As Filed with the Securities and Exchange Commission on March 23, 1995
Securities Act File No. 33-57901
Investment Company Act File No. 811-07253
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
[X]
Pre-effective Amendment No. 1
[X]
Post-Effective Amendment No.
[ ]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]
Amendment No. 1
[X]
(Check appropriate box or boxes.)
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
(Exact name of registrant as specified in charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
(617) 292-1000
(Registrant's Telephone Number, including Area Code) (617) 292-1000
JOHN R. VERANI
Putnam Convertible Opportunities and Income Trust
One Post Office Square
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copies to:
<TABLE>
<CAPTION>
<S> <C> <C>
Thomas A. Hale, Esq. Louis A. Goodman, Esq. John W. Gerstmayr, Esq.
SKADDEN, ARPS, SLATE, MEAGHER SKADDEN, ARPS, SLATE, MEAGHER
& FLOM & FLOM ROPES & GRAY
333 West Wacker Drive One Beacon St. One International Place
Chicago, Illinois 60606 Boston, Massachusetts 02108 Boston, Massachusetts 02110-2624
</TABLE>
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Securities Amount Being Offering Price Aggregate Amount of
Being Registered Registered((1)) Per Unit Offering Price((1)) Registration Fee((2))
<S> <C> <C> <C> <C>
Shares of Beneficial Interest 3,450,000 $20.00 $69,000,000 $23,793
</TABLE>
(1) Includes 450,000 Shares which may be offered by the Underwriters pursuant
to an option to cover over allotments.
(2) Registration Fee previously paid.
<PAGE>
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
CROSS REFERENCE SHEET PURSUANT TO RULE 404(C)
UNDER THE SECURITIES ACT OF 1933
PARTS A AND B OF PROSPECTUS
<TABLE>
<CAPTION>
Item No. Registration Statement Caption Caption in Prospectus
<S> <C> <C>
1. Outside Front Cover Outside Front Cover
2. Inside Front and Outside Back Cover Page Inside Front and Outside Back Cover Page
3. Fee Table and Synopsis Prospectus Summary; Expenses Summary
4. Financial Highlights Not Applicable
5. Plan of Distribution Cover Page; Outside Front Cover; Prospectus Summary;
Underwriting
6. Selling Shareholders Not Applicable
Outside Front Cover; Inside Front Cover; Prospectus Summary; Use
7. Use of Proceeds of Proceeds; Investment Objectives and Policies
Outside Front Cover; Inside Front Cover; Prospectus Summary; The
Fund; Investment Objectives and Policies; Other Investment
Practices; Special Considerations and Risk Factors; Investment
Restrictions; Taxation; Portfolio Transactions; Description of
Shares; Determination of Net Asset Value; Appendix B; Appendix
8. General Description of Registrant C
Inside Front Cover; Prospectus Summary; Investment Manager;
Trustees and Officers; Investment Management Contract;
Administrative Services Contract; Portfolio Transactions;
Custodian, Transfer Agent, Dividend Disbursing Agent, and
9. Management Registrar, Statement of Assets and Liabilities
Prospectus Summary; Dividends and Distributions; Dividend
Reinvestment Plan; Description of Shares; Taxation; Repurchase
10. Capital Stock, Long-Term Debt, and Other Securities of Shares; Conversion to Open- End Status
11. Defaults and Arrears on Senior Securities Not Applicable
12. Legal Proceedings Not Applicable
13. Table of Contents of Statement of Additional Information Not Applicable
14. Cover Page. Not Applicable
15. Table of Contents Not Applicable
16. General Information and History Not Applicable
Outside Front Cover; Inside Front Cover; Prospectus Summary;
Investment Objective and Policies; Other Investment Practices;
Special Consideration and Risk Factors; Investment Restrictions;
17. Investment Objective and Policies Appendix B; Appendix C
18. Management Trustees and Officers
19. Control Persons and Principal Holders of Securities Description of Shares; Statement of Assets and Liabilities
Prospectus Summary; Investment Manager; Trustees and Officers;
Investment Management Contract; Administrative Services
Contract;
20. Investment Advisory and Other Services Portfolio Transactions; Statement of Assets and Liabilities
21. Brokerage Allocation and Other Practices. Portfolio Transactions
22. Tax Status Dividends and Distributions; Dividend Reinvestment Plan;
Taxation
Experts; Report of Independent Accountants; Statement of Assets
23. Financial Statements and Liabilities
