual meetings of its shareholders, shareholders
holding at least 10% of the outstanding shares entitled
to vote have the right to call a meeting to elect or
remove Trustees, or to take other actions as provided in
the Agreement and Declaration of Trust.
If you own fewer shares than a minimum amount set by the Trustees
(presently 20 shares), the fund may choose to
redeem your shares . You will receive at least 30 days'
written notice before the fund redeems your
shares, and you may purchase additional shares at any
time to avoid a redemption. The fund may also
redeem shares if you own shares above a maximum amount
set by the Trustees. There is presently no maximum, but the
Trustees may establish one at any time, which could apply
to both present and future shareholders.
THE FUND'S TRUSTEES: GEORGE PUTNAM,* CHAIRMAN. President
of the Putnam funds. Chairman and Director of Putnam
Management and Putnam Mutual Funds Corp. ("Putnam Mutual
Funds"). Director, Marsh & McLennan Companies, Inc.;
WILLIAM F. POUNDS, VICE CHAIRMAN. Professor of
Management, Alfred P. Sloan School of Management,
Massachusetts Institute of Technology ; JAMESON ADKINS
BAXTER, President, Baxter Associates, Inc.; HANS H.
ESTIN, Vice Chairman, North American Management Corp.;
JOHN A. HILL, Principal and Managing Director, First
Reserve Corporation; ELIZABETH T. KENNAN, President Emeritus
and Professor , Mount Holyoke College; LAWRENCE J.
LASSER,* Vice President of the Putnam funds. President,
Chief Executive Officer and Director of Putnam
Investments, Inc. and Putnam Management. Director, Marsh
& McLennan Companies, Inc.; ROBERT E. PATTERSON, Executive Vice
President, Cabot Partners Limited Partnership; DONALD S.
PERKINS, * Director of various corporations, including
AT&T, Kmart Corporation and Time Warner Inc.;
GEORGE PUTNAM, III,* President, New Generation Research,
Inc.; ELI SHAPIRO, Alfred P. Sloan Professor of Management,
Emeritus, Alfred P. Sloan School of Management, Massachusetts
Institute of Technology; A.J.C. SMITH,* Chairman, Chief
Executive Officer and Director, Marsh & McLennan
Companies, Inc. ; and W. NICHOLAS THORNDIKE, Director of
various corporations and charitable organizations,
including Data General Corporation, Bradley Real Estate, Inc.
and Providence Journal Co. Also, Trustee of
Massachusetts General Hospital and Eastern
Utilities Associates. The fund's Trustees are also
Trustees of the other Putnam funds. Those marked with an
asterisk (*) are or may be deemed to be "interested
persons" of the fund , Putnam Management or Putnam
Mutual Funds.
ABOUT YOUR INVESTMENT
HOW TO BUY SHARES
ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH YOUR
EMPLOYER'S DEFINED CONTRIBUTION PLAN. FOR MORE INFORMATION ABOUT
HOW TO PURCHASE SHARES OF THE FUND THROUGH YOUR
EMPLOYER'S PLAN OR LIMITATIONS ON THE AMOUNT THAT MAY BE
PURCHASED, PLEASE CONSULT YOUR EMPLOYER. Shares are sold
to eligible defined contribution plans at the net asset
value per share next determined after receipt of an order
by Putnam Mutual Funds. Orders must be received by
Putnam Mutual Funds before the close of regular trading
on the New York Stock Exchange in order to receive that
day's net asset value. In order to be eligible to purchase
shares at net asset value, defined contribution plans
must initially invest at least $1 million or be sponsored
by companies with more than 750 employees. Eligible
plans may make additional investments of any amount at
any time. To eliminate the need for safekeeping, the
fund will not issue certificates for your shares.
Sales personnel may receive different compensation
depending on which class of shares they sell.
On sales at net asset value to a participant-directed qualified
retirement plan initially investing less than $20 million
in Putnam funds and other investments managed by Putnam
Management or its affiliates (including a plan sponsored
by an employer with more than 750 employees), Putnam
Mutual Funds pays commissions on cumulative purchases
during the life of the account at the rate of 1.00% of
the amount under $3 million and 0.50% thereafter. On
sales at net asset value to all other participant-directed
qualified retirement plans, Putnam Mutual Funds pays
commissions on the initial investment and on subsequent
net quarterly sales at the rate of 0.15%. Putnam Mutual
Funds will from time to time , at its expense,
provide additional promotional incentives or payments to dealers
that sell shares of the Putnam funds. These
incentives or payments may include payments for travel expenses,
including lodging, incurred in connection with trips taken by
invited registered representatives and their guests to locations
within and outside the United States for meetings or seminars of
a business nature. In some instances, these
incentives or payments may be offered only to certain dealers who
have sold or may sell significant amounts of shares.
Certain dealers may not sell all classes of shares. In some
instances, these incentives or payments may be offered only to
certain dealers who have sold or may sell significant amounts of
shares.
DISTRIBUTION PLAN
CLASS A DISTRIBUTION PLAN. The class A plan
provides for payments by the fund to Putnam Mutual
Funds at the annual rate of up to 0.35% of the fund's
average net assets attributable to class A shares.
The Trustees currently limit payments under the
class A plan to the annual rate of 0.25% of
such assets.
Putnam Mutual Funds makes quarterly payments to
qualifying dealers (including for this
purpose, certain financial institutions) to compensate
them for services provided in connection with sales
of class A shares and the maintenance of
shareholder accounts . The payments are
based on the average net asset value of class A
shares attributable to shareholders for whom the
dealers are designated as the dealer of record.
This calculation excludes until one year after purchase
shares purchased at net asset value , known as "NAV"
shares, by shareholders investing $1 million or more
. Also excluded until one year after purchase are NAV shares
purchased by participant - directed qualified retirement
plans sponsored by employers with more than 750
employees . NAV shares are not subject to the
one-year exclusion provision in cases where certain
shareholders who invested $1 million or more
have made arrangements with Putnam Mutual Funds
and the dealer of record waived the sales commission.
Except as stated below, Putnam Mutual Funds makes the
quarterly payments at the annual rate of 0.25% of
such average net asset value for class A shares.
For participant - directed qualified retirement
plans initially investing less than $20 million in Putnam funds
and other investments managed by Putnam Management or its
affiliates, Putnam Mutual Funds' payments to qualifying
dealers on NAV shares are 100% of the rate stated
above if average plan assets in Putnam funds (excluding
money market funds) during the quarter are less than $20
million, 60% of the stated rate if average plan assets
are at least $20 million but under $30 million,
and 40% of the stated rate if average plan assets are $30
million or more.
For all other participant - directed qualified
retirement plans purchasing NAV shares , Putnam Mutual
Funds makes quarterly payments to qualifying dealers at
the annual rate of 0.10% of the average net asset value
of such shares.
Payments under the plan are intended to compensate Putnam
Mutual Funds for services provided and expenses incurred
by it as principal underwriter of fund shares,
including the payments to dealers mentioned above.
Putnam Mutual Funds may suspend or modify such payments
to dealers.
The payments are also subject to the continuation
of the distribution plan , the terms of service
agreements between dealers and Putnam Mutual Funds,
and any applicable limits imposed by the National
Association of Securities Dealers, Inc. Banks and other
financial service firms may be subject to various state laws
regarding the services described above, and may be required to
register as dealers pursuant to state law.
HOW TO SELL SHARES
SUBJECT TO ANY RESTRICTIONS IMPOSED BY YOUR EMPLOYER'S PLAN, YOU
CAN SELL YOUR SHARES THROUGH THE PLAN TO THE FUND
ANY DAY THE NEW YORK STOCK EXCHANGE IS OPEN. For more
information about how to sell shares of the fund
through your employer's plan, including any charges that
may be imposed by the plan, please consult with your
employer.
Your plan administrator must send a signed letter of instruction
to Putnam Investor Services. The price you will receive
is the next net asset value calculated after the
fund receives your request in proper form. All
requests must be received by the fund prior to the close
of regular trading on the New York Stock Exchange in
order to receive that day's net asset value. If your plan
sells shares having a net asset value of $100,000 or
more, the signatures of registered owners or their legal
representatives must be guaranteed by a bank,
broker-dealer or certain other financial institutions.
See the SAI for more information about where to
obtain a signature guarantee.
THE FUND GENERALLY PROVIDES PAYMENT FOR REDEEMED SHARES
THE BUSINESS DAY AFTER THE REQUEST IS RECEIVED. Under
unusual circumstances, the fund may suspend
redemptions, or postpone payment for more than seven
days, as permitted by federal securities law. The
fund will only redeem shares for which it has
received payment.
HOW TO EXCHANGE SHARES
Subject to any restrictions contained in your plan, you can
exchange your shares for shares of other Putnam funds
available through your plan at net asset value. Contact
your plan administrator or Putnam Investor Services on
how to exchange your shares or how to obtain prospectuses
of other Putnam funds in which you may invest. Shares of
certain Putnam funds are not available to residents of
all states.
The exchange privilege is not intended as a vehicle for short -
term trading. Excessive exchange activity may
interfere with portfolio management and have an adverse
effect on all shareholders. In order to limit excessive
exchange activity and in other circumstances where Putnam
Management or the Trustees believe doing so would be in
the best interests of the fund, the fund reserves
the right to revise or terminate the exchange privilege,
limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such action to
the extent required by law. Consult Putnam Investor
Services before requesting an exchange. See the
SAI to find out more about the exchange privilege.
HOW SHARES ARE VALUED
THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH
CLASS BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS
LIABILITIES, BY THE NUMBER OF ITS SHARES OUTSTANDING.
SHARES ARE VALUED AS OF THE CLOSE OF REGULAR TRADING ON
THE NEW YORK STOCK EXCHANGE EACH DAY THE EXCHANGE
IS OPEN.
Portfolio securities for which market quotations are
readily available are valued at market value.
Short - term investments that will mature in 60 days or less
are stated at amortized cost, which approximates market
value. All other securities and assets are valued at
their fair value following procedures approved by the
Trustees.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The fund distributes any net investment income and any net
realized capital gains at least annually. Distributions
from net investment income, if any, are expected to be
small. Distributions from net capital gains are made
after applying any available capital loss carryovers.
The terms of your plan will govern how your plan may receive
distributions from the fund . Generally, periodic
distributions from the fund to your plan are
reinvested in additional fund shares, although
your plan may permit you to receive fund distributions
from net investment income in cash while
reinvesting capital gains distributions in additional
shares or to receive all fund distributions
in cash. If another option is not selected, all
distributions will be reinvested in additional fund
shares.
The fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be
relieved of federal taxes on income and gains it
distributes. The fund will distribute
substantially all of its ordinary income and capital gain
net income on a current basis. Generally, fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be
taxed as such. However, distributions by the fund
to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax
laws will not be taxable. Special tax rules apply to
investments through such plans. You should consult your
tax adviser to determine the suitability of the fund
as an investment through such a plan and the tax
treatment of distributions (including distributions of
amounts attributable to an investment in the fund)
from such a plan.
The foregoing is a summary of certain federal income tax
consequences of investing in the fund . You should consult
your tax adviser to determine the precise effect of an
investment in the fund on your particular tax
situation (including possible liability for state and
local taxes).
ABOUT PUTNAM INVESTMENTS, INC.
PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937.
Putnam Mutual Funds is the principal underwriter of the
fund and of other Putnam funds. Putnam Defined
Contribution Plans is a division of Putnam Mutual Funds.
Putnam Fiduciary Trust Company is the fund's
custodian. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the fund's investor
servicing and transfer agent.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are located at One Post Office Square, Boston,
Massachusetts 02109 and are subsidiaries of Putnam
Investments, Inc., which is wholly owned by Marsh &
McLennan Companies, Inc., a publicly-owned holding
company whose principal businesses are international
insurance and reinsurance brokerage, employee benefit
consulting and investment management.
<PAGE>
PUTNAM CAPITAL APPRECIATION FUND
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
("SAI")
OCTOBER 1, 1995
This SAI is not a prospectus and is only authorized
for distribution when accompanied or preceded by the
prospectus of the fund dated October 1,
1995 , as revised from time to time. This SAI contains
information which may be useful to investors but which is not
included in the prospectus. If the fund has more
than one form of current prospectus , each reference to the
prospectus in this SAI shall include all of
the fund's prospectuses , unless otherwise noted. The
SAI should be read together with the applicable
prospectus . Investors may obtain a free copy of the
applicable prospectus from Putnam Investor Services,
Mailing address: P.O. Box 41203, Providence, RI 02940-1203.
Part I of this SAI contains specific information about the
fund . Part II includes information about the fund
and the other Putnam funds.
<PAGE>
TABLE OF CONTENTS
PART I
SECURITIES RATINGS. . . . . . . . . . . . . . . . . . . . . . . . . . .I-3
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . I-5
CHARGES AND EXPENSES. . . . . . . . . . . . . . . . . .I-8
INVESTMENT PERFORMANCE. . . . . . . . . . . . . . . . I-10
ADDITIONAL OFFICERS . . . . . . . . . . . . . . . . . I-13
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS. . . . . . . I-14
PART II
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-22
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . .II-27
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-36
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-38
DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . II- 49
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . II- 55
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . II- 55
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . II- 55
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . II- 56
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . II- 57
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . II- 62
SAI
PART I
SECURITIES RATINGS
The following rating services describe rated securities
as follows :
MOODY'S INVESTORS SERVICE, INC.
BONDS
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt- edged". Interest
payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of
such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat
larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper - medium -
grade obligations. Factors giving security to principal and
interest are considered adequate , but elements may be
present which suggest a susceptibility to impairment sometime in
the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations ( i.e., they are neither highly protected nor
poorly secured ) . Interest payments and principal security
appear adequate for the present but certain protective elements
may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well -
assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" to certain
of its rating classifications. The modifier "1" indicates that
the security ranks in the higher end of its generic rating
category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the issue ranks in the lower end of
its generic rating category.
STANDARD & POOR'S
BONDS
AAA -- Debt rated 'AAA' has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA -- Debt rated 'AA' has a very strong capacity to pay
interest and repay principal and differs from the higher rated
issues only in small degree.
A -- Debt rated 'A' has a strong capacity to pay interest
and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Debt rated 'BBB' is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
BB-B-CCC-CC-C -- Debt rated 'BB', 'B', 'CCC', 'CC' and 'C'
is regarded as having predominantly speculative
characteristics with respect to capacity to pay
interest and repay principal . 'BB' indicates the least
degree of speculation and 'C' the highest . While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB -- Debt rated 'BB' has less near-term vulnerability to
default than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial,
or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The 'BB' rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied 'BBB-' rating.
B -- Debt rated 'B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The 'B' rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied 'BB' or 'BB-' rating.
CCC -- Debt rated 'CCC' has a currently identifiable
vulnerability to default, and is dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.
The 'CCC' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied 'B' or 'B-'
rating.
CC -- The rating 'CC' typically is applied to debt subordinated
to senior debt that is assigned an actual or implied 'CCC'-
rating.
C -- The rating 'C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied 'CCC-' debt
rating. The 'C' rating may be used to cover a situation where
bankruptcy petition has been filed, but debt service payments are
continued.
D - - Bonds rated D are in payment default. The D
rating category is used when interest payments or principal
payments are not made on the date due even if the applicable
grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The D
rating also will be used on the filing of a bankruptcy petition
if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a
plus or minus to show relative standing within the major rating
categories.
INVESTMENT RESTRICTIONS
AS FUNDAMENTAL INVESTMENT RESTRICTIONS, WHICH MAY NOT BE CHANGED
WITHOUT A VOTE OF A MAJORITY OF THE OUTSTANDING VOTING
SECURITIES, THE FUND MAY NOT AND WILL NOT:
(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not
including the amount borrowed) at the time the borrowing is made,
and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such
borrowings will be repaid before any additional investments are
purchased.
(2) Pledge, hypothecate, mortgage or otherwise encumber its
assets in excess of 15% of its total assets (taken at current
value) and then only to secure borrowings permitted by
restriction 1 above. (The deposit of underlying securities and
other assets in escrow and collateral arrangements with respect
to margin for futures contracts and options is not deemed to be a
pledge or other encumbrance.)
(3) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and
sales of securities, and except that it may make margin payments
in connection with futures contracts and options.
(4) Make short sales of securities or maintain a short sale
position for the account of the fund unless at all times
when a short position is open it owns an equal amount of such
securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the
securities sold short.
(5) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws.
(6) Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities which
are secured by interests in real estate, and securities which
represent interests in real estate, and it may acquire and
dispose of real estate or interests in real estate acquired
through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein.
(7) Purchase or sell commodities or commodity contracts, except
that the fund may purchase and sell financial futures
contracts and options.
(8) Make loans, except by purchase of debt obligations in which
the fund may invest consistent with its investment
policies, or by entering into repurchase agreements with respect
to not more than 25% of its total assets (taken at current value)
or through the lending of its portfolio securities with respect
to not more than 25% of its assets.
(9) Invest in securities of any issuer if, to the knowledge of
the fund , officers and Trustees of the fund and
officers and directors of Putnam Management who beneficially own
more than 0.5% of the shares or securities of that issuer
together own more than 5%.
(10) With respect to 75% of its total assets, invest in
securities of any issuer if, immediately after such investment,
more than 5% of the total assets of the fund (taken at
current value) would be invested in the securities of such
issuer; provided that this limitation does not apply to
obligations issued or guaranteed as to interest or principal by
the U.S. government or its agencies or instrumentalities.
(11) Acquire more than 10% of the voting securities of any
issuer.
(12) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities) if, as a result of
such purchase, more than 25% of the fund's total assets
would be invested in any one industry.
(13) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, although it may purchase securities of issuers
which deal in, represent interests in, or are secured by
interests in such leases, rights, or contracts, and it may
acquire or dispose of such leases, rights, or contracts acquired
through the exercise of its rights as a holder of debt
obligations secured thereby.
(14) Purchase securities restricted as to resale, if, as a
result, such investments would exceed 15% of the value of the
fund's net assets, excluding restricted securities that
have been determined by the Trustees of the fund (or the
person designated by them to make such determinations) to be
readily marketable.
(15) Make investments for the purpose of gaining control of a
company's management.
(16) Issue any class of securities which is senior to the
fund's shares of beneficial interest.
IT IS CONTRARY TO THE FUND'S PRESENT POLICY, WHICH MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL, TO:
(1) Invest in (a) securities which at the time of such
investment are not readily marketable, (b) securities restricted
as to resale (excluding securities determined by the Trustees of
the fund (or the person designated by the Trustees of the
fund to make such determinations) to be readily
marketable), and (c) repurchase agreements maturing in more than
seven days, if, as a result, more than 15% of the fund's
net assets (taken at current value) would be invested in
securities described in (a), (b) and (c) above.
(2) Invest in warrants (other than warrants acquired by the
fund as a part of a unit or attached to securities at the
time of purchase) if, as a result, such investments (valued at
the lower of cost or market) would exceed 5% of the value of the
fund's net assets; provided that not more than 2% of the
fund's net assets may be invested in warrants not listed
on the New York or American Stock Exchanges.
(3) Invest in securities of any issuer if the party responsible
for payment, together with any predecessors, has been in
operation for less than three consecutive years and, as a result
of the investment, the aggregate of such investments would exceed
5% of the value of the fund's net assets; provided,
however, that this restriction shall not apply to any obligation
of the United States or its agencies or instrumentalities.
(4) Invest in the securities of other open-end registered
investment companies, except by purchase in the open market
including only customary brokers' commissions, and except as they
may be acquired as part of a merger or consolidation or
acquisition of assets.
Although certain of the fund's fundamental investment
restrictions permit it to borrow money to a limited
extent, it does not currently intend to do so and did not
do so last year. Although the fund may invest in debt
securities without restriction to credit rating, the
fund does not currently intend to invest more than 5% of
its net assets in debt securities rated lower than the five
highest grades assigned by Moody's Investors Service, Inc. (Aaa,
Aa, A, Baa or Ba) and Standard & Poor's (AAA, AA, A, BBB
or BB), or in unrated securities which Putnam Management
determines are of comparable quality. In the event of a
downgrade of a debt security owned by the fund, the
fund may either sell or continue to hold the security
based on Putnam Management's determination of the best course of
action.
---------------------
All percentage limitations on investments will apply at the time
of the making of an investment and shall not be considered
violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The Investment Company Act of 1940 provides that a "vote of a
majority of the outstanding voting securities" of the fund
means the affirmative vote of the lesser of (1) more than 50% of
the outstanding shares of that fund , or (2) 67% or more of
the shares present at a meeting if more than 50% of the
outstanding shares of the fund are represented at the
meeting in person or by proxy.
CHARGES AND EXPENSES
MANAGEMENT FEES
Under a Management Contract dated May 7, 1993, the fund
pays a quarterly fee to Putnam Management based on the average
net assets of the fund , as determined at the close of each
business day during the quarter, at the annual rate of
0.65% of the first $500 million of the fund's average net
assets, 0.55% of the next $500 million, 0.50% of the next $500
million and 0.45% of any amount over $1.5 billion. For the
past two fiscal years since the fund commenced operations
on August 5, 1993 , pursuant to the Management Contract, the
fund incurred the following fees:
REFLECTING A
REDUCTION IN THE
FOLLOWING AMOUNTS
FISCAL MANAGEMENT PURSUANT TO AN
YEAR FEE PAID EXPENSE LIMITATION
- ------ ---------- -----------------
1995 $395,267 $380,113
1994 $0 $13,632
BROKERAGE COMMISSIONS
The following table shows brokerage commissions paid during the
fiscal periods indicated.
FISCAL BROKERAGE
YEAR COMMISSIONS
------ -----------
1995 $
1994 $11,371
The following table shows transactions placed with brokers
and dealers during the most recent fiscal year to
recognize research, statistical and quotation services Putnam
Management considered to be particularly useful to it and its
affiliates.
DOLLAR VALUE PERCENT OF
OF THESE TOTAL AMOUNT OF
TRANSACTIONS TRANSACTIONS COMMISSIONS
------------ ------------ -----------
$ % $331,537
ADMINISTRATIVE EXPENSE REIMBURSEMENT
The fund reimbursed Putnam Management in the following amounts
for administrative services during fiscal 1995, including the
following amounts for compensation of certain officers of the
fund and contributions to the Putnam Investments, Inc. Profit
Sharing Retirement Plan for their benefit:
PORTION OF TOTAL
REIMBURSEMENT FOR
TOTAL COMPENSATION AND
REIMBURSEMENT CONTRIBUTIONS
------------- ----------------
$805 $757
TRUSTEE FEES
Each Trustee receives a fee for his or her services. Each
Trustee also receives fees for serving as Trustee of other Putnam
funds. The Trustees periodically review their fees to assure
that such fees continue to be appropriate in light of their
responsibilities as well as in relation to fees paid to trustees
of other mutual fund complexes. The Trustees meet monthly over a
two-day period, except in August. The Compensation Committee,
which consists solely of Trustees not affiliated with Putnam
Management and is responsible for recommending Trustee
compensation, estimates that Committee and Trustee meeting time
together with the appropriate preparation requires the equivalent
of at least three business days per Trustee meeting. The
following table shows the year each Trustee was first elected a
Trustee of the Putnam funds, the fees paid to each Trustee by the
fund for fiscal 1995 and the fees paid to each Trustee by all of
the Putnam funds during the calendar year 1995:
COMPENSATION TABLE
Total
Aggregate compensation
compensation from all
Trustees from the fund* Putnam funds**
- --------------------------------------------------------------
Jameson A. Baxter/1994 $232 $135,850
Hans H. Estin/1972 238 141,850
John A. Hill/1985 238 143,850
Elizabeth T. Kennan/1992 236 141,850
Lawrence J. Lasser/1992 238 141,850
Robert E. Patterson/1984 240 144,850
Donald S. Perkins/1982 237 139,850
William F. Pounds/1971 239 143,850
George Putnam/1957 238 141,850
George Putnam, III/1984 238 141,850
Eli Shapiro/1995*** - N/A
A.J.C. Smith/1986 236 137,850
W. Nicholas Thorndike/1992 240 144,850
* Includes an annual retainer and attendance fee for each
meeting attended.
** Reflects total payments received from all Putnam funds in
the most recent calendar year. As of December 31, 1994,
there were 86 funds in the Putnam family.
*** Elected as a Trustee in April 1995. For the calendar year
ended December 31, 1994, Dr. Shapiro received $38,577 in
retirement benefits from the Putnam funds in respect of his
prior service as a Trustee from 1984 to 1989, which benefits
terminated at the end of 1994.
The Trustees have approved Retirement Guidelines for Trustees of
the Putnam funds. These Guidelines provide generally that a
Trustee who retires after reaching age 72 and who has at least 10
years of continuous service will be eligible to receive a
retirement benefit from each Putnam fund for which he or she
served as a Trustee. The amount and form of such benefit is
subject to determination annually by the Trustees and, unless
otherwise determined by the Trustees, will be an annual cash
benefit payable for life equal to one-half of the Trustee
retainer fees paid by each fund at the time of retirement.