</TABLE>
* (1) Pursuant to General Instruction H of Form N-2, all information required
to be set forth in Part B: Statement of Information has been included in
Part A: The Prospectus.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH , 1995
PROSPECTUS
Shares
Putnam Convertible Opportunities and Income Trust
Beneficial Interest
Putnam Convertible Opportunities and Income Trust (the "Fund") is a newly
organized, closed-end, diversified management investment company managed by
Putnam Investment Management, Inc. ("Putnam"). The Fund's investment
objectives are capital appreciation and current income. Under normal market
conditions, the Fund will invest substantially all of its assets in a
diversified portfolio of convertible securities ("Convertible Securities")
and nonconvertible, HIGHER RISK, HIGH YIELD income securities
("Nonconvertible High Yield Securities"). The portion of the Fund's assets
invested in Convertible Securities and in Nonconvertible High Yield
Securities will vary from time to time in light of the Fund's investment
objectives, changes in interest rates and economic and other factors,
although the Fund will normally invest at least 25%, but no more than 75%, of
its total assets in Convertible Securities and at least 25%, but no more than
75%, of its total assets in Nonconvertible High Yield Securities. Based upon
current market conditions, Putnam expects that initially approximately 50% of
the Fund's assets will be invested in each asset category.
The Fund's address is One Post Office Square, Boston, Massachusetts
02109, and its telephone number is (617) 292-1000. The Fund has applied for
listing of its Shares on the New York Stock Exchange under the symbol "PCV."
The minimum investment in this offering is 100 Shares ($2,000).
(Continued on page 2)
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.
<TABLE>
<CAPTION>
Price to Sales Proceeds to
Public Load(1)(2) Fund(3)
<S> <C> <C> <C>
Per Share $ 20.00 $ 0.00 $ 20.00
Total(4) $ $ 0.00 $
</TABLE>
(Footnotes on following page.)
The Shares being offered by the several Underwriters named herein are subject
to prior sale, when, as and if accepted by them and subject to certain
conditions. It is expected that certificates for the Shares offered hereby
will be available for delivery on or about , 1995, at the office of
[ ].
The date of this Prospectus is , 1995.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SHARES OF THE FUND AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE- COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
(Continued from previous page.)
The Fund expects to invest substantially all of its assets in securities
rated below investment grade and in nonrated securities of comparable quality
as determined by Putnam. Investments of this type are subject to greater risk
of loss of principal and non-payment of interest than higher-rated
investments and are predominantly speculative. The Fund may also invest up to
25% of its total assets in securities principally traded in foreign markets,
including securities denominated in foreign currencies. Investments in
foreign securities involve risks and special considerations not typically
associated with investments in securities of U.S. issuers. DUE TO THE RISKS
INHERENT IN INVESTING IN LOWER-GRADE SECURITIES AND FOREIGN SECURITIES, AN
INVESTMENT IN THE FUND SHOULD BE CONSIDERED SPECULATIVE. THE FUND IS DESIGNED
FOR INVESTORS WILLING TO ASSUME ADDITIONAL RISKS IN RETURN FOR THE POTENTIAL
FOR CAPITAL APPRECIATION AND CURRENT INCOME. PURCHASERS SHOULD CAREFULLY
ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND. SEE "SPECIAL
CONSIDERATIONS AND RISK FACTORS" AND "OTHER INVESTMENT PRACTICES." The Fund
is not intended to be a complete investment program, and there is no
assurance it will achieve its objectives.
(Footnotes from previous page.)
(1) The Fund and Putnam have agreed to indemnify the Underwriters against
certain liabilities, including certain liabilities under the Securities
Act of 1933. See "Underwriting."
(2) Putnam or an affiliate will pay the Underwriters a commission in the
gross amount of 6% of the initial public offering price per Share in
connection with sales of Shares in this Offering. See "Underwriting."
(3) Before deduction of organization and offering expenses payable by the
Fund, estimated to be $ and $ , respectively.