Several retired Trustees are currently receiving benefits
pursuant to the Guidelines and it is anticipated that the current
Trustees will receive similar benefits upon their retirement. A
Trustee who retired in calendar 1994 and was eligible to receive
benefits under these Guidelines would have received an annual
benefit of $60,425, based upon the aggregate retainer fees paid
by the Putnam funds for such year. The Trustees reserve the
right to amend or terminate such Guidelines and the related
payments at any time, and may modify or waive the foregoing
eligibility requirements when deemed appropriate.
For additional information concerning the Trustees, see
"Management of the Fund" in Part II of this SAI.
SHARE OWNERSHIP
At July 31, 1995, the officers and Trustees of the fund as a
group owned less than 1% of the outstanding shares of each class,
and to the knowledge of the fund no person owned of record or
beneficially 5% or more of the shares of any class of the fund.
DISTRIBUTION FEES
During fiscal 1995, the fund paid the following 12b-1 fees to
Putnam Mutual Funds:
CLASS ACLASS B
-------------
$84,775$266,028
No class M shares were outstanding during this period.
CLASS A SALES CHARGES AND CONTINGENT DEFERRED SALES CHARGES
Putnam Mutual Funds received sales charges with respect to class
A shares in the following amounts during the periods indicated:
SALES CHARGES
RETAINED BY PUTNAM CONTINGENT
MUTUAL FUNDS DEFERRED
TOTAL AFTER SALES
SALES CHARGESDEALER CONCESSIONS CHARGES
------------------------------- --------
fiscal 1995 $ $331,537 $0
fiscal 1994 $0 $0 $0
CLASS B CONTINGENT DEFERRED SALES CHARGES
Putnam Mutual Funds received contingent deferred sales charges
upon redemptions of class B shares in the following amounts
during the periods indicated:
CONTINGENT DEFERRED
SALES CHARGES
-------------------
fiscal 1995 $32,760
INVESTOR SERVICING AND CUSTODY FEES AND EXPENSES
During the 1995 fiscal year, the fund
incurred $ in fees and out-of-pocket expenses for
investor servicing and custody services provided by Putnam
Fiduciary Trust Company.
INVESTMENT PERFORMANCE
STANDARD PERFORMANCE MEASURES
(for periods ended May 31)
Class A Class B
TOTAL
RETURN NAV*
POP** NAV CDSC
- -----------------------------------------------------------------
1 year +15.61% +8.92% - -
Life of class +23.80% +19.84% +11.55% +6.55%
*net asset value
**public offering price
Data represent past performance and are not indicative of future
results. Total return at POP for class A shares reflects the
deduction of the maximum sales charge of 5.75%. Total
return at CDSC for class B shares reflects the deduction of the
applicable contingent deferred sales charge (CDSC). The maximum
class B CDSC is 5.0%. No class M shares were outstanding
during this period. See "Financial Highlights" in the
prospectus for the inception date of each class. See
"Standard performance measures " in Part II of this
SAI for information on how performance is
calculated. Past performance is no guarantee of future
results.
ADDITIONAL OFFICERS
In addition to the persons listed as officers of the fund
in Part II of this SAI , the following persons are also
officers of the fund and Vice President of certain of the
Putnam funds . Officers of Putnam Management hold the same
offices in Putnam Management's parent company, Putnam
Investments, Inc.
PETER CARMAN, Vice President. Senior Managing Director of Putnam
Management. Vice President of certain of the Putnam funds.
Prior to August, 1993, Mr. Carman was Chief Investment Officer,
Chairman of the U.S. Equity Investment Policy Committee and a
Director of Sanford C. Bernstein & Company, Inc.
JOHN J. MORGAN, JR., Vice President. Managing Director of Putnam
Management. Vice President of certain of the Putnam funds.
GERALD S. ZUKOWSKI, Vice President. Senior Vice President of
Putnam Management. Vice President of certain of the Putnam funds.
MICHAEL MUFSON, Vice President. Vice President of Putnam
Management. Vice President of certain of the Putnam funds.
Prior to June, 1993, Mr. Mufson was Senior Equity Analyst at
Stein Roe & Farnham.
BRETT BROWCHUK, Vice President. Managing Director of Putnam
Management. Prior to April, 1994, Mr. Browchuk was employed by
Fidelity Management & Research Company.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P. , One Post Office Square, Boston,
Massachusetts 02109 are the fund's independent
accountants, providing audit services, tax return review and
other tax consulting services and assistance and consultation in
connection with the review of various Securities and Exchange
Commission filings. The Report of Independent Accountants ,
financial highlights and financial statements included in the
fund's Annual Report for the fiscal year ended May
31, 1995 , filed electronically on July 27, 1995
(811-7061), are incorporated by reference into this SAI .
The financial highlights in the prospectus and incorporated by
reference into this SAI and the financial statements
incorporated by reference into the prospectus and this SAI
have been so included and incorporated in reliance upon the
report of the independent accountants, given on their authority
as experts in auditing and accounting.
<PAGE>
<PAGE>
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-22
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-27
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-36
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-38
DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-55
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-55
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-55
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-56
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-57
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-62
<PAGE>
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
PART II
The following information applies generally to your Fund and to
the other Putnam funds. In certain cases the discussion applies
to some but not all of the funds or their shareholders, and you
should refer to your Prospectus to determine whether the matter
is applicable to you or your Fund. You will also be referred to
Part I for certain information applicable to your particular
Fund. Shareholders who purchase shares at net asset value
through employer-sponsored defined contribution plans should also
consult their employer for information about the extent to which
the matters described below apply to them.
MISCELLANEOUS INVESTMENT PRACTICES
YOUR FUND'S PROSPECTUS STATES WHICH OF THE FOLLOWING INVESTMENT
PRACTICES ARE AVAILABLE TO YOUR FUND. THE FACT THAT YOUR FUND IS
AUTHORIZED TO ENGAGE IN A PARTICULAR PRACTICE DOES NOT
NECESSARILY MEAN THAT IT WILL ACTUALLY DO SO. YOU SHOULD
DISREGARD ANY PRACTICE DESCRIBED BELOW WHICH IS NOT MENTIONED IN
THE PROSPECTUS.
SHORT-TERM TRADING
In seeking the Fund's objective, Putnam Management will buy or
sell portfolio securities whenever Putnam Management believes it
appropriate to do so. In deciding whether to sell a portfolio
security, Putnam Management does not consider how long the Fund
has owned the security. From time to time the Fund will buy
securities intending to seek short-term trading profits. A
change in the securities held by the Fund is known as "portfolio
turnover" and generally involves some expense to the Fund. These
expenses may include brokerage commissions or dealer mark-ups and
other transaction costs on both the sale of securities and the
reinvestment of the proceeds in other securities. If sales of
portfolio securities cause the Fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As
a result of the Fund's investment policies, under certain market
conditions the Fund's portfolio turnover rate may be higher than
that of other mutual funds. Portfolio turnover rate for a fiscal
year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of
portfolio securities -- excluding securities whose maturities at
acquisition were one year or less. The Fund's portfolio turnover
rate is not a limiting factor when Putnam Management considers a
change in the Fund's portfolio.
<PAGE>
LOWER-RATED SECURITIES
The Fund may invest in lower-rated fixed-income securities
(commonly known as "junk bonds"), to the extent described in the
Prospectus. The lower ratings of certain securities held by the
Fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates,
may impair the ability of the issuer to make payments of interest
and principal. The inability (or perceived inability) of issuers
to make timely payment of interest and principal would likely
make the values of securities held by the Fund more volatile and
could limit the Fund's ability to sell its securities at prices
approximating the values the Fund had placed on such securities.
In the absence of a liquid trading market for securities held by
it, the Fund may be unable at times to establish the fair value
of such securities. The rating assigned to a security by Moody's
Investors Service, Inc. or Standard & Poor's Corporation (or by
any other nationally recognized securities rating organization)
does not reflect an assessment of the volatility of the
security's market value or the liquidity of an investment in the
security. See the Prospectus or Part I of this Statement for a
description of security ratings.
Like those of other fixed-income securities, the values of
lower-rated securities fluctuate in response to changes in
interest rates. Thus, a decrease in interest rates will
generally result in an increase in the value of the Fund's
assets. Conversely, during periods of rising interest rates, the
value of the Fund's assets will generally decline. In addition,
the values of such securities are also affected by changes in
general economic conditions and business conditions affecting the
specific industries of their issuers. Changes by recognized
rating services in their ratings of any fixed-income security and
in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments.
Changes in the value of portfolio securities generally will not
affect cash income derived from such securities, but will affect
the Fund's net asset value. The Fund will not necessarily
dispose of a security when its rating is reduced below its rating
at the time of purchase, although Putnam Management will monitor
the investment to determine whether its retention will assist in
meeting the Fund's investment objective.
At times, a substantial portion of the Fund's assets may be
invested in securities as to which the Fund, by itself or
together with other funds and accounts managed by Putnam
Management and its affiliates, holds a major portion or all of
such securities. Although Putnam Management generally considers
such securities to be liquid because of the availability of an
institutional market for such securities, it is possible that,
under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, the
Fund could find it more difficult to sell such securities when
Putnam Management believes it advisable to do so or may be able
to sell such securities only at prices lower than if such
securities were more widely held. Under such circumstances, it
may also be more difficult to determine the fair value of such
securities for purposes of computing the Fund's net asset value.
In order to enforce its rights in the event of a default under
such securities, the Fund may be required to take possession of
and manage assets securing the issuer's obligations on such
securities, which may increase the Fund's operating expenses and
adversely affect the Fund's net asset value. In the case of
tax-exempt funds, any income derived from the Fund's ownership or
operation of such assets would not be tax-exempt. In addition,
the Fund's intention to qualify as a "regulated investment
company" under the Internal Revenue Code may limit the extent to
which the Fund may exercise its rights by taking possession of
such assets.
Certain securities held by the Fund may permit the issuer at its
option to "call", or redeem, its securities. If an issuer were
to redeem securities held by the Fund during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
If the Fund's Prospectus describes so-called "zero-coupon" bonds
and "payment-in-kind" bonds as possible investments, the Fund may
invest without limit in such bonds unless otherwise specified in
the Prospectus. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in
cash or in additional bonds. Because zero-coupon bonds do not
pay current interest, their value is subject to greater
fluctuation in response to changes in market interest rates than
bonds which pay interest currently. Both zero-coupon and
payment-in-kind bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly,
such bonds may involve greater credit risks than bonds paying
interest currently. Even though such bonds do not pay current
interest in cash, the Fund is nonetheless required to accrue
interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, the Fund could
be required at times to liquidate investments in order to satisfy
its dividend requirements.
The amount of information about the financial condition of an
issuer of tax exempt securities may not be as extensive as that
which is made available by corporations whose securities are
publicly traded. Therefore, to the extent the Fund invests in
tax exempt securities in the lower rating categories, the
achievement of the Fund's goals is more dependent on Putnam
Management's investment analysis than would be the case if the
Fund were investing in securities in the higher rating
categories.
INVESTMENTS IN MISCELLANEOUS FIXED INCOME SECURITIES
Unless otherwise specified in the Prospectus or elsewhere in this
SAI, if the Fund may invest in inverse floating obligations,
premium securities, or interest-only or principal-only classes of
mortgage-backed securities, it may do so without limit. The
Fund, however, currently does not intend to invest more than 15%
of its assets in inverse floating obligations under normal market
conditions.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities, on
either a short-term or long-term basis, amounting to not more
than 25% of its total assets, thereby realizing additional
income. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in recovery of
the securities or possible loss of rights in the collateral
should the borrower fail financially. As a matter of policy,
securities loans are made to broker-dealers pursuant to
agreements requiring that loans be continuously secured by
collateral consisting of cash or short-term debt obligations at
least equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the Fund an
amount equal to any dividends or interest received on securities
lent. The Fund retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the
borrower. Although voting rights, or rights to consent, with
respect to the loaned securities pass to the borrower, the Fund
retains the right to call the loans at any time on reasonable
notice, and it will do so to enable the Fund to exercise voting
rights on any matters materially affecting the investment. The
Fund may also call such loans in order to sell the securities.
FORWARD COMMITMENTS
The Fund may enter into contracts to purchase securities for a
fixed price at a future date beyond customary settlement time
("forward commitments") if the Fund holds, and maintains until
the settlement date in a segregated account, cash or high-grade
debt obligations in an amount sufficient to meet the purchase
price, or if the Fund enters into offsetting contracts for the
forward sale of other securities it owns. In the case of to-be-
announced ("TBA") purchase commitments, the unit price and the
estimated principal amount are established when the Fund enters
into a contract, with the actual principal amount being within a
specified range of the estimate. Forward commitments may be
considered securities in themselves, and involve a risk of loss
if the value of the security to be purchased declines prior to
the settlement date, which risk is in addition to the risk of
decline in the value of the Fund's other assets. Where such
purchases are made through dealers, the Fund relies on the dealer
to consummate the sale. The dealer's failure to do so may result
in the loss to the Fund of an advantageous yield or price.
Although the Fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or
for delivery pursuant to options contracts it has entered into,
the Fund may dispose of a commitment prior to settlement if
Putnam Management deems it appropriate to do so. The Fund may
realize short-term profits or losses upon the sale of forward
commitments.
The Fund may enter into TBA sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns
under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement
date. During the time a TBA sale commitment is outstanding,
equivalent deliverable securities, or an offsetting TBA purchase
commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction. Unsettled TBA sale
commitments are valued at current market value of the underlying
securities. If the TBA sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund
realizes a gain or loss on the commitment without regard to any
unrealized gain or loss on the underlying security. If the Fund
delivers securities under the commitment, the Fund realizes a
gain or loss from the sale of the securities based upon the unit
price established at the date the commitment was entered into.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements up to the limit
specified in the Prospectus. A repurchase agreement is a
contract under which the Fund acquires a security for a
relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the
Fund's cost plus interest). It is the Fund's present intention
to enter into repurchase agreements only with commercial banks
and registered broker-dealers and only with respect to
obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as
loans made by the Fund which are collateralized by the securities
subject to repurchase. Putnam Management will monitor such
transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total
amount of the repurchase obligation, including the interest
factor. If the seller defaults, the Fund could realize a loss on
the sale of the underlying security to the extent that the
proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the Fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal
and interest if the Fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's
estate.
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the Fund may transfer uninvested cash
balances into a joint account, along with cash of other Putnam
funds and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money
market instruments.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options
and covered put options on optionable securities held in its
portfolio, when in the opinion of Putnam Management such
transactions are consistent with the Fund's investment objectives
and policies. Call options written by the Fund give the
purchaser the right to buy the underlying securities from the
Fund at a stated exercise price; put options give the purchaser
the right to sell the underlying securities to the Fund at a
stated price.
The Fund may write only covered options, which means that, so
long as the Fund is obligated as the writer of a call option, it
will own the underlying securities subject to the option (or
comparable securities satisfying the cover requirements of
securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition,
the Fund will be considered to have covered a put or call option
if and to the extent that it holds an option that offsets some or
all of the risk of the option it has written. The Fund may write
combinations of covered puts and calls on the same underlying
security.
The Fund will receive a premium from writing a put or call
option, which increases the Fund's return on the underlying
security in the event the option expires unexercised or is closed
out at a profit. The amount of the premium reflects, among other
things, the relationship between the exercise price and the
current market value of the underlying security, the volatility
of the underlying security, the amount of time remaining until
expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option
but continues to bear the risk of a decline in the value of the
underlying security. By writing a put option, the Fund assumes
the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current
market value, resulting in a potential capital loss unless the
security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in
which it purchases an offsetting option. The Fund realizes a
profit or loss from a closing transaction if the cost of the
transaction (option premium plus transaction costs) is less or
more than the premium received from writing the option. Because
increases in the market price of a call option generally reflect
increases in the market price of the security underlying the
option, any loss resulting from a closing purchase transaction
may be offset in whole or in part by unrealized appreciation of
the underlying security owned by the Fund.
If the Fund writes a call option but does not own the underlying
security, and when it writes a put option, the Fund may be
required to deposit cash or securities with its broker as
"margin", or collateral, for its obligation to buy or sell the
underlying security. As the value of the underlying security
varies, the Fund may have to deposit additional margin with the
broker. Margin requirements are complex and are fixed by
individual brokers, subject to minimum requirements currently
imposed by the Federal Reserve Board and by stock exchanges and
other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to
protect its portfolio holdings in an underlying security against
a decline in market value. Such protection is provided during
the life of the put option since the Fund, as holder of the
option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying
security's market price. In order for a put option to be
profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the
premium and transaction costs. By using put options in this
manner, the Fund will reduce any profit it might otherwise have
realized from appreciation of the underlying security by the
premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to
hedge against an increase in the price of securities that the
Fund wants ultimately to buy. Such hedge protection is provided
during the life of the call option since the Fund, as holder of
the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying
security's market price. In order for a call option to be
profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and
transaction costs.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the Fund's options strategies depends on
the ability of Putnam Management to forecast correctly interest
rate and market movements. For example, if the Fund were to
write a call option based on Putnam Management's expectation that
the price of the underlying security would fall, but the price
were to rise instead, the Fund could be required to sell the
security upon exercise at a price below the current market price.
Similarly, if the Fund were to write a put option based on Putnam
Management's expectation that the price of the underlying
security would rise, but the price were to fall instead, the Fund
could be required to purchase the security upon exercise at a
price higher than the current market price.
When the Fund purchases an option, it runs the risk that it will
lose its entire investment in the option in a relatively short
period of time, unless the Fund exercises the option or enters
into a closing sale transaction before the option's expiration.
If the price of the underlying security does not rise (in the
case of a call) or fall (in the case of a put) to an extent
sufficient to cover the option premium and transaction costs, the
Fund will lose part or all of its investment in the option. This
contrasts with an investment by the Fund in the underlying
security, since the Fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the Fund's ability
to terminate option positions at times when Putnam Management
deems it desirable to do so. There is no assurance that the Fund
will be able to effect closing transactions at any particular
time or at an acceptable price.
If a secondary market in options were to become unavailable, the
Fund could no longer engage in closing transactions. Lack of
investor interest might adversely affect the liquidity of the
market for particular options or series of options. A market may
discontinue trading of a particular option or options generally.
In addition, a market could become temporarily unavailable if
unusual events -- such as volume in excess of trading or clearing
capability -- were to interrupt its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening
transactions. For example, if an underlying security ceases to
meet qualifications imposed by the market or the Options Clearing
Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options
market were to become unavailable, the Fund as a holder of an
option would be able to realize profits or limit losses only by
exercising the option, and the Fund, as option writer, would
remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the Fund could result in losses on the
options. If trading is interrupted in an underlying security,
the trading of options on that security is normally halted as
well. As a result, the Fund as purchaser or writer of an option
will be unable to close out its positions until options trading
resumes, and it may be faced with considerable losses if trading
in the security reopens at a substantially different price. In
addition, the Options Clearing Corporation or other options
markets may impose exercise restrictions. If a prohibition on
exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option
will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing
Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by
the writers of all outstanding calls in the event of exercise, it
may prohibit indefinitely the exercise of put options. The Fund,
as holder of such a put option, could lose its entire investment
if the prohibition remained in effect until the put option's
expiration.
Special risks are presented by internationally-traded options.
Because of time differences between the United States and various
foreign countries, and because different holidays are observed in
different countries, foreign options markets may be open for
trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of
the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by the Fund and assets
held to cover OTC options written by the Fund may, under certain
circumstances, be considered illiquid securities for purposes of
any limitation on the Fund's ability to invest in illiquid
securities.
FUTURES CONTRACTS AND RELATED OPTIONS
Subject to applicable law, and unless otherwise specified in the
Prospectus, the Fund may invest without limit in the types of
futures contracts and related options identified in the
Prospectus. A financial futures contract sale creates an
obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery
month for a stated price. A financial futures contract purchase
creates an obligation by the purchaser to take delivery of the
type of financial instrument called for in the contract in a
specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date
are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts
are traded in the United States only on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for
such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant
contract market.
Although futures contracts (other than index futures) by their
terms call for actual delivery or acceptance of commodities or
securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific
type of financial instrument or commodity with the same delivery
date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid
the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale,
the seller realizes a loss. Similarly, the closing out of a
futures contract purchase is effected by the purchaser's entering
into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the purchaser realizes a gain, and if
the purchase price exceeds the offsetting sale price, he realizes
a loss. In general 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved
by the CFTC is treated as short-term gain or loss, and 60% is
treated as long-term gain or loss.
Unlike when the Fund purchases or sells a security, no price is
paid or received by the Fund upon the purchase or sale of a
futures contract. Upon entering into a contract, the Fund is
required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of cash and/or U.S.
Government Securities. This amount is known as "initial margin."
The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures
contract margin does not involve the borrowing of funds to
finance the transactions. Rather, initial margin is similar to a
performance bond or good faith deposit which is returned to the
Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts
also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance
margin", to and from the broker (or the custodian) are made on a
daily basis as the price of the underlying security or commodity
fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to
the market." For example, when the Fund has purchased a futures
contract on a security and the price of the underlying security
has risen, that position will have increased in value and the
Fund will receive from the broker a variation margin payment
based on that increase in value. Conversely, when the Fund has
purchased a security futures contract and the price of the
underlying security has declined, the position would be less
valuable and the Fund would be required to make a variation
margin payment to the broker.
The Fund may elect to close some or all of its futures positions
at any time prior to their expiration in order to reduce or
eliminate a hedge position then currently held by the Fund. The
Fund may close its positions by taking opposite positions which
will operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin are then
made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write
call and put options on futures contracts it may buy or sell and
enter into closing transactions with respect to such options to
terminate existing positions. Options on future contracts give
the purchaser the right in return for the premium paid to assume
a position in a futures contract at the specified option exercise
price at any time during the period of the option. The Fund may
use options on futures contracts in lieu of writing or buying
options directly on the underlying securities or purchasing and
selling the underlying futures contracts. For example, to hedge
against a possible decrease in the value of its portfolio
securities, the Fund may purchase put options or write call
options on futures contracts rather than selling futures
contracts. Similarly, the Fund may purchase call options or
write put options on futures contracts as a substitute for the
purchase of futures contracts to hedge against a possible
increase in the price of securities which the Fund expects to
purchase. Such options generally operate in the same manner as
options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option
may terminate his position by selling or purchasing an offsetting
option. There is no guarantee that such closing transactions can
be effected.
The Fund will be required to deposit initial margin and
maintenance margin with respect to put and call options on
futures contracts written by it pursuant to brokers' requirements
similar to those described above in connection with the
discussion of futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS.
Successful use of futures contracts by the Fund is subject to
Putnam Management's ability to predict movements in the direction
of interest rates and other factors affecting securities markets.
For example, if the Fund has hedged against the possibility of
decline in the values of its investments and the values of its
investments increase instead, the Fund will lose part or all of
the benefit of the increase through payments of daily maintenance
margin. The Fund may have to sell investments at a time when it
may be disadvantageous to do so in order to meet margin
requirements.
Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves
less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of
a call or put option on a futures contract would result in a loss
to the Fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the
hedged investments. The writing of an option on a futures
contract involves risks similar to those risks relating to the
sale of futures contracts.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain market clearing facilities inadequate, and thereby result
in the institution by exchanges of special procedures which may
interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the
Fund may seek to close out a position. The ability to establish
and close out positions will be subject to the development and
maintenance of a liquid secondary market. It is not certain that
this market will develop or continue to exist for a particular
futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there
may be insufficient trading interest in certain contracts or
options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of contracts or
options, or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or a clearing corporation may not
at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the
trading of contracts or options (or a particular class or series
of contracts or options), in which event the secondary market on
that exchange for such contracts or options (or in the class or
series of contracts or options) would cease to exist, although
outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms.
U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. If the
Fund invests in tax-exempt securities issued by a governmental
entity, the Fund may purchase and sell futures contracts and
related options on U.S. Treasury securities when, in the opinion
of Putnam Management, price movements in Treasury security
futures and related options will correlate closely with price
movements in the tax-exempt securities which are the subject of
the hedge. U.S. Treasury security futures contracts require the
seller to deliver, or the purchaser to take delivery of, the type
of U.S. Treasury security called for in the contract at a
specified date and price. Options on U.S. Treasury security
futures contracts give the purchaser the right in return for the
premium paid to assume a position in a U.S. Treasury security
futures contract at the specified option exercise price at any
time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the
Fund is subject to Putnam Management's ability to predict
movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if the Fund
has sold U.S. Treasury security futures contracts in order to
hedge against the possibility of an increase in interest rates
which would adversely affect tax-exempt securities held in its
portfolio, and the prices of the Fund's tax-exempt securities
increase instead as a result of a decline in interest rates, the
Fund will lose part or all of the benefit of the increased value
of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily maintenance margin requirements at
a time when it may be disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury
security futures contracts and related options will not correlate
closely with price movements in markets for tax-exempt
securities. For example, if the Fund has hedged against a
decline in the values of tax-exempt securities held by it by
selling Treasury security futures and the values of Treasury
securities subsequently increase while the values of its
tax-exempt securities decrease, the Fund would incur losses on
both the Treasury security futures contracts written by it and
the tax-exempt securities held in its portfolio. Putnam
Management will seek to reduce this risk by monitoring movements
in markets for U.S. Treasury security futures and options and for
tax-exempt securities closely. The Fund will only purchase or
sell Treasury security futures or related options when, in the
opinion of Putnam Management, price movements in Treasury
security futures and related options will correlate closely with
price movements in tax-exempt securities in which the Fund
invests.
INDEX FUTURES CONTRACTS. An index futures contract is a contract
to buy or sell units of an index at a specified future date at a
price agreed upon when the contract is made. Entering into a
contract to buy units of an index is commonly referred to as
buying or purchasing a contract or holding a long position in
the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short
position. A unit is the current value of the index. The Fund
may enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective. The Fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's Composite 500 Stock Price
Index ("S&P 500") is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500
assigns relative weightings to the common stocks included in the
Index, and the value fluctuates with changes in the market values
of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500
were $150, one contract would be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no
delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the
difference between the contract price and the actual level of the
stock index at the expiration of the contract. For example, if
the Fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150
and the S&P 500 is at $154 on that future date, the Fund will
gain $2,000 (500 units x gain of $4). If the Fund enters into a
futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500
is at $152 on that future date, the Fund will lose $1,000 (500
units x loss of $2).
There are several risks in connection with the use by the Fund of
index futures as a hedging device. One risk arises because of
the imperfect correlation between movements in the prices of the
index futures and movements in the prices of securities which are
the subject of the hedge. Putnam Management will, however,
attempt to reduce this risk by buying or selling, to the extent
possible, futures on indices the movements of which will, in its
judgment, have a significant correlation with movements in the
prices of the securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes
is also subject to Putnam Management's ability to predict
movements in the direction of the market. It is possible that,
where the Fund has sold futures to hedge its portfolio against a
decline in the market, the index on which the futures are written
may advance and the value of securities held in the Fund's
portfolio may decline. If this occurred, the Fund would lose
money on the futures and also experience a decline in value in
its portfolio securities. It is also possible that, if the Fund
has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and
securities prices increase instead, the Fund will lose part or
all of the benefit of the increased value of those securities it
has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily
variation margin requirements at a time when it is
disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
index futures and the portion of the portfolio being hedged, the
prices of index futures may not correlate perfectly with
movements in the underlying index due to certain market
distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit requirements, investors
may close futures contracts through offsetting transactions which
could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the
securities market, and as a result the futures market may attract
more speculators than the securities market does. Increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the
imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast
of general market trends by Putnam Management may still not
result in a successful hedging transaction over a short time
period.
OPTIONS ON STOCK INDEX FUTURES. Options on index futures are
similar to options on securities except that options on index
futures give the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the index
futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the
option on the index future. If an option is exercised on the
last trading day prior to its expiration date, the settlement
will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the index
on which the future is based on the expiration date. Purchasers
of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES
As an alternative to purchasing call and put options on index
futures, the Fund may purchase and sell call and put options on
the underlying indices themselves. Such options would be used in
a manner identical to the use of options on index futures.
INDEX WARRANTS
The Fund may purchase put warrants and call warrants whose values
vary depending on the change in the value of one or more
specified securities indices ("index warrants"). Index warrants
are generally issued by banks or other financial institutions and
give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the
time of exercise. In general, if the value of the underlying
index rises above the exercise price of the index warrant, the
holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference
between the value of the index and the exercise price of the
warrant; if the value of the underlying index falls, the holder
of a put warrant will be entitled to receive a cash payment from
the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The
holder of a warrant would not be entitled to any payments from
the issuer at any time when, in the case of a call warrant, the
exercise price is greater than the value of the underlying index,
or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the Fund were not to
exercise an index warrant prior to its expiration, then the Fund
would lose the amount of the purchase price paid by it for the
warrant.
The Fund will normally use index warrants in a manner similar to
its use of options on securities indices. The risks of the
Fund's use of index warrants are generally similar to those
relating to its use of index options. Unlike most index options,
however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only
by the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than
index options. Although the Fund will normally invest only in
exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the
Fund's ability to exercise the warrants at such time, or in such
quantities, as the Fund would otherwise wish to do.
FOREIGN SECURITIES
Under its current policy, which may be changed without
shareholder approval, the Fund may invest up to the limit of its
total assets specified in its Prospectus in securities
principally traded in markets outside the United States.
Eurodollar certificates of deposit are excluded for purposes of
this limitation. Foreign investments can be affected favorably
or unfavorably by changes in currency exchange rates and in
exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of
some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the United
States. Investments in foreign securities can involve other
risks different from those affecting U.S. investments, including
local political or economic developments, expropriation or
nationalization of assets and imposition of withholding taxes on
dividend or interest payments. To hedge against possible
variations in foreign exchange rates, the Fund may purchase and
sell forward foreign currency contracts. These represent
agreements to purchase or sell specified currencies at specified
dates and prices. The Fund will only purchase and sell forward
foreign currency contracts in amounts Putnam Management deems
appropriate to hedge existing or anticipated portfolio positions
and will not use such forward contracts for speculative purposes.
Foreign securities, like other assets of the Fund, will be held
by the Fund's custodian or by a subcustodian.
FOREIGN CURRENCY TRANSACTIONS
Unless otherwise specified in the Prospectus, the Fund may engage
without limit in currency exchange transactions, as well as
foreign currency forward and futures contracts, to protect
against uncertainty in the level of future currency exchange
rates. In addition, the Fund may write covered call and put
options on foreign currencies for the purpose of increasing its
current return.
Generally, the Fund may engage in both "transaction hedging" and
"position hedging". When it engages in transaction hedging, the
Fund enters into foreign currency transactions with respect to
specific receivables or payables, generally arising in connection
with the purchase or sale of portfolio securities. The Fund will
engage in transaction hedging when it desires to "lock in" the
U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging the Fund
will attempt to protect itself against a possible loss resulting
from an adverse change in the relationship between the U.S.
dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or
on which the dividend or interest payment is earned, and the date
on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in
that foreign currency. The Fund may also enter into contracts to
purchase or sell foreign currencies at a future date ("forward
contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes the Fund may also purchase
exchange-listed and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies. A
put option on a futures contract gives the Fund the right to
assume a short position in the futures contract until the
expiration of the option. A put option on a currency gives the
Fund the right to sell the currency at an exercise price until
the expiration of the option. A call option on a futures
contract gives the Fund the right to assume a long position in
the futures contract until the expiration of the option. A call
option on a currency gives the Fund the right to purchase the
currency at the exercise price until the expiration of the
option.
When it engages in position hedging, the Fund enters into foreign
currency exchange transactions to protect against a decline in
the values of the foreign currencies in which its portfolio
securities are denominated (or an increase in the value of
currency for securities which the Fund expects to purchase, when
the Fund holds cash or short-term investments). In connection
with position hedging, the Fund may purchase put or call options
on foreign currency and on foreign currency futures contracts and
buy or sell forward contracts and foreign currency futures
contracts. The Fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved
will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the
dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward
or futures contract. Accordingly, it may be necessary for the
Fund to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of
the security or securities being hedged is less than the amount
of foreign currency the Fund is obligated to deliver and a
decision is made to sell the security or securities and make
delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if
the market value of such security or securities exceeds the
amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in
the underlying prices of the securities which the Fund owns or
intends to purchase or sell. They simply establish a rate of
exchange which one can achieve at some future point in time.
Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the
increase in value of such currency.
The Fund may seek to increase its current return or to offset
some of the costs of hedging against fluctuations in current
exchange rates by writing covered call options and covered put
options on foreign currencies. The Fund receives a premium from
writing a call or put option, which increases the Fund's current
return if the option expires unexercised or is closed out at a
net profit. The Fund may terminate an option that it has written
prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms
as the option written.
The Fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its
portfolio securities are then denominated. Putnam Management
will engage in such "cross hedging" activities when it believes
that such transactions provide significant hedging opportunities
for the Fund. Cross hedging transactions by the Fund involve the
risk of imperfect correlation between changes in the values of
the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability which is
the subject of the hedge.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign
currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number
of days from the date of the contract as agreed by the parties,
at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right
to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage
for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified
amount of a foreign currency at a future date at a price set at
the time of the contract. Foreign currency futures contracts
traded in the United States are designed by and traded on
exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the
maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties,
rather than a predetermined date in a given month. Forward
contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange
contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires
no margin or other deposit.
At the maturity of a forward or futures contract, the Fund either
may accept or make delivery of the currency specified in the
contract, or at or prior to maturity enter into a closing
transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to
the original forward contract. Closing transactions with respect
to futures contracts are effected on a commodities exchange; a
clearing corporation associated with the exchange assumes
responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed
out only on an exchange or board of trade which provides a
secondary market in such contracts. Although the Fund intends to
purchase or sell foreign currency futures contracts only on
exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a secondary market
on an exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse
price movements, the Fund would continue to be required to make
daily cash payments of variation margin.
FOREIGN CURRENCY OPTIONS. In general, options on foreign
currencies operate similarly to options on securities and are
subject to many similar risks. Foreign currency options are
traded primarily in the over-the-counter market, although options
on foreign currencies have recently been listed on several
exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of
currencies, and is the official medium of exchange of the
European Community's European Monetary System.
The Fund will only purchase or write foreign currency options
when Putnam Management believes that a liquid secondary market
exists for such options. There can be no assurance that a liquid
secondary market will exist for a particular option at any
specific time. Options on foreign currencies are affected by all
of those factors which influence foreign exchange rates and
investments generally.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic
factors applicable to the issuing country. In addition, the
exchange rates of foreign currencies (and therefore the values
of foreign currency options) may be affected significantly,
fixed, or supported directly or indirectly by U.S. and foreign
government actions. Government intervention may increase risks
involved in purchasing or selling foreign currency options, since
exchange rates may not be free to fluctuate in response to other
market forces.
The value of a foreign currency option reflects the value of an
exchange rate, which in turn reflects relative values of two
currencies, the U.S. dollar and the foreign currency in question.
Because foreign currency transactions occurring in the interbank
market involve substantially larger amounts than those that may
be involved in the exercise of foreign currency options,
investors may be disadvantaged by having to deal in an odd lot
market for the underlying foreign currencies in connection with
options at prices that are less favorable than for round lots.
Foreign governmental restrictions or taxes could result in
adverse changes in the cost of acquiring or disposing of foreign
currencies.
There is no systematic reporting of last sale information for
foreign currencies and there is no regulatory requirement that
quotations available through dealers or other market sources be
firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot
transactions in the interbank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To
the extent that options markets are closed while the markets for
the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the
Fund's investments in foreign securities and to the Fund's
foreign currency exchange transactions may be more complex than
settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not
present in the Fund's domestic investments. For example,
settlement of transactions involving foreign securities or
foreign currency may occur within a foreign country, and the Fund
may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay
any fees, taxes or charges associated with such delivery. Such
investments may also involve the risk that an entity involved in
the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers
do not charge a fee for currency conversion, they do realize a
profit based on the difference (the "spread") between prices at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Fund at one
rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
RESTRICTED SECURITIES
The SEC Staff currently takes the view that any designation by
the Trustees of the authority to determine that a restricted
security is readily marketable (as described in the investment
restrictions of the Funds) must be pursuant to written procedures
established by the Trustees. It is the present intention of the
Funds' Trustees that, if the Trustees decide to delegate such
determinations to Putnam Management or another person, they would
do so pursuant to written procedures, consistent with the Staff's
position. Should the Staff modify its position in the future,
the Trustees would consider what action would be appropriate in
light of the Staff's position at that time.
TAXES
TAXATION OF THE FUND. The Fund intends to qualify each year as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). In order so to
qualify and to qualify for the special tax treatment accorded
regulated investment companies and their shareholders, the Fund
must, among other things:
(a) Derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and
gains from the sale of stock, securities and foreign currencies,
or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its
business of investing in such stock, securities, or currencies;
(b) derive less than 30% of its gross income from the sale or
other disposition of certain assets (including stock or
securities and certain options, futures contracts, forward
contracts and foreign currencies) held for less than three
months;
(c) distribute with respect to each taxable year at least 90% of
the sum of its taxable net investment income, its net tax-exempt
income, and the excess, if any, of net short-term capital gains
over net long-term capital losses for such year; and
(d) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items, U.S. Government
securities, securities of other regulated investment companies,
and other securities limited in respect of any one issuer to a
value not greater than 5% of the value of the Fund's total assets
and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the
U.S. Government or other regulated investment companies) of any
one issuer or of two or more issuers which the Fund controls and
which are engaged in the same, similar, or related trades or
businesses.
If the Fund qualifies as a regulated investment company that is
accorded special tax treatment, the Fund will not be subject to
federal income tax on income paid to its shareholders in the form
of dividends (including capital gain dividends).
If the Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund
would be subject to tax on its taxable income at corporate rates,
and all distributions from earnings and profits, including any
distributions of net tax-exempt income and net long-term capital
gains, would be taxable to shareholders as ordinary income. In
addition, the Fund could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial
distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially
all of its ordinary income for such year and substantially all of
its capital gain net income for the one-year period ending
October 31 (or later if the Fund is permitted so to elect and so
elects), plus any retained amount from the prior year, the Fund
will be subject to a 4% excise tax on the undistributed amounts.
A dividend paid to shareholders by the Fund in January of a year
generally is deemed to have been paid by the Fund on December 31
of the preceding year, if the dividend was declared and payable
to shareholders of record on a date in October, November or
December of that preceding year. The Fund intends generally to
make distributions sufficient to avoid imposition of the 4%
excise tax.
EXEMPT-INTEREST DIVIDENDS. The Fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the
close of each quarter of the Fund's taxable year, at least 50% of
the total value of the Fund's assets consists of obligations the
interest on which is exempt from federal income tax.
Distributions that the Fund properly designates as exempt-
interest dividends are treated by shareholders as interest
excludable from their gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax
purposes and for state and local purposes. If the Fund intends
to be qualified to pay exempt-interest dividends, the Fund may be
limited in its ability to enter into taxable transactions
involving forward commitments, repurchase agreements, financial
futures, and options contracts on financial futures, tax-exempt
bond indices, and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of a Fund
paying exempt-interest dividends is not deductible. The portion
of interest that is not deductible is equal to the total interest
paid or accrued on the indebtedness, multiplied by the percentage
of the Fund's total distributions (not including distributions
from net long-term capital gains) paid to the shareholder that
are exempt-interest dividends. Under rules used by the Internal
Revenue Service for determining when borrowed funds are
considered used for the purpose of purchasing or carrying
particular assets, the purchase of shares may be considered to
have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to
interest received on certain private activity obligations and
certain industrial development bonds will not be tax-exempt to
any shareholders who are "substantial users" of the facilities
financed by such obligations or bonds or who are "related
persons" of such substantial users.
A Fund which is qualified to pay exempt-interest dividends will
inform investors within 60 days of the Fund's fiscal year-end of
the percentage of its income distributions designated as
tax-exempt. The percentage is applied uniformly to all
distributions made during the year. The percentage of income
designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income
that was tax-exempt during the period covered by the
distribution.
HEDGING TRANSACTIONS. If the Fund engages in transactions,
including hedging transactions in options, futures contracts, and
straddles, or other similar transactions, it will be subject to
special tax rules (including mark-to-market, straddle, wash sale,
and short sale rules), the effect of which may be to accelerate
income to the Fund, defer losses to the Fund, cause adjustments
in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These
rules could therefore affect the amount, timing and character of
distributions to shareholders. The Fund will endeavor to make
any available elections pertaining to such transactions in a
manner believed to be in the best interests of the Fund.
Under the 30% of gross income test described above (see "Taxation
of the Fund"), the Fund will be restricted in selling assets held
or considered under Code rules to have been held for less than
three months, and in engaging in certain hedging transactions
(including hedging transactions in options and futures) that in
some circumstances could cause certain Fund assets to be treated
as held for less than three months.
Certain of the Fund's hedging activities (including its
transactions, if any, in foreign currencies or foreign
currency-denominated instruments) are likely to produce a
difference between its book income and its taxable income. If
the Fund's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as a
dividend to the extent of the Fund's remaining earnings and
profits (including earnings and profits arising from tax-exempt
income), and thereafter as a return of capital or as gain from
the sale or exchange of a capital asset, as the case may be. If
the Fund's book income is less than its taxable income, the Fund
could be required to make distributions exceeding book income to
qualify as a regulated investment company that is accorded
special tax treatment.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a
distribution to you in excess of its current and accumulated
"earnings and profits" in any taxable year, the excess
distribution will be treated as a return of capital to the extent
of your tax basis in your shares, and thereafter as capital gain.
A return of capital is not taxable, but it reduces your tax basis
in your shares, thus reducing any loss or increasing any gain on
a subsequent taxable disposition by you of your shares.
SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The Fund's
investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a
discount may) require the Fund to accrue and distribute income
not yet received. In order to generate sufficient cash to make
the requisite distributions, the Fund may be required to sell
securities in its portfolio that it otherwise would have
continued to hold.
CAPITAL LOSS CARRYOVER. The amounts and expiration dates of any
capital loss carryovers available to the Fund are shown in Note 1
(Federal income taxes) to the financial statements included in
Part I of this Statement or incorporated by reference into this
Statement.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING
TRANSACTIONS. The Fund's transactions in foreign currencies,
foreign currency-denominated debt securities and certain foreign
currency options, futures contracts, and forward contracts (and
similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the
value of the foreign currency concerned.
If more than 50% of the Fund's assets at year end consists of the
debt and equity securities of foreign corporations, the Fund may
elect to permit shareholders to claim a credit or deduction on
their income tax returns for their pro rata portion of qualified
taxes paid by the Fund to foreign countries. In such a case,
shareholders will include in gross income from foreign sources
their pro rata shares of such taxes. A shareholder's ability to
claim a foreign tax credit or deduction in respect of foreign
taxes paid by the Fund may be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not
get a full credit or deduction for the amount of such taxes.
Shareholders who do not itemize on their federal income tax
returns may claim a credit (but no deduction) for such foreign
taxes.
Investment by the Fund in certain "passive foreign investment
companies" could subject the Fund to a U.S. federal income tax or
other charge on the proceeds from the sale of its investment in
such a company; however, this tax can be avoided by making an
election to mark such investments to market annually or to treat
the passive foreign investment company as a "qualified electing
fund."
SALE OR REDEMPTION OF SHARES. The sale, exchange or redemption
of Fund shares may give rise to a gain or loss. In general, any
gain or loss realized upon a taxable disposition of shares will
be treated as long-term capital gain or loss if the shares have
been held for more than 12 months, and otherwise as short-term
capital gain or loss. However, if a shareholder sells shares at
a loss within six months of purchase, any loss will be disallowed
for Federal income tax purposes to the extent of any exempt-
interest dividends received on such shares. In addition, any
loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than
short-term, to the extent of any long-term capital gain
distributions received by the shareholder with respect to the
shares. All or a portion of any loss realized upon a taxable
disposition of Fund shares will be disallowed if other Fund
shares are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased
shares will be adjusted to reflect the disallowed loss.
SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS. Special tax rules
apply to investments though defined contribution plans and other
tax-qualified plans. Shareholders should consult their tax
adviser to determine the suitability of shares of a fund as an
investment through such plans and the precise effect of an
investment on their particular tax situation.
BACKUP WITHHOLDING. The Fund generally is required to withhold
and remit to the U.S. Treasury 31% of the taxable dividends and
other distributions paid to any individual shareholder who fails
to furnish the Fund with a correct taxpayer identification number
(TIN), who has underreported dividends or interest income, or who
fails to certify to the Fund that he or she is not subject to
such withholding. Shareholders who fail to furnish their currect
TIN are subject to a penalty of $50 for each such failure unless
the failure is due to reasonable cause and not wilful neglect.
An individual's taxpayer identification number is his or her
social security number.
MANAGEMENT
TRUSTEES
*+GEORGE PUTNAM, Chairman and President. Chairman and Director
of Putnam Management and Putnam Mutual Funds. Director, The
Boston Company, Inc., Boston Safe Deposit and Trust Company,
Freeport-McMoRan, Inc., General Mills, Inc., Houghton Mifflin
Company, Marsh & McLennan Companies, Inc. and Rockefeller Group,
Inc.
+WILLIAM F. POUNDS, Vice Chairman. Professor of Management,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology. Director of EG&G, Inc., Fisher Price, Inc., IDEXX,
M/A-COM, Inc., and Sun Company, Inc.
JAMESON A. BAXTER, Trustee. President, Baxter Associates, Inc.
(consultants to management). Director of Avondale Federal Savings
Bank, ASHTA Chemicals, Inc. and Banta Corporation. Chairman of
the Board of Trustees, Mount Holyoke College.
+HANS H. ESTIN, Trustee. Vice Chairman, North American
Management Corp. (a registered investment adviser). Director of
The Boston Company, Inc. and Boston Safe Deposit and Trust
Company.
ELIZABETH T. KENNAN, Trustee. President Emeritus and Professor,
Mount Holyoke College. Director, the Kentucky Home Life
Insurance Companies, NYNEX Corporation, Northeast Utilities and
Talbots and Trustee of the University of Notre Dame.
*LAWRENCE J. LASSER, Trustee and Vice President. President,
Chief Executive Officer and Director of Putnam Investments, Inc.
and Putnam Investment Management, Inc. Director of Marsh &
McLennan Companies, Inc. Vice President of the Putnam funds.
JOHN A. HILL, Trustee. Chairman and Managing Director, First
Reserve Corporation (a registered investment adviser). Director,
Lantana Corporation, Maverick Tube Corporation, Snyder Oil
Corporation and various First Reserve Funds.
+ROBERT E. PATTERSON, Trustee. Executive Vice President, Cabot
Partners Limited Partnership (a registered investment adviser).
*DONALD S. PERKINS, Trustee. Director of various corporations,
including American Telephone & Telegraph Company, AON Corp.,
Cummins Engine Company, Inc., Illinois Power Company, Inland
Steel Industries, Inc., Kmart Corporation, LaSalle Street Fund,
Inc., Springs Industries, Inc., TBG, Inc. and Time Warner Inc.
*#GEORGE PUTNAM, III, Trustee. President, New Generation
Research, Inc. (publisher of bankruptcy information). Director,
World Environment Center.
ELI SHAPIRO, Trustee. Alfred P. Sloan Professor of Management,
Emeritus, Alfred P. Sloan School of Management, Massachusetts
Institute of Technology. Director of Nomura Dividend Fund, Inc.
(a privately held registered investment company managed by Putnam
Management) and former Trustee of the Putnam funds (1984-1990).
*A.J.C. SMITH, Trustee. Chairman, Chief Executive Officer and
Director, Marsh & McLennan Companies, Inc.
W. NICHOLAS THORNDIKE, Trustee. Director of various corporations
and charitable organizations, including Courier Corporation and
Providence Journal Co. Also, Trustee and President of
Massachusetts General Hospital and Trustee of Bradley Real Estate
Trust and Eastern Utilities Associates.
<PAGE>
OFFICERS
CHARLES E. PORTER, Executive Vice President. Managing Director
of Putnam Investments, Inc. and Putnam Investment Management,
Inc. Executive Vice President of the Putnam funds.
PATRICIA C. FLAHERTY, Senior Vice President. Senior Vice
President of Putnam Investments, Inc. and Putnam Investment
Management, Inc.
WILLIAM N. SHIEBLER, Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President, Chief
Operating Officer and Director of Putnam Mutual Funds. Vice
President of the Putnam funds.
GORDON H. SILVER, Vice President. Senior Managing Director of
Putnam Investments, Inc. and Putnam Investment Management, Inc.
Director, Putnam Investments, Inc. and Putnam Investment
Management, Inc. Vice President of the Putnam funds.
JOHN R. VERANI, Vice President. Senior Vice President of Putnam
Investments, Inc. and Putnam Investment Management, Inc. Vice
President of the Putnam funds.
PAUL M. O'NEIL, Vice President. Vice President of Putnam
Investments, Inc. and Putnam Investment Management, Inc. Vice
President of the Putnam funds.
JOHN D. HUGHES, Vice President and Treasurer. Vice President and
Treasurer of the Putnam funds.
KATHERINE HOWARD, Assistant Vice President. Assistant Vice
President of the Putnam funds.