Organizational expenses will be amortized over a period not to exceed 60
months from the date the Fund commences investment operations. Offering
expenses, which include up to $ to be paid to the Underwriters in
partial reimbursement of their expenses, will be deducted from net
proceeds upon completion of the offering. See "Use of Proceeds" and
"Statement of Assets and Liabilities."
(4) The Fund has granted the several Underwriters an option, exercisable
within 60 days from the date of this Prospectus, to purchase up to an
aggregate of additional Shares solely to cover over- allotments,
if any, on the same terms and conditions as set forth above. If such
option is exercised in full, the total Price to Public will be
$ , the total Sales Load will be $0.00, and the total Proceeds to
the Fund will be $ . See "Underwriting."
2
<PAGE>
Prior to this offering there has been no market for the Fund's Shares.
Shares of closed-end investment companies have in the past frequently traded
at a discount from their net asset values. The risks of loss associated with
this characteristic of closed-end investment companies may be greater for
investors expecting to sell the shares soon after the completion of an
initial public offering of the company's shares. See "Special Considerations
and Risk Factors." This Prospectus sets forth in concise form information
about the Fund that a prospective investor should know before investing in
the Fund. Investors are advised to read this Prospectus carefully and to
retain it for future reference. Additional information about the Fund has
been filed with the Securities and Exchange Commission and is available upon
written or oral request and without charge.
3
<PAGE>
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing in the
Fund. The following table summarizes an investor's transaction costs from
investing in the Fund and expenses which the Fund expects to incur in its
first fiscal year. The Example shows the estimated cumulative expense
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses
Sales Load
(as a percentage of offering price) NONE(a)
Dividend Reinvestment Plan Fees NONE
Annual Expenses (as a percentage of net assets)
Management Fees(b) 1.15%
Other Expenses %
Administrative Services Fee(b) .20%
Other Operating Expenses %
Total Annual Expenses %
</TABLE>
(a) Putnam or an affiliate will pay the Underwriters a commission in the
gross amount of 6% of the initial public offering price per Share in
connection with sales of Shares in this Offering. See "Underwriting."
(b) The combined investment management and administrative fees payable to
Putnam are greater than those paid by most other investment companies.
See "Investment Management Contract" and "Administrative Services
Contract" for additional information.
Example
The following Example demonstrates the projected dollar amount of total
cumulative expense that would be incurred over various periods with respect
to a hypothetical investment in the Fund. These amounts are based upon
payment by the Fund of operating expenses at the levels set forth in the
table above.
An investment of $1,000 would result in the following expenses, assuming
(1) a 5% annual return and (2) reinvestment of all distributions at net asset
value:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C>
$ $ $ $
</TABLE>
The foregoing table is provided to help an investor understand the costs
and expenses that an investor in the Fund will bear directly or indirectly.
"Other Expenses" shown in the table are based on estimated amounts for the
Fund's first year. The Example is based on estimated operating expenses for
the Fund's first fiscal year and assumes reinvestment of all distributions at
net asset value. Federal regulations require the Example to assume a 5%
annual return. The Example and the information set forth in the table above
should not be considered a representation of the future expenses or rate of
return of the Fund. Actual expenses and annual rate of return may be more or
less than those allowed for purposes of this Example. In addition, while the
Example assumes reinvestment of all dividends and distributions at net asset
value, participants in the Fund's Dividend Reinvestment Plan will under
certain circumstances receive Shares purchased by the Plan Agent at a price
which may be at, above or below net asset value.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes that the Underwriters'
over-allotment option will not be exercised. Investors should carefully
consider the information set forth under the heading "Special Considerations
and Risk Factors."
The Fund Putnam Convertible Opportunities and Income Trust
(the "Fund") is a newly organized, closed-end,
diversified management investment company. The Fund
has no operating history. See "The Fund." The Fund is
managed by Putnam Investment Management, Inc.
("Putnam").
The Offering The Fund is offering shares of beneficial
interest (the "Shares") through a group of
underwriters (the "Underwriters") led by
, ,
, and . The
Underwriters have been granted an option to purchase
up to [ ] additional Shares solely to cover
over-allotments, if any. The offering may be
terminated by the Underwriters upon the occurrence of
certain conditions. The initial public offering price
is $20.00 per Share. The minimum investment in this
offering is 100 Shares ($2,000). See "Underwriting."