BEVERLY MARCUS, Clerk and Assistant Treasurer. Clerk and
Assistant Treasurer of the Putnam funds.
*Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the Fund,
Putnam Management or Putnam Mutual Funds.
+Members of the Executive Committee of the Trustees. The
Executive Committee meets between regular meetings of the
Trustees as may be required to review investment matters and
other affairs of the Fund and may exercise all of the powers of
the Trustees.
#George Putnam, III is the son of George Putnam.
-----------------
Certain other officers of Putnam Management are officers of your
Fund. SEE "ADDITIONAL OFFICERS OF THE FUND" IN PART I OF THIS
STATEMENT. The mailing address of each of the officers and
Trustees is One Post Office Square, Boston, Massachusetts 02109.
Except as stated below, the principal occupations of the officers
and Trustees for the last five years have been with the employers
as shown above, although in some cases they have held different
positions with such employers. Prior to January, 1992, Ms.
Baxter was Vice President and Principal, Regency Group, Inc. and
Consultant, The First Boston Corporation. Prior to May, 1991,
Dr. Pounds was Senior Advisor to the Rockefeller Family and
Associates, Chairman of Rockefeller Trust Company and Director of
Rockefeller Group, Inc. During the past five years Dr. Shapiro
has provided economic and financial consulting services to
various clients. Prior to November, 1990, Mr. Shiebler was
President and Chief Operating Officer of the Intercapital
Division of Dean Witter Reynolds, Inc., Vice President of the
Dean Witter Funds and Director of Dean Witter Trust Company.
Each Trustee of the Fund receives an annual fee and an additional
fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance
at certain committee meetings and for special services rendered
in that connection. All of the Trustees are Trustees of all the
Putnam funds and each receives fees for his or her services. FOR
DETAILS OF TRUSTEES' FEES PAID BY THE FUND, SEE "FUND CHARGES AND
EXPENSES" IN PART I OF THIS STATEMENT.
The Agreement and Declaration of Trust of the Fund provides that
the Fund will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the
Fund, except if it is determined in the manner specified in the
Agreement and Declaration of Trust that they have not acted in
good faith in the reasonable belief that their actions were in
the best interests of the Fund or that such indemnification would
relieve any officer or Trustee of any liability to the Fund or
its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his or her duties. The
Fund, at its expense, provides liability insurance for the
benefit of its Trustees and officers.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., a holding
company which is in turn wholly owned by Marsh & McLennan
Companies, Inc., a publicly owned holding company whose principal
operating subsidiaries are international insurance and
reinsurance brokers, investment managers and management
consultants.
Trustees and officers of the Fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh &
McLennan Companies, Inc. will benefit from the advisory fees,
sales commissions, distribution fees (if any), custodian fees and
transfer agency fees paid or allowed by the Fund.
PUTNAM MANAGEMENT
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced
portfolio managers and research analysts selects securities and
constantly supervises the Fund's portfolio. By pooling an
investor's money with that of other investors, a greater variety
of securities can be purchased than would be the case
individually; the resulting diversification helps reduce
investment risk. Putnam Management has been managing mutual funds
since 1937. Today, the firm serves as the investment manager for
the funds in the Putnam Family, with over $67 billion in assets
in over 4.1 million shareholder accounts at December 31, 1994.
An affiliate, The Putnam Advisory Company, Inc., manages domestic
and foreign institutional accounts and mutual funds, including
the accounts of many Fortune 500 companies. Another affiliate,
Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. At
December 31, 1994, Putnam Management and its affiliates managed
over $95 billion in assets, including over $15 billion in tax
exempt securities and over $36 billion in retirement plan assets.
THE MANAGEMENT CONTRACT
Under a Management Contract between the Fund and Putnam
Management, subject to such policies as the Trustees may
determine, Putnam Management, at its expense, furnishes
continuously an investment program for the Fund and makes
investment decisions on behalf of the Fund. Subject to the
control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the
Fund, furnishes office space and equipment, provides bookkeeping
and clerical services (including determination of the Fund's net
asset value, but excluding shareholder accounting services) and
places all orders for the purchase and sale of the Fund's
portfolio securities. Putnam Management may place Fund portfolio
transactions with broker-dealers which furnish Putnam Management,
without cost to it, certain research, statistical and quotation
services of value to Putnam Management and its affiliates in
advising the Fund and other clients. In so doing, Putnam
Management may cause the Fund to pay greater brokerage
commissions than it might otherwise pay.
FOR DETAILS OF PUTNAM MANAGEMENT'S COMPENSATION UNDER THE
MANAGEMENT CONTRACT, SEE "FUND CHARGES AND EXPENSES" IN PART I OF
THIS STATEMENT. Putnam Management's compensation under the
Management Contract may be reduced in any year if the Fund's
expenses exceed the limits on investment company expenses imposed
by any statute or regulatory authority of any jurisdiction in
which shares of the Fund are qualified for offer or sale. The
term "expenses" is defined in the statutes or regulations of such
jurisdictions, and generally, excludes brokerage commissions,
taxes, interest, extraordinary expenses and, if the Fund has a
Distribution Plan, payments made under such Plan. The only such
limitation as of the date of this Statement (applicable to any
Fund registered for sale in California) was 2.5% of the first $30
million of average net assets, 2% of the next $70 million and
1.5% of any excess over $100 million.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that the Fund's expenses exceed such
lower expense limitation as Putnam Management may, by notice to
the Fund, declare to be effective. The expenses subject to this
limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and,
if the Fund has a Distribution Plan, payments required under such
Plan. THE TERMS OF ANY EXPENSE LIMITATION FROM TIME TO TIME IN
EFFECT ARE DESCRIBED IN EITHER THE PROSPECTUS OR PART I OF THIS
STATEMENT.
In addition to the fee paid to Putnam Management, the Fund
reimburses Putnam Management for the compensation and related
expenses of certain officers of the Fund and their assistants who
provide certain administrative services for the Fund and the
other funds in the Putnam Family, each of which bears an
allocated share of the foregoing costs. The aggregate amount of
all such payments and reimbursements is determined annually by
the Trustees. THE AMOUNT OF THIS REIMBURSEMENT FOR THE FUND'S
MOST RECENT FISCAL YEAR IS INCLUDED IN "FUND CHARGES AND
EXPENSES" IN PART I OF THIS STATEMENT. Putnam Management pays
all other salaries of officers of the Fund. The Fund pays all
expenses not assumed by Putnam Management including, without
limitation, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The Fund pays the cost of
typesetting for its Prospectuses and the cost of printing and
mailing any Prospectuses sent to its shareholders. Putnam Mutual
Funds pays the cost of printing and distributing all other
Prospectuses.
The Management Contract provides that Putnam Management shall not
be subject to any liability to the Fund or to any shareholder of
the Fund for any act or omission in the course of or connected
with rendering services to the Fund in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its duties on the part of Putnam Management.
The Management Contract may be terminated without penalty by vote
of the Trustees or the shareholders of the Fund, or by Putnam
Management, on 30 days' written notice. It may be amended only
by a vote of the shareholders of the Fund. The Management
Contract also terminates without payment of any penalty in the
event of its assignment. The Management Contract provides that
it will continue in effect only so long as such continuance is
approved at least annually by vote of either the Trustees or the
shareholders, and, in either case, by a majority of the Trustees
who are not "interested persons" of Putnam Management or the
Fund. In each of the foregoing cases, the vote of the
shareholders is the affirmative vote of a "majority of the
outstanding voting securities" as defined in the Investment
Company Act of 1940.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. Investment decisions for the Fund and for
the other investment advisory clients of Putnam Management and
its affiliates are made with a view to achieving their respective
investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or
sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more
other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously
purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which
in Putnam Management's opinion is equitable to each and in
accordance with the amount being purchased or sold by each.
There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on
other clients.
BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock
exchanges, commodities markets and futures markets and other
agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different
brokers. A particular broker may charge different commissions
according to such factors as the difficulty and size of the
transaction. Transactions in foreign investments often involve
the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated
commission in the case of securities traded in the
over-the-counter markets, but the price paid by the Fund usually
includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the
underwriter or dealer. It is anticipated that most purchases and
sales of securities by funds investing primarily in tax-exempt
securities and certain other fixed-income securities will be with
the issuer or with underwriters of or dealers in those
securities, acting as principal. Accordingly, those funds would
not ordinarily pay significant brokerage commissions with respect
to securities transactions. SEE "FUND CHARGES AND EXPENSES" IN
PART I OF THIS STATEMENT FOR INFORMATION CONCERNING COMMISSIONS
PAID BY THE FUND.
It has for many years been a common practice in the investment
advisory business for advisers of investment companies and other
institutional investors to receive brokerage and research
services (as defined in the Securities Exchange Act of 1934, as
amended (the "1934 Act")) from broker-dealers that execute
portfolio transactions for the clients of such advisers and from
third parties with which such broker-dealers have arrangements.
Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from
many broker-dealers with which Putnam Management places the
Fund's portfolio transactions and from third parties with which
these broker-dealers have arrangements. These services include
such matters as general economic and market reviews, industry and
company reviews, evaluations of investments, recommendations as
to the purchase and sale of investments, newspapers, magazines,
pricing services, quotation services, news services and personal
computers utilized by Putnam Management's managers and analysts.
Where the services referred to above are not used exclusively by
Putnam Management for research purposes, Putnam Management, based
upon its own allocations of expected use, bears that portion of
the cost of these services which directly relates to their
non-research use. Some of these services are of value to Putnam
Management and its affiliates in advising various of their
clients (including the Fund), although not all of these services
are necessarily useful and of value in managing the Fund. The
management fee paid by the Fund is not reduced because Putnam
Management and its affiliates receive these services even though
Putnam Management might otherwise be required to purchase some of
these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for the Fund and buys and sells investments
for the Fund through a substantial number of brokers and dealers.
In so doing, Putnam Management uses its best efforts to obtain
for the Fund the most favorable price and execution available,
except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable
price and execution, Putnam Management, having in mind the Fund's
best interests, considers all factors it deems relevant,
including, by way of illustration, price, the size of the
transaction, the nature of the market for the security or other
investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the
broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the
Management Contract, Putnam Management may cause the Fund to pay
a broker-dealer which provides "brokerage and research services"
(as defined in the 1934 Act) to Putnam Management an amount of
disclosed commission for effecting securities transactions on
stock exchanges and other transactions for the Fund on an agency
basis in excess of the commission which another broker-dealer
would have charged for effecting that transaction. Putnam
Management's authority to cause the Fund to pay any such greater
commissions is also subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently
intend to cause the Fund to make such payments. It is the
position of the staff of the Securities and Exchange Commission
that Section 28(e) does not apply to the payment of such greater
commissions in "principal" transactions. Accordingly Putnam
Management will use its best effort to obtain the most favorable
price and execution available with respect to such transactions,
as described above.
The Management Contract provides that commissions, fees,
brokerage or similar payments received by Putnam Management or an
affiliate in connection with the purchase and sale of portfolio
investments of the Fund, less any direct expenses approved by the
Trustees, shall be recaptured by the Fund through a reduction of
the fee payable by the Fund under the Management Contract.
Putnam Management seeks to recapture for the Fund soliciting
dealer fees on the tender of the Fund's portfolio securities in
tender or exchange offers. Any such fees which may be recaptured
are likely to be minor in amount.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking
the most favorable price and execution available and such other
policies as the Trustees may determine, Putnam Management may
consider sales of shares of the Fund (and, if permitted by law,
of the other Putnam funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
PRINCIPAL UNDERWRITER
Putnam Mutual Funds is the principal underwriter of shares of the
Fund and the other continuously offered Putnam funds. Putnam
Mutual Funds is not obligated to sell any specific amount of
shares of the Fund and will purchase shares for resale only
against orders for shares. SEE "FUND CHARGES AND EXPENSES" IN
PART I OF THIS STATEMENT FOR INFORMATION ON SALES CHARGES AND
OTHER PAYMENTS RECEIVED BY PUTNAM MUTUAL FUNDS.
INVESTOR SERVICING AGENT AND CUSTODIAN
Putnam Investor Services, a division of Putnam Fiduciary Trust
Company ("PFTC"), is the Fund's investor servicing agent
(transfer, plan and dividend disbursing agent), for which it
receives fees which are paid monthly by the Fund as an expense of
all its shareholders. The fee paid to Putnam Investor Services
is determined by the Trustees taking into account the number of
shareholder accounts and transactions. Putnam Investor Services
has won the DALBAR Quality Tested Service Seal every year since
the award's 1990 inception. Over 10,000 tests of 38 separate
shareholders service components demonstrated that Putnam Investor
Services exceeded the industry standard in all categories.
PFTC is the custodian of the Fund's assets. In carrying out its
duties under its custodian contract, PFTC may employ one or more
subcustodians whose responsibilities will include safeguarding
and controlling the Fund's cash and securities, handling the
receipt and delivery of securities and collecting interest and
dividends on the Fund's investments. PFTC and any subcustodians
employed by it have a lien on the securities of the Fund (to the
extent permitted by the Fund's investment restrictions) to secure
charges and any advances made by such subcustodians at the end of
any day for the purpose of paying for securities purchased by the
Fund. The Fund expects that such advances will exist only in
unusual circumstances. Neither PFTC nor any subcustodian
determines the investment policies of the Fund or decides which
securities the Fund will buy or sell. PFTC pays the fees and
other charges of any subcustodians employed by it. The Fund may
from time to time pay custodial expenses in full or in part
through the placement by Putnam Management of the Fund's
portfolio transactions with the subcustodians or with a third-
party broker having an agreement with the subcustodians. The
Fund pays PFTC an annual fee based on the Fund's assets,
securities transactions and securities holdings and reimburses
PFTC for certain out-of-pocket expenses incurred by it or any
subcustodian employed by it in performing custodial services.
SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT FOR
INFORMATION ON FEES AND REIMBURSEMENTS FOR INVESTOR SERVICING AND
CUSTODY RECEIVED BY PFTC. THE FEES MAY BE REDUCED BY CREDITS
ALLOWED BY PFTC.
DETERMINATION OF NET ASSET VALUE
The Fund determines the net asset value per share of each class
of shares once each day the New York Stock Exchange (the
"Exchange") is open. Currently, the Exchange is closed
Saturdays, Sundays and the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving and Christmas. The Fund determines net
asset value as of the close of regular trading on the Exchange,
currently 4:00 p.m. However, equity options held by the Fund are
priced as of the close of trading at 4:10 p.m., and futures
contracts on U.S. Government securities and index options held by
the Fund are priced as of their close of trading at 4:15 p.m.
Securities for which market quotations are readily available are
valued at prices which, in the opinion of the Trustees or Putnam
Management, most nearly represent the market values of such
securities. Currently, such prices are determined using the last
reported sale price or, if no sales are reported (as in the case
of some securities traded over-the-counter), the last reported
bid price, except that certain U.S. Government securities are
stated at the mean between the last reported bid and asked
prices. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates
market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees.
Liabilities are deducted from the total, and the resulting amount
is divided by the number of shares of the class outstanding.
Reliable market quotations are not considered to be readily
available for long-term corporate bonds and notes, certain
preferred stocks, tax-exempt securities, and certain foreign
securities. These investments are stated at fair value on the
basis of valuations furnished by pricing services approved by the
Trustees, which determine valuations for normal,
institutional-size trading units of such securities using methods
based on market transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders.
If any securities held by the Fund are restricted as to resale,
Putnam Management determines their fair value following
procedures approved by the Trustees. The fair value of such
securities is generally determined as the amount which the Fund
could reasonably expect to realize from an orderly disposition of
such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary
from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of
the restrictions on disposition of the securities (including any
registration expenses that might be borne by the Fund in
connection with such disposition). In addition, specific factors
are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of
the same class, the size of the holding, the prices
of any recent transactions or offers with respect to such
securities and any available analysts' reports regarding the
issuer.
Generally, trading in certain securities (such as foreign
securities) is substantially completed each day at various times
prior to the close of the Exchange. The values of these
securities used in determining the net asset value of the Fund's
shares are computed as of such times. Also, because of the
amount of time required to collect and process trading
information as to large numbers of securities issues, the values
of certain securities (such as convertible bonds, U.S. Government
securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange.
Occasionally, events affecting the value of such securities may
occur between such times and the close of the Exchange which will
not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such
securities occur during such period, then these securities will
be valued at their fair value following procedures approved by
the Trustees.
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment
Company Act of 1940.
HOW TO BUY SHARES
General
The Prospectus contains a general description of how investors
may buy shares of the Fund and states whether the Fund offers
more than one class of shares. This Statement contains
additional information which may be of interest to investors.
Class A shares and Class M shares are sold with a sales charge
payable at the time of purchase (except for Class A shares and
Class M shares of money market funds). As used in this Statement
and unless the context requires otherwise, the term "Class A
shares" includes shares of Funds that offer only one class of
shares. The Prospectus contains a table of applicable sales
charges. For information about how to purchase Class A shares of
a Putnam fund at net asset value through an employer's defined
contribution plan, please consult your employer. Certain
purchases of Class A shares and Class M shares may be exempt from
a sales charge or, in the case of Class A shares, may be subject
to a contingent deferred sales charge ("CDSC"). See "General--
Sales without sales charges or contingent deferred sales
charges", "Additional Information About Class A and Class M
Shares", and "Contingent Deferred Sales Charges--Class A shares".
Class B shares and Class C shares are sold subject to a CDSC
payable upon redemption within a specified period after purchase.
The Prospectus contains a table of applicable CDSCs.
Class Y shares, which are available only to employer-sponsored
defined contribution plans initially investing at least $250
million in a combination of Putnam funds and other investments
managed by Putnam Management or its affiliates, are not subject
to sales charges or a CDSC.
Certain purchase programs described below are not available to
defined contribution plans. Consult your employer for
information on how to purchase shares through your plan.
The Fund is currently making a continuous offering of its shares.
The Fund receives the entire net asset value of shares sold. The
Fund will accept unconditional orders for shares to be executed
at the public offering price based on the net asset value per
share next determined after the order is placed. In the case of
Class A shares and Class M shares, the public offering price is
the net asset value plus the applicable sales charge, if any. No
sales charge is included in the public offering price of other
classes of shares. In the case of orders for purchase of shares
placed through dealers, the public offering price will be based
on the net asset value determined on the day the order is placed,
but only if the dealer receives the order before the close of
regular trading on the Exchange. If the dealer receives the
order after the close of the Exchange, the price will be based on
the net asset value next determined. If funds for the purchase
of shares are sent directly to Putnam Investor Services, they
will be invested at the public offering price based on the net
asset value next determined after receipt. Payment for shares of
the Fund must be in U.S. dollars; if made by check, the check
must be drawn on a U.S. bank.
Initial and subsequent purchases must satisfy the minimums stated
in the Prospectus, except that (i) individual investments under
certain employee benefit plans or Tax Qualified Retirement Plans
may be lower, (ii) persons who are already shareholders may make
additional purchases of $50 or more by sending funds directly to
Putnam Investor Services (see "Your Investing Account" below),
and (iii) for investors participating in systematic investment
plans and military allotment plans, the initial and subsequent
purchases must be $25 or more. Information about these plans is
available from investment dealers or from Putnam Mutual Funds.
As a convenience to investors, shares may be purchased through a
systematic investment plan. Preauthorized monthly bank drafts
for a fixed amount (at least $25) are used to purchase Fund
shares at the applicable public offering price next determined
after Putnam Mutual Funds receives the proceeds from the draft
(normally the 20th of each month, or the next business day
thereafter). Further information and application forms are
available from investment dealers or from Putnam Mutual Funds.
Except for Putnam funds that declare a distribution daily,
distributions to be reinvested are reinvested without a sales
charge in shares of the same class as of the ex-dividend date
using the net asset value determined on that date, and are
credited to a shareholder's account on the payment date.
Dividends for Putnam money market funds are credited to a
shareholder's account on the payment date. Distributions for
Putnam Tax-Free Income Trust and Putnam Preferred Income Fund are
reinvested without a sales charge as of the last day of the
period for which distributions are paid using the net asset value
determined on that date, and are credited to a shareholder's
account on the payment date. Distributions for all other Putnam
funds that declare a distribution daily are reinvested without a
sales charge as of the next day following the period for which
distributions are paid using the net asset value determined on
that date, and are credited to a shareholder's account on the
payment date.
PAYMENT IN SECURITIES. In addition to cash, the Fund may accept
securities as payment for Fund shares at the applicable net asset
value. Generally, the Fund will only consider accepting
securities to increase its holdings in a portfolio security, or
if Putnam Management determines that the offered securities are a
suitable investment for the Fund and in a sufficient amount for
efficient management.
While no minimum has been established, it is expected that the
Fund would not accept securities with a value of less than
$100,000 per issue as payment for shares. The Fund may reject in
whole or in part any or all offers to pay for purchases of Fund
shares with securities, may require partial payment in cash for
such purchases to provide funds for applicable sales charges, and
may discontinue accepting securities as payment for Fund shares
at any time without notice. The Fund will value accepted
securities in the manner described in the section "Determination
of Net Asset Value" for valuing shares of the Fund. The Fund
will only accept securities which are delivered in proper form.
The Fund will not accept options or restricted securities as
payment for shares. The acceptance of securities by certain
Funds in exchange for Fund shares are subject to additional
requirements. In the case of Putnam American Government Income
Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation
Funds: Balanced Portfolio, Putnam Asset Allocation Funds:
Conservative Portfolio, Putnam Asset Allocation Funds: Growth
Portfolio, Putnam Capital Appreciation Fund, Putnam Preferred
Income Fund, Putnam Diversified Equity Trust, Putnam Equity
Income Fund, Putnam Europe Growth Fund, The Putnam Fund for
Growth & Income, Putnam Global Governmental Income Trust, Putnam
Growth and Income Fund II, Putnam High Yield Advantage Fund,
Putnam Investment Funds, Putnam Intermediate Tax Exempt Fund,
Putnam Investment-Grade Bond Fund, Putnam Municipal Income Fund,
Putnam Natural Resources Fund, Putnam OTC Emerging Growth Fund,
Putnam Overseas Growth Fund, Putnam Tax Exempt Income Fund and
Putnam Tax-Free Income Trust, transactions involving the issuance
of Fund shares for securities or assets other than cash will be
limited to a bona-fide re-organization or statutory merger and to
other acquisitions of portfolio securities that meet all the
following conditions: (a) such securities meet the investment
objectives and policies of the Fund; (b) such securities are
acquired for investment and not for resale; (c) such securities
are liquid securities which are not restricted as to transfer
either by law or liquidity of market; and (d) such securities
have a value which is readily ascertainable, as evidenced by a
listing on the American Stock Exchange, the New York Stock
Exchange or NASDAQ. In addition, Putnam Global Governmental
Income Trust may accept only investment grade bonds with prices
regularly stated in publications generally accepted by investors,
such as the London Financial Times and the Association of
International Bond Dealers manual, or securities listed on the
New York or American Stock Exchanges or with NASDAQ, and Putnam
Diversified Income Trust may accept only bonds with prices
regularly stated in publications generally accepted by investors.
For federal income tax purposes, a purchase of Fund shares with
securities will be treated as a sale or exchange of such
securities on which the investor will realize a taxable gain or
loss. The processing of a purchase of Fund shares with
securities involves certain delays while the Fund considers the
suitability of such securities and while other requirements are
satisfied. For information regarding procedures for payment in
securities, contact Putnam Mutual Funds. Investors should not
send securities to the Fund except when authorized to do so and
in accordance with specific instructions received from Putnam
Mutual Funds.
SALES WITHOUT SALES CHARGES OR CONTINGENT DEFERRED SALES CHARGES.
The Fund may sell shares without a sales charge or CDSC to:
(i) current and retired Trustees of the Fund; officers of
the Fund; directors and current and retired U.S. full-time
employees of Putnam Management, Putnam Mutual Funds, their
parent corporations and certain corporate affiliates;
family members of and employee benefit plans for the
foregoing; and partnerships, trusts or other entities in
which any of the foregoing has a substantial interest;
(ii) employee benefit plans, for the repurchase of shares
in connection with repayment of plan loans made to plan
participants (if the sum loaned was obtained by redeeming
shares of a Putnam fund sold with a sales charge) (not
offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employee
benefit plans which have entered into agreements with
Putnam Mutual Funds (not offered by tax-exempt funds);
(iv) registered representatives and other employees of
broker-dealers having sales agreements with Putnam Mutual
Funds; employees of financial institutions having sales
agreements with Putnam Mutual Funds or otherwise having an
arrangement with any such broker-dealer or financial
institution with respect to sales of Fund shares; and
their spouses and children under age 21 (Putnam Mutual
Funds is regarded as the dealer of record for all such
accounts);
(v) investors meeting certain requirements who sold shares
of certain Putnam closed-end funds pursuant to a tender
offer by such closed-end fund;
(vi) a trust department of any financial institution
purchasing shares of the Fund in its capacity as trustee
of any trust, if the value of the shares of the Fund and
other Putnam funds purchased or held by all such trusts
exceeds $1 million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-
dealers, financial institutions or financial planners who
have entered into agreements with Putnam Mutual Funds with
respect to such accounts.
In addition, the Fund may issue its shares at net asset value in
connection with the acquisition of substantially all of the
securities owned by other investment companies or personal
holding companies.
PAYMENTS TO DEALERS. Putnam Mutual Funds may, at its expense,
pay concessions in addition to the payments disclosed in the
Prospectus to dealers which satisfy certain criteria established
from time to time by Putnam Mutual Funds relating to increasing
net sales of shares of the Putnam funds over prior periods, and
certain other factors.
ADDITIONAL INFORMATION ABOUT CLASS A AND CLASS M SHARES
The underwriter's commission is the sales charge shown in the
Prospectus less any applicable dealer discount. Putnam Mutual
Funds will give dealers ten days' notice of any changes in the
dealer discount. Putnam Mutual Funds retains the entire sales
charge on any retail sales made by it.
Putnam Mutual Funds offers several plans by which an investor may
obtain reduced sales charges on purchases of Class A shares and
Class M shares. The variations in sales charges reflect the
varying efforts required to sell shares to separate categories of
purchasers. These plans may be altered or discontinued at any
time.
COMBINED PURCHASE PRIVILEGE. The following persons may qualify
for the sales charge reductions or eliminations shown in the
Prospectus by combining into a single transaction the purchase of
Class A shares or Class M shares with other purchases of any
class of shares:
(i) an individual, or a "company" as defined in Section
2(a)(8) of the Investment Company Act of 1940 (which
includes corporations which are corporate affiliates of
each other);
(ii) an individual, his or her spouse and their children
under twenty-one, purchasing for his, her or their own
account;
(iii) a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account (including a
pension, profit-sharing, or other employee benefit trust
created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code);
(iv) tax-exempt organizations qualifying under Section
501(c)(3) of the Internal Revenue Code (not including
403(b) plans); and
(v) employee benefit plans of a single employer or of
affiliated employers, other than 403(b) plans.
A combined purchase currently may also include shares of any
class of other continuously offered Putnam funds (other than
money market funds) purchased at the same time through a single
investment dealer, if the dealer places the order for such shares
directly with Putnam Mutual Funds.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A
purchaser of Class A shares or Class M shares may qualify for a
cumulative quantity discount by combining a current purchase (or
combined purchases as described above) with certain other shares
of any class of Putnam funds already owned. The applicable sales
charge is based on the total of:
(i) the investor's current purchase; and
(ii) the maximum public offering price (at the close of
business on the previous day) of:
(a) all shares held by the investor in all of the
Putnam funds (except money market funds); and
(b) any shares of money market funds acquired by
exchange from other Putnam funds; and
(iii) the maximum public offering price of all shares
described in paragraph (ii) owned by another shareholder
eligible to participate with the investor in a "combined
purchase" (see above).
To qualify for the combined purchase privilege or to obtain the
cumulative quantity discount on a purchase through an investment
dealer, when each purchase is made the investor or dealer must
provide Putnam Mutual Funds with sufficient information to verify
that the purchase qualifies for the privilege or discount. The
shareholder must furnish this information to Putnam Investor
Services when making direct cash investments.
STATEMENT OF INTENTION. Investors may also obtain the reduced
sales charges for Class A shares or Class M shares shown in the
Prospectus for investments of a particular amount by means of a
written Statement of Intention, which expresses the investor's
intention to invest that amount (including certain "credits," as
described below) within a period of 13 months in shares of any
class of the Fund or any other continuously offered Putnam fund
(excluding money market funds). Each purchase of Class A shares
or Class M shares under a Statement of Intention will be made at
the public offering price applicable at the time of such purchase
to a single transaction of the total dollar amount indicated in
the Statement. A Statement of Intention may include purchases of
shares made not more than 90 days prior to the date that an
investor signs a Statement; however, the 13-month period during
which the Statement is in effect will begin on the date of the
earliest purchase to be included.
An investor may receive a credit toward the amount indicated in
the Statement equal to the maximum public offering price as of
the close of business on the previous day of all shares he or she
owns on the date of the Statement which are eligible for purchase
under a Statement (plus any shares of money market funds acquired
by exchange of such eligible shares). Investors do not receive
credit for shares purchased by the reinvestment of distributions.
Investors qualifying for the "combined purchase privilege" (see
above) may purchase shares under a single Statement of Intention.
The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum
initial investment under a Statement of Intention is 5% of such
amount, and must be invested immediately. Class A shares or
Class M shares purchased with the first 5% of such amount will be
held in escrow to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased. When the full amount indicated has
been purchased, the escrow will be released. If an investor
desires to redeem escrowed shares before the full amount has been
purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the
Statement of Intention, would apply to the total investment made
to date.
To the extent that an investor purchases more than the dollar
amount indicated on the Statement of Intention and qualifies for
a further reduced sales charge, the sales charge will be adjusted
for the entire amount purchased at the end of the 13-month
period, upon recovery from the investor's dealer of its portion
of the sales charge adjustment. Once received from the dealer,
which may take a period of time or may never occur, the sales
charge adjustment will be used to purchase additional shares at
the then current offering price applicable to the actual amount
of the aggregate purchases. These additional shares will not be
considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement
of Intention. No sales charge adjustment will be made unless and
until the investor's dealer returns any excess commissions
previously received.
To the extent that an investor purchases less than the dollar
amount indicated on the Statement of Intention within the 13-
month period, the sales charge will be adjusted upward for the
entire amount purchased at the end of the 13-month period. This
adjustment will be made by redeeming shares from the account to
cover the additional sales charge, the proceeds of which will be
paid to the investor's dealer and Putnam Mutual Funds in
accordance with the Prospectus. If the account exceeds an amount
that would otherwise qualify for a reduced sales charge, that
reduced sales charge will be applied.
Statements of Intention are not available for certain employee
benefit plans.
Statement of Intention forms may be obtained from Putnam Mutual
Funds or from investment dealers. Interested investors should
read the Statement of Intention carefully.
REDUCED SALES CHARGE FOR GROUP PURCHASES OF CLASS A SHARES.
Members of qualified groups may purchase Class A shares of the
Fund at a group sales charge rate of 4.5% of the public offering
price (4.71% of the net amount invested). The dealer discount on
such sales is 3.75% of the offering price.
To receive the group rate, group members must purchase Class A
shares through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial
purchase to Putnam Mutual Funds, together with payment and
completed application forms. After the initial purchase, a
member may send funds for the purchase of Class A shares directly
to Putnam Investor Services. Purchases of Class A shares are
made at the public offering price based on the net asset value
next determined after Putnam Mutual Funds or Putnam Investor
Services receives payment for the shares. The minimum investment
requirements described above apply to purchases by any group
member. Only Class A shares are included in calculating the
purchased amount.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or
association, or other organized groups of persons (the members of
which may include other qualified groups) provided that: (i) the
group has at least 25 members of which at least 10 members
participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some
purpose in addition to the purchase of investment company shares
at a reduced sales charge; (iv) the group's sole organizational
nexus or connection is not that the members are credit card
holders of a company, policy holders of an insurance company,
customers of a bank or broker-dealer, clients of an investment
adviser or security holders of a company; (v) the group agrees to
provide its designated investment dealer access to the group's
membership by means of written communication or direct
presentation to the membership at a meeting on not less
frequently than an annual basis; (vi) the group or its investment
dealer will provide annual certification in form satisfactory to
Putnam Investor Services that the group then has at least 25
members and that at least ten members participated in group
purchases during the immediately preceding 12 calendar months;
and (vii) the group or its investment dealer will provide
periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the
group.
Members of a qualified group include: (i) any group which meets
the requirements stated above and which is a constituent member
of a qualified group; (ii) any individual purchasing for his or
her own account who is carried on the records of the group or on
the records of any constituent member of the group as being a
good standing employee, partner, member or person of like status
of the group or constituent member; or (iii) any fiduciary
purchasing shares for the account of a member of a qualified
group or a member's beneficiary. For example, a qualified group
could consist of a trade association which would have as its
members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the
members of the partnerships and their employees, and the
corporations and their employees, as well as the trustees of
employee benefit trusts acquiring Class A shares for the benefit
of any of the foregoing.
A member of a qualified group may, depending upon the value of
Class A shares of the Fund owned or proposed to be purchased by
the member, be entitled to purchase Class A shares of the Fund at
non-group sales charge rates shown in the Prospectus which may be
lower than the group sales charge rate, if the member qualifies
as a person entitled to reduced non-group sales charges. Such a
group member will be entitled to purchase at the lower rate if,
at the time of purchase, the member or his or her investment
dealer furnishes sufficient information for Putnam Mutual Funds
or Putnam Investor Services to verify that the purchase qualifies
for the lower rate.
Interested groups should contact their investment dealer or
Putnam Mutual Funds. The Fund reserves the right to revise the
terms of or to suspend or discontinue group sales at any time.
EMPLOYEE BENEFIT PLANS; INDIVIDUAL ACCOUNT PLANS. The term
"employee benefit plan" means any plan or arrangement, whether or
not tax-qualified, which provides for the purchase of Class A
shares. The term "affiliated employer" means employers who are
affiliated with each other within the meaning of Section
2(a)(3)(C) of the Investment Company Act of 1940. The term
"individual account plan" means any employee benefit plan whereby
(i) Class A shares are purchased through payroll deductions or
otherwise by a fiduciary or other person for the account of
participants who are employees (or their spouses) of an employer,
or of affiliated employers, and (ii) a separate Investing Account
is maintained in the name of such fiduciary or other person for
the account of each participant in the plan.
The table of sales charges in the Prospectus applies to sales to
employee benefit plans, except that the Fund may sell Class A
shares at net asset value to employee benefit plans, including
individual account plans, of employers or of affiliated employers
which have at least 750 employees to whom such plan is made
available, in connection with a payroll deduction system of plan
funding (or other system acceptable to Putnam Investor Services)
by which contributions or account information for plan
participation are transmitted to Putnam Investor Services by
methods acceptable to Putnam Investor Services. The Fund may
also sell Class A shares at net asset value to employee benefit
plans of employers or of affiliated employers which have at least
750 employees, if such plans are qualified under Section 401 of
the Internal Revenue Code.
Additional information about employee benefit plans and
individual account plans is available from investment dealers or
from Putnam Mutual Funds.
<PAGE>
CONTINGENT DEFERRED SALES CHARGES
CLASS A SHARES. Class A shares purchased at net asset value by
shareholders investing $1 million or more, including purchases
pursuant to any Combined Purchase Privilege, Right of
Accumulation or Statement of Intention, are subject to a CDSC of
1.00% or 0.50%, respectively, if redeemed within the first or
second year after purchase. The Class A CDSC is imposed on the
lower of the cost and the current net asset value of the shares
redeemed. The CDSC does not apply to shares sold without a sales
charge through participant-directed qualified retirement plans
and shares purchased by certain investors investing $1 million or
more that have made arrangements with Putnam Mutual Funds and
whose dealer of record waived the commission described in the
next paragraph.
Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of Class A shares of $1
million or more based on an investor's cumulative purchases of
such shares, including purchases pursuant to any Combined
Purchase Privilege, Right of Accumulation or Statement of
Intention, during the one-year period beginning with the date of
the initial purchase at net asset value and each subsequent one-
year period beginning with the first net asset value purchase
following the end of the prior period. Such commissions are paid
at the rate of 1.00% of the amount under $3 million, 0.50% of the
next $47 million and 0.25% thereafter. On sales at net asset
value to a participant-directed qualified retirement plan
initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates
(including a plan sponsored by an employer with more than 750
employees), Putnam Mutual Funds pays commissions on cumulative
purchases during the life of the account at the rate of 1.00% of
the amount under $3 million and 0.50% thereafter. On sales at
net asset value to all other participant-directed qualified
retirement plans, Putnam Mutual Funds pays commissions on the
initial investment and on subsequent net quarterly sales (gross
sales minus gross redemptions during the quarter) at the rate of
0.15%. Money market fund shares are excluded from all commission
calculations, except for determining the amount initially
invested by a participant-directed qualified retirement plan.
Commissions on sales at net asset value to such plans are subject
to Putnam Mutual Funds' right to reclaim such commissions if the
shares are redeemed within two years.
Different CDSC and commission rates may apply to shares purchased
before April 1, 1994.
CLASS B AND CLASS C SHARES. Investors who set up an Automatic
Cash Withdrawal Plan (ACWP) for a Class B and Class C share
account (see "Plans Available To Shareholders -- Automatic Cash
Withdrawal Plan") may withdraw through the ACWP up to 12% of the
net asset value of the account (calculated as set forth below)
each year without incurring any CDSC. Shares not subject to a
CDSC (such as shares representing reinvestment of distributions)
will be redeemed first and will count toward the 12% limitation.
If there are insufficient shares not subject to a CDSC, shares
subject to the lowest CDSC liability will be redeemed next until
the 12% limit is reached. The 12% figure is calculated on a pro
rata basis at the time of the first payment made pursuant to a
ACWP and recalculated thereafter on a pro rata basis at the time
of each ACWP payment. Therefore, shareholders who have chosen a
ACWP based on a percentage of the net asset value of their
account of up to 12% will be able to receive ACWP payments
without incurring a CDSC. However, shareholders who have chosen
a specific dollar amount (for example, $100 per month from a fund
that pays income distributions monthly) for their periodic ACWP
payment should be aware that the amount of that payment not
subject to a CDSC may vary over time depending on the net asset
value of their account. For example, if the net asset value of
the account is $10,000 at the time of payment, the shareholder
will receive $100 free of the CDSC (12% of $10,000 divided by 12
monthly payments). However, if at the time of the next payment
the net asset value of the account has fallen to $9,400, the
shareholder will receive $94 free of any CDSC (12% of $9,400
divided by 12 monthly payments) and $6 subject to the lowest
applicable CDSC. This ACWP privilege may be revised or
terminated at any time.
ALL SHARES. No CDSC is imposed on shares of any class subject to
a CDSC ("CDSC Shares") to the extent that the CDSC Shares
redeemed (i) are no longer subject to the holding period
therefor, (ii) resulted from reinvestment of distributions on
CDSC Shares, or (iii) were exchanged for shares of another Putnam
fund, provided that the shares acquired in such exchange or
subsequent exchanges (including shares of a Putnam money market
fund) will continue to remain subject to the CDSC, if applicable,
until the applicable holding period expires. In determining
whether the CDSC applies to each redemption of CDSC Shares, CDSC
Shares not subject to a CDSC are redeemed first.
The Fund will waive any CDSC on redemptions, in the case of
individual or Uniform Transfers to Minors Act accounts, in case
of death or disability or for the purpose of paying benefits
pursuant to tax-qualified retirement plans. Such payments
currently include, without limitation, (1) distributions from an
IRA due to death or disability, (2) a return of excess
contributions to an IRA or 401(k) plan, and (3) distributions
from retirement plans qualified under section 401(a) or section
403(b)(7) (a "403(b) plan") of the Internal Revenue Code of 1986,
as amended (the "Code"), due to death, disability, retirement or
separation from service. The Fund will also waive any CDSC in
the case of the death of one joint tenant. These waivers may be
changed at any time. Additional waivers may apply to IRA
accounts opened prior to February 1, 1994.
<PAGE>
DISTRIBUTION PLAN
If the Fund or a class of shares of the Fund has adopted a
Distribution Plan, the Prospectus describes the principal
features of the Plan. This Statement contains additional
information which may be of interest to investors.
Continuance of a Plan is subject to annual approval by a vote of
the Trustees, including a majority of the Trustees who are not
interested persons of the Fund and who have no direct or indirect
interest in the Plan or related arrangements (the "Qualified
Trustees"), cast in person at a meeting called for that purpose.
All material amendments to a Plan must be likewise approved by
the Trustees and the Qualified Trustees. No Plan may be amended
in order to increase materially the costs which the Fund may bear
for distribution pursuant to such Plan without also being
approved by a majority of the outstanding voting securities of
the Fund or the relevant class of the Fund, as the case may be.
A Plan terminates automatically in the event of its assignment
and may be terminated without penalty, at any time, by a vote of
a majority of the Qualified Trustees or by a vote of a majority
of the outstanding voting securities of the Fund or the relevant
class of the Fund, as the case may be.
If Plan payments are made to reimburse Putnam Mutual Funds for
payments to dealers based on the average net asset value of Fund
shares attributable to shareholders for whom the dealers are
designated as the dealer of record, "average net asset value"
attributable to a shareholder account means the product of (i)
the Fund's average daily share balance of the account and (ii)
the Fund's average daily net asset value per share (or the
average daily net asset value per share of the class, if
applicable). For administrative reasons, Putnam Mutual Funds may
enter into agreements with certain dealers providing for the
calculation of "average net asset value" on the basis of assets
of the accounts of the dealer's customers on an established day
in each quarter.
Financial institutions receiving payments from Putnam Mutual
Funds as described above may be required to comply with various
state and federal regulatory requirements, including among others
those regulating the activities of securities brokers or dealers.
INVESTOR SERVICES
SHAREHOLDER INFORMATION
Each time shareholders buy or sell shares, they will receive a
statement confirming the transaction and listing their current
share balance. (Under certain investment plans, a statement may
only be sent quarterly.) Shareholders will receive a statement
confirming reinvestment of distributions in additional Fund
shares (or in shares of other Putnam funds for Dividends Plus
accounts) promptly following the quarter in which the
reinvestment occurs. To help shareholders take full advantage of
their Putnam investment, they will receive a Welcome Kit and a
periodic publication covering many topics of interest to
investors. The Fund also sends annual and semiannual reports
that keep shareholders informed about its portfolio and
performance, and year-end tax information to simplify their
recordkeeping. Easy-to-read, free booklets on special subjects
such as the Exchange Privilege and IRAs are available from Putnam
Investor Services. Shareholders may call Putnam Investor
Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m.
and 7:00 p.m. Boston time for more information, including account
balances.
YOUR INVESTING ACCOUNT
The following information provides more detail concerning the
operation of a Putnam Investing Account. For further information
or assistance, investors should consult Putnam Investor Services.
Shareholders who purchase shares through a defined contribution
plan should note that not all of the services or features
described below may be available to them, and they should contact
their employer for details.
A shareholder may reinvest a recent cash distribution without a
front-end sales charge or without the reinvested shares being
subject to a CDSC, as the case may be, by delivering to Putnam
Investor Services the uncashed distribution check, endorsed to
the order of the Fund. Putnam Investor Services must receive the
properly endorsed check within 30 days after the date of the
check. Upon written notice to shareholders, the Fund may permit
shareholders who receive cash distributions to reinvest amounts
representing returns of capital without a sales charge or without
being subject to the CDSC.
The Investing Account also provides a way to accumulate shares of
the Fund. In most cases, after an initial investment of $500, a
shareholder may send checks to Putnam Investor Services for $50
or more, made payable to the Fund, to purchase additional shares
at the applicable public offering price next determined after
Putnam Investor Services receives the check. For Putnam
Preferred Income Fund, the minimum initial investment is $25,000
and the minimum subsequent investment is $5,000. Checks must be
drawn on a U.S. bank and must be payable in U.S. dollars.
Putnam Investor Services acts as the shareholder's agent whenever
it receives instructions to carry out a transaction on the
shareholder's account. Upon receipt of instructions that shares
are to be purchased for a shareholder's account, shares will be
purchased through the investment dealer designated by the
shareholder. Shareholders may change investment dealers at any
time by written notice to Putnam Investor Services, provided the
new dealer has a sales agreement with Putnam Mutual Funds.
Shares credited to an account are transferable upon written
instructions in good order to Putnam Investor Services and may be
sold to the Fund as described under "How to buy shares, sell
shares and exchange shares" in the Prospectus. Money market
funds and certain other funds will not issue share certificates.
A shareholder may send any certificates which have been
previously issued to Putnam Investor Services for safekeeping at
no charge to the shareholder.
Putnam Mutual Funds, at its expense, may provide certain
additional reports and administrative material to qualifying
institutional investors with fiduciary responsibilities to assist
these investors in discharging their responsibilities.
Institutions seeking further information about this service
should contact Putnam Mutual Funds, which may modify or terminate
this service at any time.
Putnam Investor Services may make special services available to
shareholders with investments exceeding $1,000,000. Contact
Putnam Investor Services for details.
The Fund pays Putnam Investor Services' fees for maintaining
Investing Accounts.
REINSTATEMENT PRIVILEGE
An investor who has redeemed shares to the Fund may reinvest
(within 1 year) the proceeds of such sale in shares of the same
class of the Fund, or may be able to reinvest (within 1 year) the
proceeds in shares of the same class of one of the other
continuously offered Putnam funds (through the Exchange Privilege
described in the Prospectus), including, in the case of shares
subject to a CDSC, the amount of CDSC charged on the redemption.
Any such reinvestment would be at the net asset value of the
shares of the fund(s) the investor selects, next determined after
Putnam Mutual Funds receives a Reinstatement Authorization. The
time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions and, in the
case of Class B shares, the eight-year period for conversion to
Class A shares. Shareholders will receive from Putnam Mutual
Funds the amount of any CDSC paid at the time of redemption as
part of the reinstated investment, which may be treated as
capital gains to the shareholder for tax purposes. Exercise of
the Reinstatement Privilege does not alter the federal income tax
treatment of any capital gains realized on a sale of Fund shares,
but to the extent that any shares are sold at a loss and the
proceeds are reinvested in shares of the Fund, some or all of the
loss may be disallowed as a deduction. Consult your tax adviser.
Investors who desire to exercise this Privilege should contact
their investment dealer or Putnam Investor Services.
EXCHANGE PRIVILEGE
Except as otherwise set forth in this section, by calling Putnam
Investor Services, investors may exchange shares valued up to
$500,000 between accounts with identical registrations, provided
that no certificates are outstanding for such shares and no
address change has been made within the preceding 15 days.
During periods of unusual market changes and shareholder
activity, shareholders may experience delays in contacting Putnam
Investor Services by telephone to exercise the Telephone Exchange
Privilege.
Putnam Investor Services also makes exchanges promptly after
receiving a properly completed Exchange Authorization Form and,
if issued, share certificates. If the shareholder is a
corporation, partnership, agent, or surviving joint owner, Putnam
Investor Services will require additional documentation of a
customary nature. Because an exchange of shares involves the
redemption of Fund shares and reinvestment of the proceeds in
shares of another Putnam fund, completion of an exchange may be
delayed under unusual circumstances if the Fund were to suspend
redemptions or postpone payment for the Fund shares being
exchanged, in accordance with federal securities laws. Exchange
Authorization Forms and prospectuses of the other Putnam funds
are available from Putnam Mutual Funds or investment dealers
having sales contracts with Putnam Mutual Funds. The prospectus
of each fund describes its investment objective(s) and policies,
and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
Shares of certain Putnam funds are not available to residents of
all states. The Fund reserves the right to change or suspend the
Exchange Privilege at any time. Shareholders would be notified
of any change or suspension. Additional information is available
from Putnam Investor Services.
Shares of the Fund must be held at least 15 days by the
shareholder requesting an exchange. There is no holding period
if the shareholder acquired the shares to be exchanged through
reinvestment of distributions, transfer from another shareholder,
prior exchange or certain employer-sponsored defined contribution
plans. In all cases, the shares to be exchanged must be
registered on the records of the Fund in the name of the
shareholder requesting the exchange.
Shareholders of other Putnam funds may also exchange their shares
at net asset value for shares of the Fund, as set forth in the
current prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which
the investor generally will realize a capital gain or loss
depending on whether the net asset value at the time of the
exchange is more or less than the investor's basis. The Exchange
Privilege may be revised or terminated at any time. Shareholders
would be notified of any such change or suspension.
DIVIDENDS PLUS
Shareholders may invest the Fund's distributions of net
investment income or distributions combining net investment
income and short-term capital gains in shares of the same class
of another continuously offered Putnam fund (the "receiving
fund") using the net asset value per share of the receiving fund
determined on the date the Fund's distribution is payable. No
sales charge or CDSC will apply to the purchased shares unless
the Fund is a money market fund. The prospectus of each fund
describes its investment objective(s) and policies, and
shareholders should obtain a prospectus and consider these
objective(s) and policies carefully before investing their
distributions in the receiving fund. Shares of certain Putnam
funds are not available to residents of all states.
The minimum account size requirement for the receiving fund will
not apply if the current value of your account in this Fund is
more than $5,000.
Shareholders of other Putnam funds (except for money market
funds, whose shareholders must pay a sales charge or become
subject to a CDSC) may also use their distributions to purchase
shares of the Fund at net asset value.