No Sales Charges The Shares will be sold during the initial public
offering without any sales charges or underwriting
discounts. Putnam or an affiliate will pay the
Underwriters from its own assets a commission in
connection with the sale of the Shares in this
offering. See "Underwriting."
Investment Objectives The Fund's investment objectives are capital
and Policies appreciation and current income. Under normal market
conditions, the Fund will invest substantially all of
its assets (and, in any event, normally at least 80%
of its total assets) in a diversified portfolio of
convertible securities ("Convertible Securities") and
nonconvertible, higher risk, high yield income
securities ("Nonconvertible High Yield Securities").
The Fund expects that all or a substantial portion of
its assets will be invested in lower-grade
Convertible Securities and Nonconvertible High Yield
Securities rated at the time of purchase Ba, B or Caa
by Moody's Investors Service, Inc. ("Moody's") or BB,
B or CCC by Standard & Poor's Corporation ("Standard
& Poor's") or in nonrated Convertible Securities and
Nonconvertible High Yield Securities of comparable
quality as determined by Putnam. Based on current
market conditions, Putnam currently expects that
Convertible
5
<PAGE>
Securities with conversion values that exceed their
investment values will initially represent a
significant portion of the Fund's investments in
Convertible Securities.
The portion of the Fund's assets invested in
Convertible Securities and in Nonconvertible High
Yield Securities will vary from time to time in light
of the Fund's investment objectives, changes in
interest rates and economic and other factors,
although under normal market conditions the Fund will
invest at least 25%, but no more than 75%, of its
total assets in Convertible Securities and at least
25%, but no more than 75%, of its total assets in
Nonconvertible High Yield Securities. Based upon
current market conditions, Putnam expects that
initially approximately 50% of the Fund's assets will
be invested in each asset category and that
Convertible Securities of small capitalization
companies (generally defined as companies with equity
market capitalizations of less than $1 billion) will
initially represent a significant portion of the
Fund's investments in Convertible Securities. The
Fund may also invest in common stocks and may hold a
portion of its assets in cash and money market
instruments.
The Fund may implement various temporary "defensive"
strategies at times when Putnam determines that
pursuing the Fund's basic investment strategy is not
in the best interests of its shareholders. In
implementing these strategies, the Fund may invest
all or any portion of its assets in investment-grade
nonconvertible debt securities, including U.S.
Government securities, or in any other securities
which Putnam believes are consistent with such
defensive strategies.
Investments by the Fund in lower-grade securities are
subject to greater risk of loss of principal and
non-payment of interest than higher-rated investments
and are predominantly speculative. The Fund may
invest up to 25% of its total assets in securities
principally traded in foreign markets, including
securities denominated in foreign currencies.
Investments in foreign securities involve risks and
special considerations not typically associated with
investments in securities of U.S. issuers. Due to the
risks inherent in investing in lower-grade securities
and foreign securities, an investment in the Fund
should be considered speculative. The Fund is
designed for investors willing to assume additional
risks in return for the potential for capital
appreciation and current income. The Fund is not
intended to be a complete
6
<PAGE>
investment program, and there is no assurance that
the Fund will achieve its investment objectives.
Investors should carefully assess the risks
associated with an investment in the Fund. See
"Investment Objectives and Policies," "Other
Investment Practices," "Special Considerations and
Risk Factors" and "Appendix A - Fixed Income Security
Ratings."
Convertible Securities Convertible Securities include bonds, debentures,
notes, preferred stocks and other securities that may
be converted into or exchanged for, at a specified
price or formula within a particular period of time,
a prescribed amount of common stock or other equity
securities of the same or a different issuer. Like
other income-producing securities, Convertible
Securities entitle the holder to receive interest
paid or accrued on debt or dividends paid or accrued
on preferred stock until the security matures or is
redeemed, converted, or exchanged. Convertible
Securities also provide the potential for capital
appreciation if the market price of the underlying
common stock increases.
The market value of a Convertible Security is a
function of its "investment value" and its
"conversion value." A security's "investment value"
represents the value of the security without its
conversion feature (i.e., a nonconvertible security).