For federal tax purposes, distributions from the Fund which are
reinvested in another fund are treated as paid by the Fund to the
shareholder and invested by the shareholder in the receiving fund
and thus, to the extent comprised of taxable income and deemed
paid to a taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any
time.
PLANS AVAILABLE TO SHAREHOLDERS
The Plans described below are fully voluntary and may be
terminated at any time without the imposition by the Fund or
Putnam Investor Services of any penalty. All Plans provide for
automatic reinvestment of all distributions in additional shares
of the Fund at net asset value. The Fund, Putnam Mutual Funds or
Putnam Investor Services may modify or cease offering these Plans
at any time.
AUTOMATIC CASH WITHDRAWAL PLAN. An investor who owns or buys
shares of the Fund valued at $10,000 or more at the current
public offering price may open a Withdrawal Plan and have a
designated sum of money ($50 or more) paid monthly, quarterly,
semi-annually or annually to the investor or another person.
(Payments from the Fund can be combined with payments from other
Putnam funds into a single check through a Designated Payment
Plan.) Shares are deposited in a Plan account, and all
distributions are reinvested in additional shares of the Fund at
net asset value (except where the Plan is utilized in connection
with a charitable remainder trust). Shares in a Plan account are
then redeemed at net asset value to make each withdrawal payment.
Payment will be made to any person the investor designates;
however, if shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary,
except in the case of a profit-sharing or pension plan where
payment will be made to a designee. As withdrawal payments may
include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor.
The redemption of shares in connection with a Withdrawal Plan
generally will result in a gain or loss for tax purposes. Some
or all of the losses realized upon redemption may be disallowed
pursuant to the so-called wash sale rules if shares of the same
fund from which shares were redeemed are purchased (including
through the reinvestment of fund distributions) within a period
beginning 30 days before, and ending 30 days after, such
redemption. In such a case, the basis of the replacement shares
will be increased to reflect the disallowed loss. Continued
withdrawals in excess of income will reduce and possibly exhaust
invested principal, especially in the event of a market decline.
The maintenance of a Withdrawal Plan concurrently with purchases
of additional shares of the Fund would be disadvantageous to the
investor because of the sales charge payable on such purchases.
For this reason, the minimum investment accepted while a
Withdrawal Plan is in effect is $1,000, and an investor may not
maintain a Plan for the accumulation of shares of the Fund (other
than through reinvestment of distributions) and a Withdrawal Plan
at the same time. The cost of administering these Plans for the
benefit of those shareholders participating in them is borne by
the Fund as an expense of all shareholders. The Fund, Putnam
Mutual Funds or Putnam Investor Services may terminate or change
the terms of the Withdrawal Plan at any time. A Withdrawal Plan
will be terminated if communications mailed to the shareholder
are returned as undeliverable.
Investors should consider carefully with their own financial
advisers whether the Plan and the specified amounts to be
withdrawn are appropriate in their circumstances. The Fund and
Putnam Investor Services make no recommendations or
representations in this regard.
TAX QUALIFIED RETIREMENT PLANS; 403(B) AND SEP PLANS. (NOT
OFFERED BY FUNDS INVESTING PRIMARILY IN TAX-EXEMPT SECURITIES.)
Investors may purchase shares of the Fund through the following
Tax Qualified Retirement Plans, available to qualified
individuals or organizations:
Standard and variable profit-sharing (including 401(k))
and money purchase pension plans; and
Individual Retirement Account Plans (IRAs).
Each of these Plans has been qualified as a prototype plan by the
Internal Revenue Service. Putnam Investor Services will furnish
services under each plan at a specified annual cost. Putnam
Fiduciary Trust Company serves as trustee under each of these
Plans.
Forms and further information on these Plans are available from
investment dealers or from Putnam Mutual Funds. In addition,
specialized professional plan administration services are
available on an optional basis; contact Putnam Defined
Contribution Plan Services at 1-800-225-2465, extension 8600.
A 403(b) Retirement Plan is available for employees of public
school systems and organizations which meet the requirements of
Section 501(c)(3) of the Internal Revenue Code. Forms and
further information on the 403(b) Plan are also available from
investment dealers or from Putnam Mutual Funds. Shares of the
Fund may also be used in simplified employee pension (SEP) plans.
For further information on the Putnam prototype SEP plan, contact
an investment dealer or Putnam Mutual Funds.
Consultation with a competent financial and tax adviser regarding
these Plans and consideration of the suitability of Fund shares
as an investment under the Employee Retirement Income Security
Act of 1974, or otherwise, is recommended.
SIGNATURE GUARANTEES
Redemption requests for shares having a net asset value of
$100,000 or more must be signed by the registered owners or their
legal representatives and must be guaranteed by a bank,
broker/dealer, municipal securities dealer or broker, government
securities dealer or broker, credit union, national securities
exchange, registered securities association, clearing agency,
savings association or trust company, provided such institution
is acceptable under and conforms with Putnam Fiduciary Trust
Company's signature guarantee procedures. A copy of such
procedures is available upon request. If you want your
redemption proceeds sent to an address other than your address as
it appears on Putnam's records, you must provide a signature
guarantee. Putnam Investor Services usually requires additional
documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
SUSPENSION OF REDEMPTIONS
The Fund may not suspend shareholders' right of redemption, or
postpone payment for more than seven days, unless the New York
Stock Exchange is closed for other than customary weekends or
holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange
is restricted or during any emergency which makes it
impracticable for the Fund to dispose of its securities or to
determine fairly the value of its net assets, or during any other
period permitted by order of the Commission for protection of
investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Fund. However, the Agreement and Declaration of Trust
disclaims shareholder liability for acts or obligations of the
Fund and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
the Fund or the 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 Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to
meet its obligations. The likelihood of such circumstances is
remote.
STANDARD PERFORMANCE MEASURES
Yield and total return data for the Fund may from time to time be
presented in Part I of this Statement and in advertisements. In
the case of funds with more than one class of shares, all
performance information is calculated separately for each class.
The data is calculated as follows.
Total return for one-, five- and ten-year periods (or for such
shorter periods as the Fund has been in operation or shares of
the relevant class have been outstanding) is determined by
calculating the actual dollar amount of investment return on a
$1,000 investment in the Fund made at the beginning of the
period, at the maximum public offering price for Class A shares
and Class M shares and net asset value for other classes of
shares, and then calculating the annual compounded rate of return
which would produce that amount. Total return for a period of
one year is equal to the actual return of the Fund during that
period. Total return calculations assume deduction of the Fund's
maximum sales charge or CDSC, if applicable, and reinvestment of
all Fund distributions at net asset value on their respective
reinvestment dates.
The Fund's yield is presented for a specified thirty-day period
(the "base period"). Yield is based on the amount determined by
(i) calculating the aggregate amount of dividends and interest
earned by the Fund during the base period less expenses accrued
for that period, and (ii) dividing that amount by the product of
(A) the average daily number of shares of the Fund outstanding
during the base period and entitled to receive dividends and (B)
the per share maximum public offering price for Class A shares or
Class M shares, as appropriate and net asset value for other
classes of shares on the last day of the base period. The result
is annualized on a compounding basis to determine the yield. For
this calculation, interest earned on debt obligations held by the
Fund is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their
market values (or, in the case of receivables-backed securities
such as GNMA's, based on cost). Dividends on equity securities
are accrued daily at their stated dividend rates.
If the Fund is a money market fund, yield is computed by
determining the percentage net change, excluding capital changes,
in the value of an investment in one share over the seven-day
period for which yield is presented (the "base period"), and
multiplying the net change by 365/7 (or approximately 52 weeks).
Effective yield represents a compounding of the yield by adding 1
to the number representing the percentage change in value of the
investment during the base period, raising that sum to a power
equal to 365/7, and subtracting 1 from the result.
If the Fund is a tax-exempt fund, the tax-equivalent yield during
the base period may be presented for shareholders in one or more
stated tax brackets. Tax-equivalent yield is calculated by
adjusting the tax-exempt yield by a factor designed to show the
approximate yield that a taxable investment would have to earn to
produce an after-tax yield equal, for that shareholder, to the
tax-exempt yield. The tax-equivalent yield will differ for
shareholders in other tax brackets.
At times, Putnam Management may reduce its compensation or assume
expenses of the Fund in order to reduce the Fund's expenses. The
per share amount of any such fee reduction or assumption of
expenses during the Fund's past ten fiscal years (or for the life
of the Fund, if shorter) is reflected in the table in the section
entitled "Financial history" in the Prospectus. Any such fee
reduction or assumption of expenses would increase the Fund's
yield and total return during the period of the fee reduction or
assumption of expenses.
All data are based on past performance and do not predict future
results.
COMPARISON OF PORTFOLIO PERFORMANCE
Independent statistical agencies measure the Fund's investment
performance and publish comparative information showing how the
Fund, and other investment companies, performed in specified time
periods. Three agencies whose reports are commonly used for such
comparisons are set forth below. From time to time, the Fund may
distribute these comparisons to its shareholders or to potential
investors. THE AGENCIES LISTED BELOW MEASURE PERFORMANCE BASED
ON THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED
PERFORMANCE MEASURES DESCRIBED IN THE PRECEDING SECTION.
LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund
rankings monthly. The rankings are based on total return
performance calculated by Lipper, reflecting generally
changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a
variety of performance periods, for example year-to-date,
1-year, 5-year, and 10-year performance. Lipper
classifies mutual funds by investment objective and asset
category.
MORNINGSTAR, INC. distributes mutual fund ratings twice a
month. The ratings are divided into five groups:
highest, above average, neutral, below average and lowest.
They represent a fund's historical risk/reward ratio
relative to other funds with similar objectives. The
performance factor is a weighted-average assessment of the
Fund's 3-year, 5-year, and 10-year total return
performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using
quantitative techniques to reflect the risk profile of the
fund. The ratings are derived from a purely quantitative
system that does not utilize the subjective criteria
customarily employed by rating agencies such as Standard &
Poor's Corporation and Moody's Investor Service, Inc.
CDA/WIESENBERGER'S MANAGEMENT RESULTS publishes mutual
fund rankings and is distributed monthly. The rankings
are based entirely on total return calculated by
Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year. Mutual funds are ranked in
general categories (e.g., international bond,
international equity, municipal bond, and maximum capital
gain). Weisenberger rankings do not reflect deduction of
sales charges or fees.
Independent publications may also evaluate the Fund's
performance. Certain of those publications are listed below, at
the request of Putnam Mutual Funds, which bears full
responsibility for their use and the descriptions appearing
below. From time to time the Fund may distribute evaluations by
or excerpts from these publications to its shareholders or to
potential investors. The following illustrates the types of
information provided by these publications.
BUSINESS WEEK publishes mutual fund rankings in its
Investment Figures of the Week column. The rankings are
based on 4-week and 52-week total return reflecting
changes in net asset value and the reinvestment of all
distributions. They do not reflect deduction of any sales
charges. Funds are not categorized; they compete in a
large universe of over 2000 funds. The source for
rankings is data generated by Morningstar, Inc.
INVESTOR'S BUSINESS DAILY publishes mutual fund rankings
on a daily basis. The rankings are depicted as the top 25
funds in a given category. The categories are based
loosely on the type of fund, e.g., growth funds, balanced
funds, U.S. government funds, GNMA funds, growth and
income funds, corporate bond funds, etc. Performance
periods for sector equity funds can vary from 4 weeks to
39 weeks; performance periods for other fund groups vary
from 1 year to 3 years. Total return performance reflects
changes in net asset value and reinvestment of dividends
and capital gains. The rankings are based strictly on
total return. They do not reflect deduction of any sales
charges. Performance grades are conferred from A+ to E.
An A+ rating means that the fund has performed within the
top 5% of a general universe of over 2000 funds; an A
rating denotes the top 10%; an A- is given to the top 15%,
etc.
BARRON'S periodically publishes mutual fund rankings. The
rankings are based on total return performance provided by
Lipper Analytical Services. The Lipper total return data
reflects changes in net asset value and reinvestment of
distributions, but does not reflect deduction of any sales
charges. The performance periods vary from short-term
intervals (current quarter or year-to-date, for example)
to long-term periods (five-year or ten-year performance,
for example). Barron's classifies the funds using the
Lipper mutual fund categories, such as Capital
Appreciation Funds, Growth Funds, U.S. Government Funds,
Equity Income Funds, Global Funds, etc. Occasionally,
Barron's modifies the Lipper information by ranking the
funds in asset classes. "Large funds" may be those with
assets in excess of $25 million; "small funds" may be
those with less than $25 million in assets.
THE WALL STREET JOURNAL publishes its Mutual Fund
Scorecard on a daily basis. Each Scorecard is a ranking
of the top-15 funds in a given Lipper Analytical Services
category. Lipper provides the rankings based on its total
return data reflecting changes in net asset value and
reinvestment of distributions and not reflecting any sales
charges. The Scorecard portrays 4-week, year-to-date,
one-year and 5-year performance; however, the ranking is
based on the one-year results. The rankings for any given
category appear approximately once per month.
FORTUNE magazine periodically publishes mutual fund
rankings that have been compiled for the magazine by
Morningstar, Inc. Funds are placed in stock or bond fund
categories (for example, aggressive growth stock funds,
growth stock funds, small company stock funds, junk bond
funds, Treasury bond funds, etc.), with the top-10 stock
funds and the top-5 bond funds appearing in the rankings.
The rankings are based on 3-year annualized total return
reflecting changes in net asset value and reinvestment of
distributions and not reflecting sales charges.
Performance is adjusted using quantitative techniques to
reflect the risk profile of the fund.
MONEY magazine periodically publishes mutual fund rankings
on a database of funds tracked for performance by Lipper
Analytical Services. The funds are placed in 23 stock or
bond fund categories and analyzed for five-year risk
adjusted return. Total return reflects changes in net
asset value and reinvestment of all dividends and capital
gains distributions and does not reflect deduction of any
sales charges. Grades are conferred (from A to E): the
top 20% in each category receive an A, the next 20% a B,
etc. To be ranked, a fund must be at least one year old,
accept a minimum investment of $25,000 or less and have
had assets of at least $25 million as of a given date.
FINANCIAL WORLD publishes its monthly Independent
Appraisals of Mutual Funds, a survey of approximately 1000
mutual funds. Funds are categorized as to type, e.g.,
balanced funds, corporate bond funds, global bond funds,
growth and income funds, U.S. government bond funds, etc.
To compete, funds must be over one year old, have over $1
million in assets, require a maximum of $10,000 initial
investment, and should be available in at least 10 states
in the United States. The funds receive a composite past
performance rating, which weighs the intermediate- and
long-term past performance of each fund versus its
category, as well as taking into account its risk, reward
to risk, and fees. An A+ rated fund is one of the best,
while a D-rated fund is one of the worst. The source for
Financial World rating is Schabacker investment management
in Rockville, MD.
FORBES magazine periodically publishes mutual fund ratings
based on performance over at least two bull and bear
market cycles. The funds are categorized by type,
including stock and balanced funds, taxable bond funds,
municipal bond funds, etc. Data sources include Lipper
Analytical Services and CDA Investment Technologies. The
ratings are based strictly on performance at net asset
value over the given cycles. Funds performing in the top
5% receive an A+ rating; the top 15% receive an A rating;
and so on until the bottom 5% receive an F rating. Each
fund exhibits two ratings, one for performance in "up"
markets and another for performance in "down" markets.
KIPLINGER'S PERSONAL FINANCE MAGAZINE (formerly Changing
Times), periodically publishes rankings of mutual funds
based on one-, three- and five-year total return
performance reflecting changes in net asset value and
reinvestment of dividends and capital gains and not
reflecting deduction of any sales charges. Funds are
ranked by tenths: a rank of 1 means that a fund was among
the highest 10% in total return for the period; a rank of
10 denotes the bottom 10%. Funds compete in categories of
similar funds--aggressive growth funds, growth and income
funds, sector funds, corporate bond funds, global
governmental bond funds, mortgage-backed securities funds,
etc. Kiplinger's also provides a risk-adjusted grade in
both rising and falling markets. Funds are graded against
others with the same objective. The average weekly total
return over two years is calculated. Performance is
adjusted using quantitative techniques to reflect the risk
profile of the fund.
U.S. NEWS AND WORLD REPORT periodically publishes mutual
fund rankings based on an overall performance index (OPI)
devised by Kanon Bloch Carre & Co., a Boston research
firm. Over 2000 funds are tracked and divided into 10
equity, taxable bond and tax-free bond categories. Funds
compete within the 10 groups and three broad categories.
The OPI is a number from 0-100 that measures the relative
performance of funds at least three years old over the
last 1, 3, 5 and 10 years and the last six bear markets.
Total return reflects changes in net asset value and the
reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales
charges. Results for the longer periods receive the most
weight.
THE 100 BEST MUTUAL FUNDS YOU CAN BUY (1992), authored by
Gordon K. Williamson. The author's list of funds is
divided into 12 equity and bond fund categories, and the
100 funds are determined by applying four criteria.
First, equity funds whose current management teams have
been in place for less than five years are eliminated.
(The standard for bond funds is three years.) Second, the
author excludes any fund that ranks in the bottom 20
percent of its category's risk level. Risk is determined
by analyzing how many months over the past three years the
fund has underperformed a bank CD or a U.S. Treasury bill.
Third, a fund must have demonstrated strong results for
current three-year and five-year performance. Fourth, the
fund must either possess, in Mr. Williamson's judgment,
"excellent" risk-adjusted return or "superior" return with
low levels of risk. Each of the 100 funds is ranked in
five categories: total return, risk/volatility,
management, current income and expenses. The rankings
follow a five-point system: zero designates "poor"; one
point means "fair"; two points denote "good"; three points
qualify as a "very good"; four points rank as "superior";
and five points mean "excellent."
In addition, Putnam Mutual Funds may distribute to shareholders
or prospective investors illustrations of the benefits of
reinvesting tax-exempt or tax-deferred distributions over
specified time periods, which may include comparisons to fully
taxable distributions. These illustrations use hypothetical
rates of tax-advantaged and taxable returns and are not intended
to indicate the past or future performance of any fund.
<PAGE>
DEFINITIONS
"Putnam Management" -- Putnam Investment Management,
Inc., the Fund's investment
manager.
"Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the
Fund's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the Fund's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a
division of Putnam Fiduciary
Trust Company, the Fund's
investor servicing agent.
<PAGE>
PUTNAM CAPITAL APPRECIATION FUND
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Index to Financial Statements and Supporting
Schedules:
(1) Financial Statements:
Statements of assets and liabilities --
May 31, 1995 (a).
Statement of operations --
Period ended May 31, 1995 (a).
Statement of changes in net assets --
Period ended May 31, 1995 (a).
Financial highlights (a) (b).
Notes to financial statements (a).
(2) Supporting Schedules:
Schedule I -- Portfolio of investments owned
-- May 31, 1995 (a).
Schedules II through IX omitted because the
required matter is not present.
(a) Incorporated by reference into Parts A
and B.
(b) Included in Part A.
(b) Exhibits:
1. Agreement and Declaration of Trust dated
May 4, 1993 -- Incorporated by reference to
Registrant's Initial Registration Statement.
2. By-Laws -- Incorporated by reference to
Registrant's Initial Registration Statement.
3. Not applicable.
4a. Copy of class A Specimen share
certificate -- Incorporated by reference to
Post-Effective Amendment No. 2 to the
Registrant's Registration Statement.
4b. Copy of class B Specimen share
certificate -- Incorporated by reference to
Post-Effective Amendment No. 2 to the
Registrant's Registration Statement.
4c. Form of class M Specimen share certificate --
Exhibit 1 .
4d . Portions of Agreement and
Declaration of Trust Relating to
Shareholders' Rights --Incorporated
by reference to Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement.
4e . Portions of By-Laws Relating to
Shareholders' Rights --
Incorporated by reference to Pre-
Effective Amendment No. 1 to the
Registrant's Registration
Statement.
5. Management Contract dated May 7, 1993
--Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement.
6a. Distributor's Contract dated May 6,
1994 -- Incorporated by reference to Post-
Effective Amendment No. 2 to the Registrant's
Registration Statement.
6b. Form of Specimen Dealer Sales Contract
--Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement.
6c. Form of Specimen Financial Institution
Sales Contract - Incorporated by reference to
Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.
7. Not applicable.
8. Custodian Agreement with Putnam
Fiduciary Trust Company dated May 3, 1991, as
amended July 13, 1992 -- Incorporated by
reference to Post-Effective Amendment No. 1
to the Registrant's Registration Statement.
9. 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.
10. Opinion of Ropes & Gray, including consent --
Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement.
11. Not applicable.
12. Not applicable.
13. Investment Letter from Putnam Investments,
Inc. to the Registrant -- Incorporated by
reference to Pre-Effective Amendment No. 1 to
the Registrant's Registration Statement.
14a. Form of Prototype Individual
Retirement Account Plan -- Incorporated by
reference to Post-Effective Amendment No. 2
to the Registrant's Registration
Statement.
14b. Form of Prototype Basic Plan
Documents and related Plan Agreements
-- Incorporated by reference to Post-
Effective Amendment No. 2 to the Registrant's
Registration Statement.
15a. Class A Distribution Plan and
Agreement dated May 7, 1993, as amended
September 9, 1994 -- Incorporated by
reference to Post-Effective Amendment No. 2
to the Registrant's Registration
Statement.
15b. Class B Distribution Plan and
Agreement dated September 9, 1994 --
Incorporated by reference to Post-
Effective Amendment No. 2 to the Registrant's
Registration Statement.
15c. Class M Distribution Plan and Agreement --
Exhibit 2 .
15d. Form of Specimen Dealer Service
Agreement --Incorporated by reference to
Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.
15e. Form of Specimen Financial
Institution Service Agreement --
Incorporated by reference to Pre-
Effective Amendment No. 1 to the
Registrant's Registration Statement.
16. Schedules for computation of performance
quotations -- Exhibit 3 .
17a. Financial Data Schedule for class
A shares --Exhibit 4.
17b. Financial Data Schedule for class B shares --
Exhibit 5.
18. Rule 18f-3 plan -- Exhibit 6
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
None
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of May 31, 1995 the number of record holders
of each class of securities of the Registrant are as follows:
NUMBER OF RECORD HOLDERS
--------------------------------
CLASS A CLASS B
------- -------
16,346 13,156
ITEM 27. INDEMNIFICATION
The information required by this item is incorporated
herein by reference from the Registrant's Registration Statement
on Form N-1A under the Investment Company Act of 1940 (File No.
811-7061)
<PAGE>
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Except as set forth below, the directors and officers
of the Registrant's investment adviser have been engaged during
the past two fiscal years in no business, vocation or employment
of a substantial nature other than as directors or officers of
the investment adviser or certain of its corporate affiliates.
Certain officers of the investment adviser serve as officers of
some or all of the Putnam funds. The address of the investment
adviser, its corporate affiliates and the Putnam Funds is One
Post Office Square, Boston, Massachusetts 02109.
NAME NON-PUTNAM BUSINESS AND OTHER
CONNECTIONS
John V. Adduci Prior to July, 1993, Human Resources
Assistant Vice President Manager, First Security Services, 80
Main St., Reading, MA 01867
Gail S. Attridge Prior to November, 1993, International
Vice President Analyst, Keystone Custodian Funds,
200 Berkeley Street, Boston, MA
02116
James D. Babcock Prior to June, 1994, Interest
Assistant Vice President Supervisor, Salomon Brothers, Inc.
7 World Trade Center, New York, NY
10048
Prior to June, 1993, Audit Manager,
Coopers & Lybrand, One Sylvan Way,
Parsipanny, NJ 07054
Robert K. Baumbach Prior to August, 1994, Vice President
Vice President and Analyst, Keystone Custodian
Funds, 200 Berkeley St., Boston, MA
02110
Sharon A. Berka Prior to January, 1994, Vice
Vice President President - Compensation Manager,
BayBanks, Inc., 175 Federal Street,
Boston, MA 02110
Matthew G. Bevin Prior to February, 1995, Consultant,
Assistant Vice President SEI Corporation, 680 East Swedesford
Road, Wayne, PA 19807
Thomas Bogan Prior to November, 1994, Analyst
Senior Vice President Lord, Abbett & Co., 767 Fifth
Avenue, New York, NY 10153
<PAGE>
Michael F. Bouscaren Prior to May, 1994, President and
Senior Vice President Chairman of the Board of Directors
at Salomon Series Funds, Inc. and a
Director of Salomon Brothers Asset
Management, 7 World Trade Center,
New York, NY 10048
Brett Browchuk Prior to April, 1994, Managing
Managing Director Director, Fidelity Investments, 82
Devonshire St., Boston, MA 02109
Carolyn S. Bunten Prior to July, 1993, Assistant Trader,
Assistant Vice President Scudder Stevens & Clark, Inc., 175
Federal St., Boston, MA 02110
Andrea Burke Prior to August, 1994, Vice President
Vice President and Portfolio Manager, Back Bay
Advisors, 399 Boylston St., Boston,
MA 02116
Peter Carman Prior to August, 1993, Chief
Senior Managing Director Investment Officer, Chairman, U.S.
Equity Investment Policy Committee,
Member of Board of Directors,
Sanford C. Bernstein & Co., Inc.,
767 Fifth Avenue, New York, NY 10153
Joseph M. Carrabes Prior to June, 1993, Senior Financial
Vice President Services Officer, The Boston
Company, Inc., One Boston Place,
Boston, MA
Steven Cheshire Prior to January, 1994, Assistant
Vice President Vice President, Wellington
Management, 75 State Street, Boston,
MA 02109
Kenneth L. Daly Prior to August, 1993, Vice
Senior Vice President President, Fidelity Investments,
82 Devonshire St., Boston, MA 02109
John A. DeTore Prior to January, 1994, Director of
Managing Director Quantitative Portfolio Management,
Wellington Management, 75 State
Street, Boston, MA 02109
Theodore J. Deutz Prior to January, 1995, Senior Vice
Vice President President, Metropolitan West
Securities, Inc. 10880 Wilshire
Blvd., Suite 200, Los Angeles, CA
90024
Michael G. Dolan Prior to February, 1994, Senior
Assistant Vice President Financial Analyst, General Electric
Company, 1000 Western Ave., Lynn, MA
01905
Joseph J. Eagleeye Prior to August, 1994, Associate,
Assistant Vice President David Taussig & Associates, 424
University Ave., Sacramento, CA
95813
Michael T. Fitzgerald Prior to September, 1994, Senior
Senior Vice President Vice President, Vantage Global
Advisers, 1201 Morningside Dr.,
Manhattan Beach, CA 90266
Roland Gillis Prior to March, 1995, Vice President
Senior Vice President and Senior Portfolio Manager,
Keystone Group, Inc., 200 Berkeley
St., Boston, MA 02116
Mark D. Goodwin Prior to May, 1994, Manager, Audit &
Assistant Vice President Operations Analysis, Mitre
Corporation, 202 Burlington Rd.,
Bedford, MA 01730
Stephen A. Gorman Prior to July, 1994, Financial
Assistant Vice President Analyst, Boston Harbor Trust
Company, 100 Federal St., Boston, MA
02110
Jill Grossberg Prior to March, 1995, Associate
Assistant Vice President Counsel, 440 Financial Group of
and Associate Counsel Worcester, Inc., 440 Lincoln St.,
Worcester, MA 01653; Prior to
November, 1993, Counsel, Berman
DeValerio & Pease, One Liberty
Square, Boston, MA 02109
Deborah R. Healey Prior to June, 1994, Senior Equity
Senior Vice President Trader, Fidelity Management &
Research Company, 82 Devonshire St.,
Boston, MA 02109
Lisa A. Heitman Prior to July, 1994, Securities
Senior Vice President Analyst, Lord, Abbett & Company, 767
Fifth Ave., New York, NY 10153
Michael F. Hotchkiss Prior to May, 1994, Vice President,
Vice President Massachusetts Financial Services,
500 Boylston St., Boston, MA 02116
<PAGE>
Walter Hunnewell, Jr. Prior to April, 1994, Managing
Vice President Director, Veronis, Suhler &
Associates, 350 Park Avenue, New
York, NY 10022
Joseph Joseph Prior to October, 1994, Managing
Vice President Director, Vert Independent Capital
Research, 53 Wall St., New York, NY
10052
Prior to August, 1993, Manager,
Price Waterhouse, 6th Avenue, New
York, NY 10036
Mary E. Kearney Prior to February, 1995, Partner,
Managing Director Price Waterhouse, 160 Federal St.,
Boston, MA 02110
D. William Kohli Prior to September, 1994, Executive
Senior Vice President Vice President and Co-Director of
Global Bond Management; Prior to
1993, Portfolio Manager, Franklin
Advisors/Templeton Investment
Counsel, 777 Mariners Island Blvd.,
San Mateo, CA 94404
Karen R. Korn Prior to June, 1994, Vice President,
Vice President Assistant to the President, Designs,
Inc. 1244 Boylston St., Chestnut
Hill, MA 02167
Peter B. Krug Prior to January, 1995, Owner and
Vice President Director, Griswold Special Care, 42
Ethan Allen Drive, Acton, MA 01720
Lawrence J. Lasser Director, Marsh & McLennan Companies,
President, Director Inc., 1221 Avenue of the Americas,
and Chief Executive New York, NY 10020
Officer Director, INROADS/Central New England,
Inc., 99 Bedford St., Boston,
MA 02111
Jeffrey R. Lindsey Prior to April, 1994, Vice President
Vice President and Board Member, Strategic
Portfolio Management, 900 Ashwood
Parkway, Suite 290, Atlanta, GA
30338
James W. Lukens Prior to February, 1995, Vice
Senior Vice President President of Institutional
Marketing, Keystone Group, Inc., 200
Berkeley St., Boston, MA 02116
Michael Martino Prior to January, 1994, Executive
Managing Director Vice President and Chief Investment
Officer until 1992
Susan A. McCormack Prior to May, 1994, Associate
Vice President Investment Banker, Merrill Lynch &
Co., 350 South Grand Ave., Suite
2830, Los Angeles, CA 90071
Carol McMullen Prior to June, 1995, Senior Vice,
Managing Director President and Senior Portfolio
Manager, Baring Asset Management,
125 High Street, Boston, MA 02110
Maziar Minovi Prior to January, 1995, Associate
Vice President Privatization Specialist, The
International Bank for
Reconstruction and Development, 1818
H St. N.W., Washington, DC 20433
Michael J. Mufson Prior to June, 1993, Senior Equity
Senior Vice President Analyst, Stein Roe & Farnham,
One South Wacker Drive, Chicago, IL
60606
Paul G. Murphy Prior to January, 1995, Section
Assistant Vice President Manager, First Data Corp., 53 State
Street, Boston, MA 02109
Warren S. Naphtal Prior to January, 1994, Managing
Senior Vice President Director, Continental Bank, 231
So. Lasalle St., Chicago, IL 60697
C. Patrick O'Donnell, Jr. Prior to May, 1994, President,
Managing Director Exeter Research, Inc., 163 Water
Street, Exeter, New Hampshire, 03833
Brian O'Keefe Prior to December, 1993, Vice
Vice President President - Foreign Exchange Trader,
Bank of Boston, 100 Federal Street,
Boston, MA 02109
Margaret Pietropaolo Prior to January, 1994, Data Base/
Assistant Vice President Production Analyst, Wellington
Management, 75 State Street, Boston,
MA 02109
Jane E. Price Prior to February, 1995, Associate
Assistant Vice President ERISA Attorney, Hale & Dorr,
60 State St., Boston, MA 02109
George Putnam Chairman and Director, Putnam Mutual
Chairman and Director Funds Corp.
Director, The Boston Company, Inc.,
One Boston Place, Boston, MA 02108
Director, Boston Safe Deposit and
Trust Company, One Boston Place,
Boston, MA 02108
Director, Freeport-McMoRan, Inc., 200
Park Avenue, New York, NY 10166
Director, General Mills, Inc., 9200
Wayzata Boulevard, Minneapolis,
MN 55440
Director, Houghton Mifflin Company,
One Beacon Street, Boston, MA 02108
Director, Marsh & McLennan Companies,
Inc., 1221 Avenue of the Americas,
New York, NY 10020
Director, Rockefeller Group, Inc.,
1230 Avenue of the Americas,
New York, NY 10020
Thomas Rosalanko Prior to February, 1995, Senior
Senior Vice President Account Manager, SEI Corporation,
680 East Swedesford Road, Wayne, PA
19807
Michael Scanlon Prior to February, 1995, Senior
Assistant Vice President Financial Analyst, Massachusetts
Financial Services, 500 Boylston
St., Boston, MA 02116
Robert M. Shafto Prior to January, 1995, Account
Assistant Vice President Manager, IBM Corporation, 404 Wyman
St., Waltham, MA 02254
Mark J. Siegel Prior to June, 1993, Vice President,
Senior Vice President Salomon Brothers International,
Ltd., Victoria Plaza, 111 Buckingham
Palace Road, London SW1W 0SB,
England
Karen F. Smith Prior to May, 1994, Consultant and
Assistant Vice President Portfolio Manager, Wyatt Asset
Services, Inc., 1211 W.W. 5th Ave.,
Portland, OR 97204
Joanne Soja Prior to June, 1993, Managing
Senior Vice President Director/Portfolio Manager,
Chancellor Capital Management,
153 East 53rd Street, New York, NY
10002
Steven Spiegel Prior to December, 1994, Managing
Senior Managing Director Director/Retirement, Lehman
Brothers, Inc., 200 Vesey St., World
Financial Center, New York, NY 10285
George W. Stairs Prior to July, 1994, Equity Research
Vice President Analyst, ValueQuest Limited,
Roundy's Hill, Marblehead, MA 01945
Roger Sullivan Prior to December, 1994, Vice
Senior Vice President President, State Street Research &
Management Co., One Financial
Center, Boston, MA 02111
Jerry H. Tempelman Prior to May, 1994, Senior Money
Assistant Vice President Market Trader, State Street Bank &
Trust Co., 225 Franklin, Street,
Boston, MA 02110
Hillary F. Till Prior to May, 1994, Fixed-Income
Vice President Derivative Trader, Bank of Boston,
100 Federal Street, Boston, MA 02109
Prior to December, 1993, Equity
Analyst, Harvard Management Company,
600 Atlantic St., Boston, MA 02109
Elizabeth A. Underhill Prior to August, 1994, Vice President
Senior Vice President and Senior Equity Analyst, State
Street Bank and Trust Company, 225
Franklin St., Boston, MA 02110
Charles C. Van Vleet Prior to August, 1994, Vice President
Senior Vice President and Fixed-Income Manager, Alliance
Capital Management, 1345 Avenue of
the Americas, New York, NY 10105
Francis P. Walsh Prior to November, 1994, Research
Vice President Analyst, Furman, Selz, Inc. 230 Park
Avenue, New York, NY 10169
Prior to December, 1993, Strategic
Marketing Analyst, Lotus
Development, Corporation 55
Cambridge Parkway, Cambridge, MA
02142
Michael R. Weinstein Prior to March, 1994, Management
Vice President Consultant, Arthur D. Little, Acorn
Park, Cambridge, MA 02140
<PAGE>
Item 29. Principal Underwriter
(a) Putnam Mutual Funds Corp. is the principal underwriter for
each of the following investment companies, including the
Registrant:
Putnam Adjustable Rate U.S. Government Fund, Putnam American
Government Income Fund, Putnam Arizona Tax Exempt Income Fund,
Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds,
Putnam Balanced Retirement Fund, Putnam California Tax Exempt
Income Trust, Putnam California Tax Exempt Money Market Fund,
Putnam Capital Appreciation Fund, Putnam Capital Manager Trust,
Putnam Convertible Income-Growth Trust, Putnam Diversified Equity
Trust, Putnam Diversified Income Trust, Putnam Dividend Growth
Fund, Putnam Equity Income Fund, Putnam Europe Growth Fund,
Putnam Federal Income Trust, Putnam Florida Tax Exempt Income
Fund, The Putnam Fund for Growth and Income, The George Putnam
Fund of Boston, Putnam Global Governmental Income Trust, Putnam
Global Growth Fund, Putnam Growth Fund, Putnam Growth and Income
Fund II, Putnam Health Sciences Trust, Putnam High Yield Trust,
Putnam High Yield Advantage Fund, Putnam Income Fund, Putnam
Intermediate Tax Exempt Income Fund, Putnam Intermediate U.S.
Government Income Fund, Putnam Investment Funds, Putnam
Investment-Grade Bond Fund, Putnam Investors Fund, Putnam
Massachusetts Tax Exempt Income Fund II, Putnam Michigan Tax
Exempt Income Fund II, Putnam Minnesota Tax Exempt Income Fund
II, Putnam Money Market Fund, Putnam Municipal Income Fund,
Putnam Natural Resources Fund, Putnam New Jersey Tax Exempt
Income Fund, Putnam New Opportunities Fund, Putnam New York Tax
Exempt Income Trust, Putnam New York Tax Exempt Money Market
Fund, Putnam New York Tax Exempt Opportunities Fund, Putnam Ohio
Tax Exempt Income Fund II, Putnam OTC Emerging Growth Fund,
Putnam Overseas Growth Fund, Putnam Pennsylvania Tax Exempt
Income Fund, Putnam Preferred Income Fund, Putnam Tax Exempt
Income Fund, Putnam Tax Exempt Money Market Fund, Putnam Tax-Free
Income Trust, Putnam U.S. Government Income Trust, Putnam
Utilities Growth and Income Fund, Putnam Vista Fund, Putnam
Voyager Fund
<TABLE>
<CAPTION>
(b) The directors and officers of the Registrant's principal underwriter are:
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
<C> <C> <C>
John V. Adduci Assistant Vice President None
Christopher S. Alpaugh Vice President None
Paulette C. Amisano Vice President None
Ronald J. Anwar Vice President None
Karen M. Apatow Assistant Vice President None
Steven E. Asher Senior Vice President None
Scott A. Avery Vice President None
Hallie L. Baron Assistant Vice President None
Ira G. Baron Senior Vice President None
John L. Bartlett Senior Vice President None
Steven M. Beatty Vice President None
Matthew F. Beaudry Vice President None
John J. Bent Vice President None
Thomas A. Beringer Vice President None
Sharon A. Berka Vice President None
Suzanne J. Bessett Vice President None
Maureen L. Boisvert Vice President None
Keith R. Bouchard Vice President None
Linda M. Brady Assistant Vice President None
Leslee R. Bresnahan Senior Vice President None
James D. Brockelman Senior Vice President None
Scott C. Brown Vice President None
Gail D. Buckner Senior Vice President None
Robert W. Burke Senior Managing Director None
Susan Dwyer Cabana Vice President None
Ellen S. Callahan Vice President None
Thomas C. Callahan Assistant Vice President None
Peter J. Campagna Vice President None
William A. Campagna Senior Vice President None
Charles A. Carey Vice President None
Patricia A. Cartwright Assistant Vice President None
Janet Casale-Sweeney Vice President None
Stephen J. Chaput Assistant Vice President None
Daniel J. Church Vice President None
James E. Clinton Assistant Vice President None
Kathleen M. Collman Managing Director None
Mark L. Coneeny Vice President None
Donald A. Connelly Senior Vice President None
Anna Coppola Vice President None
F. Nicholas Corvinus Senior Vice President None
Chad H. Cristo Assistant Vice President None
Lisa M. D'Allesandro Assistant vice President None
Jessica E. Dahill Vice President None
Kenneth L. Daly Senior Vice President None
Edward H. Dane Vice President None
Nancy M. Days Assistant Vice President None
Pamela De Oliveira-Smith Assistant Vice President None
Joseph C. DeSimone Assistant Vice President None
Daniel J. Delianedis Vice President None
Teresa F. Dennehy Assistant Vice President None
J. Thomas Despres Senior Vice President None
Michael G. Dolan Assistant Vice President None
Scott M. Donaldson Vice President None
Emily J. Durbin Vice President None
David B. Edlin Senior Vice President None
James M. English Senior Vice President None
Vincent Esposito Managing Director None
Mary K. Farrell Assistant Vice President None
Michael J. Fechter Vice President None
Susan H. Feldman Vice President None
Paul F. Fichera Senior Vice President None
C. Nancy Fisher Senior Vice President None
Mitchell B. Fishman Senior Vice President None
Joseph C. Fiumara Vice President None
Patricia C. Flaherty Senior Vice President None
Judy P. Frodigh Vice President None
Samuel F. Gagliardi Vice President None
Judy S. Gates Vice President None
Richard W. Gauger Assistant Vice President None
Joseph P. Gennaco Vice President None
Stephen E. Gibson Managing Director None
Mark P. Goodfellow Assistant Vice President None
Robert Goodman Managing Director None
Mark D. Goodwin Assistant Vice President None
Anthony J. Grace Assistant Vice President None
Linda K. Grace Assistant Vice President None
Robert G. Greenly Vice President None
Jill Grossberg Assistant Vice President None
Jeffrey P. Gubala Vice President None
James E. Halloran Vice President None
Thomas W. Halloran Vice President None
Bruce D. Harrington Assistant Vice President None
Marilyn M. Hausammann Senior Vice President None
Howard W. Hawkins, III Vice President None
Deanna R. Hayes-Castro Vice President None
Paul P. Heffernan Vice President None
Susan M. Heimanson Vice President None
Joanne Heyman Assistant Vice President None
Bess J.M. Hochstein Vice President None
Maureen A. Holmes Assistant Vice President None
Paula J. Hoyt Assistant Vice President None
William J. Hurley Senior Vice President None
Gregory E. Hyde Senior Vice President None
Dwight D. Jacobsen Senior Vice President None
Douglas B. Jamieson Senior Managing Director, Director None
Jay M. Johnson Vice President None
Kevin M. Joyce Senior Vice President None
Karen R. Kay Senior Vice President None
Mary E. Kearney Managing Director None
John P. Keating Vice President None
A. Siobahn Kelly Assistant Vice President None
Brian J. Kelly Vice President None
Deborah H. Kirk Senior Vice President None
Jill A. Koontz Assistant Vice President None
Linda G. Kraunelis Assistant Vice President None
Howard H. Kreutzberg Senior Vice President None
Marjorie B. Krieger Assistant Vice President None
Charles Lacasia Assistant Vice President None
Arthur B. Laffer, Jr. Vice President None
James D. Lathrop Vice President None
Edward V. Lewandowski Senior Vice President None
Edward V. Lewandowski, Jr. Vice President None
Samuel L. Lieberman Vice President None
David M. Lifsitz Assistant Vice President None
Ann Marie Linehan Assistant Vice President None
Maura A. Lockwood Vice President None
Rufino R. Lomba Vice President None
Robert F. Lucey Senior Managing Director, Director None
Kathryn A. Lucier Assistant Vice President None
Alana Madden Vice President None
Ann Malatos Assistant Vice President None
Renee L. Maloof Assistant Vice President None
Frederick S. Marius Assistant Vice President None
Karen E. Marotta Vice President None
Kathleen M. McAnulty Assistant Vice President None
Anne B. McCarthy Assistant Vice President None
Paul McConville Vice President None
Marla J. McDougall Assistant Vice President None
Walter S. McFarland Vice President None
Mark J. McKenna Senior Vice President None
Gregory J. McMillan Vice President None
Robert E. McMurtrie Vice President None
Claye A. Metelmann Vice President None
J. Chris Meyer Senior Vice President None
Douglas W. Miller Vice President None
Jeffery M. Miller Senior Vice President None
Ronald K. Mills Vice President None
Peter M. Moore Assistant Vice President None
Timothy P. Moran Treasurer None
Mitchell Moret Senior Vice President None
Donald E. Mullen Vice President None
Paul G. Murphy Assistant Vice President None
Brendan R. Murray Vice President None
Robert Nadherny Vice President None
Alexander L. Nelson Managing Director None
Jane M. Nickodemus Vice President None
John P. Nickodemus Vice President None
Michael C. Noonis Assistant Vice President None
Kristen P. O'Brien Vice President None
Kevin L. O'Shea Senior Vice President None
Nathan D. O'Steen Assistant Vice President None
Joseph R. Palombo Managing Director None
Scott A. Papes Vice President None
Cynthia O. Parr Vice President None
John D. Pataccoli Vice President None
John G. Phoenix Vice President None
Joseph Phoenix Senior Vice President None
Jeffrey E. Place Senior Vice President None
Keith Plapinger Vice President None
Jane E. Price Assistant Vice President None
Douglas H. Powell Vice President None
Susannah Psomas Vice President None
George Putnam Director Chairman & President
Debra V. Rothman Vice President None
Robert B. Rowe Vice President None
Kevin A. Rowell Senior Vice President None
Thomas C. Rowley Vice President None
Charles A. Ruys de Perez Senior Vice President None
Deborah A. Ryan Assistant Vice President None
Robert M. Santosuosso Assistant Vice President None
Debra J. Sarkisian Assistant Vice President None
Catherine A. Saunders Senior Vice President None
Robbin L. Saunders Assistant Vice President None
Karl W. Saur Vice President None
Michael Scanlon Assistant Vice President None
Christine A. Scordato Vice President None
Joseph W. Scott Assistant Vice President None
John B. Shamburg Vice President None
Kathleen G. Sharpless Managing Director None
John F. Sharry Managing Director None
Vincent P. Sheehan Vice President None
Stuart D. Sheppard Assistant Vice President None
William N. Shiebler Director and President Vice President
Daniel S. Shore Vice President None
Mark J. Siebold Assistant Vice President None
Gordon H. Silver Senior Managing Director Vice President
John Skistimas, Jr. Assistant Vice President None
Barry Sommers Vice President None
Steven Spiegel Senior Managing Director None
Nicholas T. Stanojev Senior Vice President None
Brian L. Sullivan Vice President None
Kevin J. Sullivan Vice President None
Moira Sullivan Vice President None
James S. Tambone Managing Director None
B. Iris Tanner Assistant Vice President None
Louis Tasiopoulos Managing Director None
David S. Taylor Vice President None
John R. Telling Vice President None
Richard B. Tibbetts Senior Vice President None
Patrice M. Tirado Vice President None
Janet E. Tosi Assistant Vice President None
John C. Tredinnick Vice President None
Bonnie L. Troped Vice President None
Christine M. Twigg Assistant Vice Presient None
Larry R. Unger Vice President None
Douglas J. Vander Linde Senior Vice President None
Edward F. Whalen Vice President None
Robert J. Wheeler Senior Vice President None
John B. White Vice President None
Kirk E. Williamson Senior Vice President None
Leigh T. Williamson Vice President None
Benjamin I. Woloshin Vice President None
William H. Woolverton Senior Vice President None
Timothy R. Young Vice President None
SooHee L. Zebedee Vice President None
Laura J. Zografos Vice President None
</TABLE>
<PAGE>
The principal business address of each person listed above is One
Post Office Square, Boston, MA 02109, except for:
Mr. Alpaugh, 5980 Richmond Highway, Alexandria, VA 22303
Mr. Anwar, 3000 Valley Forge Circle, King of Prussia, PA 19406
Mr. Avery, 7031 Spring Ridge Rd., Cary NC 27511
Mr. Baron, 31 Cala Moreya, Laguna Niguel, CA 92667
Mr. Bartlett, 7 Fairfield St., Boston, MA 02116
Mr. Beringer, 3722 West 50th St., Edina,MN 55410
Ms. Besset, 1140 North LaSalle Blvd, Chicago, IL 60610
Mr. Bouchard, 18 Brice Rd., Annapolis, MD 21401
Mr. Brown, 2012 West Grove Drive, Gibson, PA 15044
Ms. Buckner, 8338 Timber Trail, Pittsburgh, PA 15237
Mr. Busher, 12005 Ridge Knoll Drive, Fairfax, VA 22033
Mr. Campagna, 2179-D Lake Park Drive, Smyrna, GA 30080
Ms. Castro, 26 Gould Road, Andover, MA 01810
Mr. Church, 4504 Sir Winston Place, Charlotte, NC 28211
Mr. Cristo, 11 Schenck Ave., Great Neck, NY 11021
Mr. Connelly, 4634 Mirada Way, Sarasota, FL 34238
Mr. Corvinus, 208 Water St., Newburyport, MA 01950
Ms. Dahill, 270-1C Iven Ave., St David's, PA 19087
Mr. Deliandis, 206 Promontory Drive, Newport Beach, CA 92660
Mr. Edlin, 7 River Road, 305 Palmer Point, Cos Cob, CT 06807
Mr. English, 1184 Pintail Circle, Boulder, CO 80303
Mr. Goodman, 14 Clover Place, Cos Cob, CT 06807
Mr. Gubala, 490 Beacon Knoll Lane, Ft. Mill, SC 29715
Mr. J. Halloran, 978 W. Creek Lane, Westlake Village, CA 91362
Mr. T. Halloran, 19449 Misty Lake Dr., Strongsville, OH 44136
Mr. Hyde, 3305 Sulky, Marietta, GA 30067
Mr. Jacobsen, 2744 Joyce Ridge Drive, Chesterfield, MO 63017
Mr. Johnson, 200 Clock Tower Place, Carmel, CA 93923
Mr. Keating, 5521 Greenville Avenue, Dallas, TX 75206
Ms. Kirk, 124 Rivermist Dr., Buffalo, NY 14202
Mr. Lathrop, 14814 Straub Hill Lane, Chesterfield, MO 63017
Mr. Lewandowski, 805 Darrell Road, Hillsborough, CA 94010
Mr. Lewandowski, Jr., 2120 The Strand, Manhattan Beach, CA 90266
Mr. Lieberman, 200 Roy St., Seattle, WA 98199
Ms. Madden, 8649 North Himes Avenue, Tampa, FL 33614
Mr. McConville, 515 S. Arlington Heights Rd., Arlington
Heights, IL 6005
Mr. McFarland, 8012 Dancing Fern Trail, Chattanooga, TN 37421
Mr. McMillan, 203 D. Zigler St., Zelienople, PA 16063
Mr. McMurtrie, 14529 Glastonbury, Detroit, MI 48223
Mr. Miller, 70 Williams St., Greenwich, CT 06830
Mr. Moret, 4519 Lawn Avenue, Western Springs, IL 60558
Mr. Murray, 13 Ridge Court, Saratoga Springs, NY 12866
Mr. Nadherny, 9714 Marmount Drive, Seattle, WA 98117
Mr. and Mrs. Nickodemus, 463 Village Oaks Court, Ann Arbor,
MI 48103
Mr. Padgett, Jr., 7709 Charleston Drive, Bethesda, MD 20817
Mr. Papes, 3102 Wood View Bridge Drive, Kansas City, KS 66103
Mr. Pataccoli, 1500 Bay Rd., Miami, FL 33139
Mr. Phoenix, 1426 Asbury Avenue, Hubbard Woods, IL 60093
Mr. Place, 4211 Loch Highland Parkway, Roswell, GA 30075
Mr. Powell, 1508 Ruth Lane, Newport Beach, CA 92660
Mr. Rowe, 109 Shore Drive, Longwood, FL 32779
Mr. Rowell, 1508 Ruth Lane, Newport Beach, CA 92660
Mr. Rowley, 237 Peeke Avenue, Kirkwood, MO 63122
Ms. Saunders, 39939 Stevenson Common, Freemont, CA 94538
Mr. Shamburg, 10603 N. 100th Street, Scottsdale, AZ 85260
Mr. Sheehan, Parkway Center, 1150 Galapago, Denver, CO 80204
Mr. Shore, 2870 Pharr Court South, N.W., Atlanta, GA 30305
Mr. Sommers, 397 North Little Tour, New City, NY 10956
Mr. B. Sullivan, 777 Pinoake Road, Mt. Lebanon, PA 15243
Ms. M. Sullivan, 493 Zinfandel Lane, St. Helena, CA 94574
Ms. Sweeney, 8 Surf Street, Marblehead, MA 01945
Mr. Syring, 7540 Mandarian Dr., Boca Raton, FL 33433
Mr. Tambone, 10 Commercial Wharf, Boston, MA 02110
Mr. Tredinnick, 2995 Glenwood Drive, Boulder, CO 80301
Mr. Telling, 1995 Delaware Ave., Buffalo, NY 14216
Mr. Unger, 212 E. Broadway, New York, NY 10002
Mr. Vessels, 7 Riverview Drive, Norwalk, CT 06850
Mr. Williamson, 640-4 Tete L'Ours, Mandeville, LA 70471
Mr. White, 10 Mannion Place, Littleton, MA 01460
Mr. Woloshin, 730 North Bundy Drive, Los Angeles, CA 90049
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of accounts,
books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are Registrant's Clerk, Beverly Marcus;
Registrant's investment adviser, Putnam Investment Management,
Inc.; Registrant's principal underwriter, Putnam Mutual Funds
Corp.; Registrant's custodian, Putnam Fiduciary Trust Company
("PFTC"); and Registrant's transfer and dividend disbursing
agent, Putnam Investor Services, a division of PFTC. The address
of the Clerk, investment adviser, principal underwriter,
custodian and transfer and dividend disbursing agent is One Post
Office Square, Boston, Massachusetts 02109.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to
whom a prospectus of the Registrant is delivered a copy of the
Registrant's latest annual report to shareholders, upon request
and without charge.