The investment value may be determined by reference
to its credit quality and the current value of its
yield to maturity or probable call date. At any given
time, investment value is dependent on such factors
as the general level of interest rates, the yield of
similar nonconvertible securities, the financial
strength of the issuer, and the seniority of the
security in the issuer's capital structure. A
security's "conversion value" is determined by
multiplying the number of shares the holder is
entitled to receive upon conversion or exchange by
the current price of the underlying security.
If the conversion value of a Convertible Security is
significantly below its investment value, the
Convertible Security will trade like nonconvertible
debt or preferred stock and its market value will not
be influenced greatly by fluctuations in the market
price of the underlying security. Conversely, if the
conversion value of a Convertible Security is near or
above its investment value, the market value of the
Convertible Security will be more heavily influenced
by fluctuations in the market price of the underlying
security. Based on current market conditions, Putnam
currently expects that Convertible
7
<PAGE>
Securities with conversion values that exceed their
investment values will initially represent a
significant portion of the Fund's investments in
Convertible Securities. Such Convertible Securities
offer greater potential for capital appreciation in
the event of an increase in the value of the
underlying security than do Convertible Securities
with investment values that exceed their conversion
values, but also entail greater risk of capital loss
in the event of a decline in the market value of the
underlying security.
See "Investment Objectives and Policies" and "Special
Considerations and Risk Factors."
Nonconvertible High Nonconvertible High Yield Securities include bonds,
Yield Securities debentures, notes and preferred stocks and will
generally be unsecured. Investments by the Fund in
Nonconvertible High Yield Securities entail certain
special risks. See "Investment Objectives and
Policies" and "Special Considerations and Risk
Factors."
Investment Manager Putnam will serve as the investment manager and
and Administrator administrator to the Fund. Putnam has been a manager
of mutual funds since 1937, and serves as the
investment manager for the funds in the Putnam
family, with approximately $70 billion in assets in
over three million shareholder accounts as of
February 28, 1995, including $4.9 billion in assets
in closed-end funds. An affiliate, The Putnam
Advisory Company, Inc., manages domestic and foreign
institutional accounts and foreign mutual funds.
Another affiliate, Putnam Fiduciary Trust Company,
provides investment advice to institutional clients
under its banking and fiduciary powers. Putnam and
its affiliates managed approximately $99 billion in
assets as of February 28, 1995, including
approximately $2 billion invested in Convertible
Securities and $9 billion invested in Nonconvertible
High Yield Securities.
See "Investment Manager and Administrator."
Management Fees The Fund will pay Putnam a quarterly investment
management fee based on the average weekly net asset
value of the Fund at the annual rate of 1.15%. The
combined investment management and administrative
fees are higher than those paid by most other
investment companies. See "Investment Management
Contract."
Administrative Service The Fund will pay Putnam a quarterly administrative
Fees service fee based on the average weekly net asset
value of the Fund at the annual
8
<PAGE>
rate of .20% pursuant to an Administrative Services
Contract between the Fund and Putnam. The combined
investment management and administrative fees are
higher than those paid by most other investment
companies. See "Administrative Services Contract."
Listing and Symbol The Fund has applied for listing of the Shares on the
New York Stock Exchange under the symbol "PCV." See
"Underwriting."
Dividends and The Fund intends to pay monthly distributions from
Distributions net investment income, and will distribute all net
realized capital gain at least annually. The first
distribution to shareholders is expected to be paid
within 90 days after the completion of this offering
of the Fund's Shares. See "Dividends and
Distributions," "Taxation" and "Dividend Reinvestment
Plan."
Dividend Reinvestment The Fund has established a dividend reinvestment plan
Plan pursuant to which shareholders will have all
distributions of income and capital gains
automatically reinvested in additional Shares of the
Fund, unless they elect to receive such distributions
in cash. Shareholders whose Shares are held in the
name of a broker or nominee which provides a dividend
reinvestment service should consult their broker or
nominee to ensure that an appropriate election is
made on their behalf by such broker or nominee.
Shareholders whose Shares are held by a broker or
nominee which does not provide a dividend
reinvestment service may be required to have their
Shares registered in their own names in order to
participate in the plan. Because the first
distribution paid by the Fund may be paid before the
plan becomes fully operational, shareholders who are
participants in the plan may receive that
distribution in cash. See "Dividend Reinvestment
Plan" and "Taxation."