----------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-
Effective Amendment No. 3 to the Registration Statement of
Putnam Capital Appreciation Fund on Form N-1A (File No. 811-7061)
of our report dated July 14, 1995 , on our audit of the
financial statements and "Financial Highlights " of Putnam
Capital Appreciation Fund for the year ended May 31, 1995 ,
which is incorporated by reference in the Registration Statement.
We also consent to the references to our firm under
the caption "Independent Accountants and Financial Statements" in
the Statement of Additional Information and under the heading
"Financial Highlights" in such prospectus .
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
July 28, 1995
--------------------------
NOTICE
A copy of the Agreement and Declaration of Trust of Putnam
Capital Appreciation Fund is on file with the Secretary of State
of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Registrant by
an officer of the Registrant as an officer and not individually
and the obligations of or arising out of this instrument are not
binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property of
the Registrant.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Putnam Capital Appreciation
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, my
true and lawful attorneys, with full power to them and each of
them, to sign for me, and in my name and in the capacity
indicated below, the Registration Statement on Form N-1A of
Putnam Capital Appreciation 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 my 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 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 my hand and seal on the date set forth below.
SIGNATURE TITLE DATE
/s/ Eli Shapiro
- --------------------- Trustee April 29, 1995
Eli Shapiro
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant
has duly caused this Amendment to its Registration Statement to
be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, and The Commonwealth of
Massachusetts, on the 1st day of August, 1995 .
Putnam Capital Appreciation Fund
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement of Putnam Capital
Appreciation Fund has been signed below by the following persons
in the capacities and on the dates indicated:
SIGNATURE TITLE
George Putnam President and Chairman of the
Board; Principal Executive
Officer; Trustee
William F. Pounds Vice Chairman; Trustee
John D. Hughes Vice President; Treasurer and
Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and
Principal Accounting Officer
Jameson A. Baxter Trustee
Hans H. Estin Trustee
John A. Hill Trustee
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
PUTNAM INVESTMENTS
(Logo)
PUTNAM CAPITAL APPRECIATION FUND
A Massachusetts Business Trust
Class M Shares
Trust Certificate
Account No. Certificate No. Shares
CUSIP
THIS CERTIFIES THAT
is the owner of class M shares of
beneficial interest in Putnam Capital Appreciation Fund, fully
paid and nonassessable, the said shares being issued, received
and held under and subject to the terms and provisions of the
Agreement and Declaration of Trust dated as of May 4, 1993,
establishing the Trust, and all amendments thereto, copies of
which are on file with the Secretary of State of The Commonwealth
of Massachusetts. The said owner by accepting this certificate
agrees to and is bound by all of the said terms and provisions.
The shares represented hereby are transferable in writing by the
owner thereof in person or by attorney upon surrender of this
certificate to the Trustees properly endorsed for transfer. This
certificate is executed on behalf of the Trustees as Trustees and
not individually and the obligations hereof are not binding upon
any of the Trustees or shareholders individually but are binding
only upon the assets and property of the Trust. This certificate
is not valid unless countersigned by the Investor Servicing
Agent.
In Witness Whereof the Trustees of Putnam Capital
Appreciation Fund have caused the following facsimile signatures
to be affixed to this certificate.
Dated: COUNTERSIGNED:
PUTNAM INVESTOR SERVICES
a division of Putnam Fiduciary
Trust Company
INVESTOR SERVICING AGENT
BY
FOR THE TRUSTEES AUTHORIZED SIGNATURE
PUTNAM CAPITAL APPRECIATION FUND
FORM OF CLASS M
DISTRIBUTION PLAN AND AGREEMENT
This Plan and Agreement (the "Plan") constitutes the
Distribution Plan for the class M shares of Putnam Capital
Appreciation Fund, a Massachusetts business trust (the "Trust"),
adopted pursuant to the provisions of Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") and the related
agreement between the Trust and Putnam Mutual Funds Corp.
("PMF"). During the effective term of this Plan, the Trust may
incur expenses primarily intended to result in the sale of its
class M shares upon the terms and conditions hereinafter set
forth:
Section 1. The Trust shall pay to PMF a monthly fee at the
annual rate of 1.00% of the average net asset value of the class
M shares of the Trust, as determined at the close of each
business day during the month, to compensate PMF for services
provided and expenses incurred by it in connection with the
offering of the Trust's class M shares, which may include,
without limitation, payments by PMF to investment dealers with
respect to class M shares, as set forth in the then current
Prospectus or Statement of Additional Information of the Trust,
including the payment of a service fee of up to 0.25% of such net
asset value for the purpose of maintaining or improving services
provided to shareholders by PMF and investment dealers. Such
fees shall be payable for each month within 15 days after the
close of such month. A majority of the Qualified Trustees, as
defined below, may, from time to time, reduce the amount of such
payments, or may suspend the operation of the Plan for such
period or periods of time as they may determine.
Section 2. This Plan shall not take effect until:
(a) it has been approved by a vote of a majority of the
outstanding class M shares of the Trust;
(b) it has been approved, together with any related
agreements, by votes of the majority (or whatever greater
percentage may, from time to time, be required by Section
12(b) of the Act or the rules and regulations thereunder)
of both (i) the Trustees of the Trust, and (ii) the
Qualified Trustees of the Trust, cast in person at a
meeting called for the purpose of voting on this Plan or
such agreement; and
(c) the Trust has received the proceeds of the initial
public offering of its class M shares.
<PAGE>
Section 3. This Plan shall continue in effect for a period
of more than one year after it takes effect only so long as
such
continuance is specifically approved at least annually in the
manner provided for approval of this Plan in Section 2(b).
Section 4. PMF shall provide to the Trustees of the Trust,
and the Trustees shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such
expenditures were made.
Section 5. This Plan may be terminated at any time by vote
of a majority of the Qualified Trustees or by vote of the
majority of the outstanding class M shares of the Trust.
Section 6. All agreements with any person relating to
implementation of this Plan shall be in writing, and any
agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any time,
without payment of any penalty, by vote of a majority
of the Qualified Trustees or by vote of a majority of
the outstanding class M shares of the Trust, on not
more than 60 days' written notice to any other party
to the agreement; and
(b) that such agreement shall terminate automatically in
the event of its assignment.
Section 7. This Plan may not be amended to increase
materially the amount of distribution expenses permitted pursuant
to Section 1 hereof without the approval of a majority of the
outstanding class M shares of the Trust and all material
amendments to this Plan shall be approved in the manner provided
for approval of this Plan in Section 2(b).
Section 8. As used in this Plan, (a) the term "Qualified
Trustees" shall mean those Trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it, and (b) the term "majority of the
outstanding class M shares of the Trust" means the affirmative
vote, at a duly called and held meeting of class M shareholders
of the Trust, (i) of the holders of 67% or more of the class M
shares of the Trust present (in person or by proxy) and entitled
to vote at such meeting, if the holders of more than 50% of the
outstanding class M shares of the Trust entitled to vote at such
meeting are present in person or by proxy, or (ii) of the holders
of more than 50% of the outstanding class M shares of the Trust
entitled to vote at such meeting, whichever is less, and (c) the
terms "assignment" and "interested person" shall have the
respective meanings specified in the Act and the rules and
regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission.
Section 9. A copy of the Agreement and Declaration of
Trust of the Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and notice is hereby given that
this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually, and that the obligations
of or arising out of this instrument are not binding upon any of
the Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Trust.
Executed as of July , 1995.
PUTNAM MUTUAL FUNDS CORP. PUTNAM CAPITAL APPRECIATION
FUND
By: ---------------------- By: --------------------------
William N. Shiebler Charles E. Porter
President Executive Vice President
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Capital Appreciation Fund -- Class A Shares
Fiscal period ending: 5/31
Inception date: (if less than 10 years of performnace) 8/5/93
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 N/A $1,000
ERV = Ending Redeemable Value $1,089.2 N/A $1,390.2
T = Average Annual
Total Return 8.92% N\A 19.84%*
*Life of fund, if less than 10 years
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Capital Appreciation Fund -- Class B Shares
Fiscal period ending: 5/31
Inception date (if less than 10 years of performance): 11/2/94
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment N/A N/A $1,000
ERV = Ending Redeemable Value N/A N/A $1,065.45
T = Average Annual
Total Return N/A N/A 6.55%*
*Life of fund, if less than 10 years
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM Putnam Capital Appreciation Class A AND IS QUALIFIED IN ITS
ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 182,485,365
<INVESTMENTS-AT-VALUE> 198,642,759
<RECEIVABLES> 2,545,792
<ASSETS-OTHER> 498
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 201,189,049
<PAYABLE-FOR-SECURITIES> 7,072,465
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 599,461
<TOTAL-LIABILITIES> 7,671,926
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 176,665,929
<SHARES-COMMON-STOCK> 8,462,293
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 727,495
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (33,695)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,157,394
<NET-ASSETS> 193,517,123
<DIVIDEND-INCOME> 1,431,141
<INTEREST-INCOME> 421,36
<OTHER-INCOME> 0
<EXPENSES-NET> 902,620
<NET-INVESTMENT-INCOME> 950,057
<REALIZED-GAINS-CURRENT> 208,076
<APPREC-INCREASE-CURRENT> 15,958,951
<NET-CHANGE-FROM-OPS> 17,117,084
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (127,251)
<DISTRIBUTIONS-OF-GAINS> (329,475)
<DISTRIBUTIONS-OTHER> (20,787)
<NUMBER-OF-SHARES-SOLD> 8,977,882
<NUMBER-OF-SHARES-REDEEMED> (809,397)
<SHARES-REINVESTED> 8,592
<NET-CHANGE-IN-ASSETS> 190,445,123
<ACCUMULATED-NII-PRIOR> 10,771
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 325,606
<GROSS-ADVISORY-FEES> 395,267
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 902,620
<AVERAGE-NET-ASSETS> 34,780,611
<PER-SHARE-NAV-BEGIN> 10.74
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 1.59
<PER-SHARE-DIVIDEND> (.12)
<PER-SHARE-DISTRIBUTIONS> (.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.24
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM Putnam Capital Appreciation Class B AND IS QUALIFIED IN ITS
ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> SEMI
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 50,793,245
<INVESTMENTS-AT-VALUE> 49,789,598
<RECEIVABLES> 3,282,796
<ASSETS-OTHER> 4,860
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 53,077,254
<PAYABLE-FOR-SECURITIES> 9,741,386
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 673,687
<TOTAL-LIABILITIES> 10,415,073
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,283,122
<SHARES-COMMON-STOCK> 1,415,546
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 298,595
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,003,647)
<NET-ASSETS> 42,662,181
<DIVIDEND-INCOME> 68,448
<INTEREST-INCOME> 36,494
<OTHER-INCOME> 0
<EXPENSES-NET> 31,602
<NET-INVESTMENT-INCOME> 73,340
<REALIZED-GAINS-CURRENT> (27,011)
<APPREC-INCREASE-CURRENT> (1,202,090)
<NET-CHANGE-FROM-OPS> (1,155,761)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,423,749
<NUMBER-OF-SHARES-REDEEMED> (8,203)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 15,461,328
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 24,195
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31,602
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 11.08
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> (.47)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.63
<EXPENSE-RATIO> .11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
PUTNAM FUNDS
Plan pursuant to Rule 18f-3(D) under the
Investment Company act of 1940
Effective July 1, 1995*
Each of the open-end investment companies managed by Putnam
Investment Management, Inc. (each a "Fund" and, together, the
"Funds") may from time to time issue one or more of the following
classes of shares: Class A shares, Class B shares, Class C
shares, Class M shares and Class Y shares. Each class is subject
to such investment minimums and other conditions of eligibility
as are set forth in the Funds' registration statements as from
time to time in effect. The differences in expenses among these
classes of shares, and the conversion and exchange features of
each class of shares, are set forth below in this Plan. Except
as noted below, expenses are allocated among the classes of
shares of each Fund based upon the net assets of each Fund
attributable to shares of each class. This Plan is subject to
change, to the extent permitted by law and by the Agreement and
Declaration of Trust and By-laws of each Fund, by action of the
Trustees of each Fund.
- ---------------------------
*The Funds have been offering multiple classes of shares,
prior to the effectiveness of this Plan, pursuant to an exemptive
order of the Securities and Exchange Commission. This Plan is
intended to permit the Funds to offer multiple classes of shares
pursuant to Rule 18f-3 under the Investment Company Act of 1940,
without any change in the arrangements and expense allocations
that have previously been approved by the Trustees of each Fund
under such order of exemption.
<PAGE>
CLASS A SHARES
DISTRIBUTION AND SERVICE FEES
Class A shares pay distribution and service fees pursuant to
plans (the "Class A Plans") adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (the "1940 Act"). Class A
shares also bear any costs associated with obtaining shareholder
approval of the Class A Plans (or an amendment to a Class A
Plan). Pursuant to the Class A Plans, Class A shares may pay up
to 0.35% of the relevant Fund's average net assets attributable
to the Class A shares (which percentage may be less for certain
Funds, as described in the Funds' registration statements as from
time to time in effect). Amounts payable under the Class A Plans
are subject to such further limitations as the Trustees may from
time to time determine and as set forth in the registration
statement of each Fund as from time to time in effect.
CONVERSION FEATURES
Class A shares do not convert to any other class of shares.
EXCHANGE FEATURES
Class A shares of any Fund may be exchanged, at the holder's
option, for Class A shares of any other Fund that offers Class A
shares without the payment of a sales charge beginning 15 days
after purchase, provided that Class A shares of such other Fund
are available to residents of the relevant state. The holding
period for determining any CDSC will include the holding period
of the shares exchanged, and will be calculated using the
schedule of any Fund into or from which shares have been
exchanged that would result in the highest CDSC applicable to
such Class A shares.
INITIAL SALES CHARGE
Class A shares are offered at a public offering price that
is equal to their net asset value ("NAV") plus a sales charge of
up to 5.75% of the public offering price (which maximum may be
less for certain Funds, as described in each Fund's registration
statement as from time to time in effect). The sales charges on
Class A shares are subject to reduction or waiver as permitted by
Rule 22d-1 under the 1940 Act and as described in the Funds'
registration statements as from time to time in effect.
CONTINGENT DEFERRED SALES CHARGE
Purchases of Class A shares of $1 million or more that are
redeemed within one or two years of purchase are subject to a
contingent deferred sales charge (a "CDSC") of 1.00% and 0.50%,
respectively, of either the purchase price or the NAV of the
shares redeemed, whichever is less. Class A shares are not
otherwise subject to a CDSC.
The CDSC on Class A shares is subject to reduction or waiver
in certain circumstances, as permitted by Rule 6c-10 under the
1940 Act and as described in the Funds' registration statements
as from time to time in effect.
CLASS B SHARES
DISTRIBUTION AND SERVICE FEES
Class B shares pay distribution and service fees pursuant to
plans adopted pursuant to Rule 12b-1 under the 1940 Act (the
"Class B Plans"). Class B shares also bear any costs associated
with obtaining shareholder approval of the Class B Plans (or an
amendment to a Class B Plan). Pursuant to the Class B Plans,
Class B shares may pay up to 1.00% of the relevant Fund's average
net assets attributable to Class B shares (which percentage may
be less for certain Funds, as described in the Funds'
registration statements as from time to time in effect). Amounts
payable under the Class B Plans are subject to such further
limitations as the Trustees may from time to time determine and
as set forth in the registration statement of each Fund as from
time to time in effect.
CONVERSION FEATURES
Class B shares automatically convert to Class A shares of
the same Fund at the end of the month eight years after purchase
(or such earlier date as the Trustees of a Fund may authorize),
except that Class B shares purchased through the reinvestment of
dividends and other distributions on Class B shares convert to
Class A shares at the same time as the shares with respect to
which they were purchased are converted and Class B shares
acquired by the exchange of Class B shares of another Putnam fund
will convert to Class A shares based on the time of the initial
purchase.
EXCHANGE FEATURES
Class B shares of any Fund may be exchanged, at the holder's
option, for Class B shares of any other Fund that offers Class B
shares without the payment of a sales charge beginning 15 days
after purchase, provided that Class B shares of such other Fund
are available to residents of the relevant state. The holding
period for determining any CDSC will include the holding period
of the shares exchanged, and will be calculated using the
schedule of any Fund into or from which shares have been
exchanged that would result in the highest CDSC applicable to
such Class B shares.
INITIAL SALES CHARGE
Class B shares are offered at their NAV, without an initial
sales charge.
CONTINGENT DEFERRED SALES CHARGE
Class B shares that are redeemed within 6 years of purchase
are subject to a CDSC of up to 5.00% of either the purchase price
or the NAV of the shares redeemed, whichever is less (which
period may be shorter and which percentage may be less for
certain Funds, as described in the Funds' registration statements
as from time to time in effect); such percentage declines the
longer the shares are held, as described in the Funds'
registration statements as from time to time in effect. Class B
shares purchased with reinvested dividends or capital gains are
not subject to a CDSC.
The CDSC on Class B shares is subject to reduction or waiver
in certain circumstances, as permitted by Rule 6c-10 under the
1940 Act and as described in the Funds' registration statements
as from time to time in effect.
CLASS C SHARES
DISTRIBUTION AND SERVICE FEES
Class C shares pay distribution and service fees pursuant to
plans adopted pursuant to Rule 12b-1 under the 1940 Act (the
"Class C Plans"). Class C shares also bear any costs associated
with obtaining shareholder approval of the Class C Plans (or an
amendment to a Class C Plan). Pursuant to the Class C Plans,
Class C shares may pay up to 1.00% of the relevant Fund's average
net assets attributable to the Class C shares (which percentage
may be less for certain Funds, as described in the Funds'
registration statements as from time to time in effect). Amounts
payable under the Class C Plans are subject to such further
limitations as the Trustees may from time to time determine and
as set forth in the registration statement of each Fund as from
time to time in effect.
CONVERSION FEATURES
Class C shares do not convert to any other class of shares.
EXCHANGE FEATURES
Class C shares of any Fund may be exchanged, at the holder's
option, for Class C shares of any other Fund that offers Class C
shares without the payment of a sales charge beginning 15 days
after purchase, provided that Class C shares of such other Fund
are available to residents of the relevant state. The holding
period for determining any CDSC will include the holding period
of the shares exchanged, and will be calculated using the
schedule of any Fund into or from which shares have been
exchanged that would result in the highest CDSC applicable to
such Class C shares.
INITIAL SALES CHARGE
Class C shares are offered at their NAV, without an initial
sales charge.
CONTINGENT DEFERRED SALES CHARGE
Class C shares are subject to a 1.00% CDSC if the shares are
redeemed within one year of purchase. The CDSC on Class C shares
is subject to reduction or waiver in certain circumstances, as
permitted by Rule 6c-10 under the 1940 Act and as described in
the Funds' registration statements as from time to time in
effect.
CLASS M SHARES
DISTRIBUTION AND SERVICE FEES
Class M shares pay distribution and service fees pursuant to
plans adopted pursuant to Rule 12b-1 under the 1940 Act (the
"Class M Plans"). Class M shares also bear any costs associated
with obtaining shareholder approval of the Class M Plans (or an
amendment to a Class M Plan). Pursuant to the Class M Plans,
Class M shares may pay up to 1.00% of the relevant Fund's average
net assets attributable to Class M shares (which percentage may
be less for certain Funds, as described in the Funds'
registration statements as from time to time in effect). Amounts
payable under the Class M Plans are subject to such further
limitations as the Trustees may from time to time determine and
as set forth in the registration statement of each Fund as from
time to time in effect.
CONVERSION FEATURES
Class M shares do not convert to any other class of shares.
EXCHANGE FEATURES
Class M shares of any Fund may be exchanged, at the holder's
option, for Class M shares of any other Fund that offers Class M
shares without the payment of a sales charge beginning 15 days
after purchase, provided that Class M shares of such other Fund
are available to residents of the relevant state. The holding
period for determining any CDSC will include the holding period
of the shares exchanged, and will be calculated using the
schedule of any Fund into or from which shares have been
exchanged that would result in the highest CDSC applicable to
such Class M shares.
INITIAL SALES CHARGE
Class M shares are offered at a public offering price that
is equal to their NAV plus a sales charge of up to 3.50% of the
public offering price (which maximum may be less for certain
Funds, as described in each Fund's registration statement as from
time to time in effect). The sales charges on Class M shares are
subject to reduction or waiver as permitted by Rule 22d-1 under
the 1940 Act and as described in the Funds' registration
statements as from time to time in effect.
CONTINGENT DEFERRED SALES CHARGE
Class M shares are not subject to any CDSC.
CLASS Y SHARES
DISTRIBUTION AND SERVICE FEES
Class Y shares do not pay a distribution fee.
CONVERSION FEATURES
Class Y shares do not convert to any other class of shares.
EXCHANGE FEATURES
Class Y shares of any Fund may be exchanged, at the holder's
option, for Class Y shares of any other Fund that offers Class Y
shares without the payment of a sales charge beginning 15 days
after purchase, provided that Class Y shares of such other Fund
are available to residents of the relevant state, and further
provided that shares of such other Fund are available through the
relevant employer's plan.
INITIAL SALES CHARGE
Class Y shares are offered at their NAV, without an initial
sales charge.
CONTINGENT DEFERRED SALES CHARGE
Class Y shares are not subject to any CDSC.
s:\shared\boiler\newfunds\nf-69