Repurchase of Shares; The Fund may from time to time repurchase Shares in
Conversion to Open-end the open market or make tender offers for its Shares.
Status This may have the effect of reducing any market
discount. The Fund may by vote of its shareholders be
converted at any time to an open-end investment
company, which would make the Shares redeemable upon
demand of shareholders at the Shares' net asset
value. The Fund has no present intention of taking
any such action. See "Description of Shares - Certain
Provisions in the Agreement and Declaration of Trust"
and "Repurchase of Shares; Conversion to Open-end
Status."
9
<PAGE>
Custodian, Transfer Putnam Fiduciary Trust Company serves as the Fund's
Agent, Dividend custodian, and Putnam Investor Services, a division
Disbursing Agent and of Putnam Fiduciary Trust Company, serves as the
Registrar transfer agent, dividend disbursing agent and
registrar for the Shares. See "Custodian, Transfer
Agent, Dividend Disbursing Agent and Registrar."
No Preferred Shares; The Fund does not intend to leverage through the
Borrowings issuance of preferred shares or the borrowing of
money in an attempt to enhance the return of the
Shares. The Fund may, however, borrow money for
temporary, extraordinary or emergency purposes. See
"Investment Restrictions."
Special Considerations No operating history. The Fund is a closed-end
and Risk Factors investment company designed primarily as a long-term
investment and not as a trading vehicle. As a newly
organized entity, the Fund has no operating history.
Investments in fixed income securities. The market
value of the Fund's investments in fixed income
securities, and thus the net asset value of the
Shares, will change in response to changes in (i) the
perceived creditworthiness of issuers of those
securities, (ii) interest rates, (iii) the relative
values of the currencies in which the Fund's
investments in fixed income securities are
denominated with respect to the U.S. dollar and (iv)
other factors. Thus, a decrease in interest rates
will generally result in an increase in the value of
such securities. Conversely, during periods of rising
interest rates, the value of such securities will
generally decline. Changes in the values of portfolio
securities generally will not affect income derived
from such securities, but will affect the Fund's net
asset value.
Although Putnam considers security ratings when
making investment decisions, it performs its own
investment analysis and does not rely principally on
the ratings assigned by the rating services.
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 accounts managed by
Putnam and its affiliates, holds a major portion or
all of such securities. Because there may be
relatively few potential purchasers for such
investments, especially under adverse market or
10
<PAGE>
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 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.
In many cases, such securities may be purchased in
private placements and, accordingly, will be subject
to restrictions on resale as a matter of contract or
under the securities laws. At times, it may also be
more difficult to determine the fair value of such
securities for purposes of computing the Fund's net
asset value.
Certain risks associated with investments in
lower-grade securities. Investors should carefully
consider their ability to assume the risks of owning
shares of a mutual fund which invests in lower-grade
securities before making an investment in the Fund.
Securities rated Ba or lower by Moody's or BB or
lower by Standard & Poor's are below investment grade
and are regarded by Moody's and Standard & Poor's, on
balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in
accordance with the terms of the obligation. The
lowest quality securities in which the Fund will
invest are those rated at the time of purchase Caa by
Moody's or CCC by Standard & Poor's or, if unrated,
determined by Putnam to be of comparable quality.
Although securities rated CCC, as well as securities
rated BB and B, may be regarded by Standard & Poor's
as having some quality or protective characteristics,
these are outweighed by large uncertainties or major
risk exposures to adverse conditions. Securities
rated Caa are regarded by Moody's as being of poor
standing. They may be in default or there may be
present elements of danger with respect to principal
or interest.
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 value the Fund had placed on such
securities. In the absence of a liquid trading market
for securities held by it, the Fund may find it more
difficult at times to establish the fair market value
of such securities.
11
<PAGE>
Securities ratings are based largely on the issuer's
historical financial condition and the rating
agencies' analysis at the time of rating.
Consequently, the rating assigned to any particular
security is not necessarily a reflection of the
issuer's current financial condition, which may be
better or worse than the rating would indicate. In
addition, the rating assigned to a security by
Moody's or Standard & Poor's does not reflect an
assessment of the volatility of the security's market
value or of the liquidity of an investment in the
security. The Fund will not necessarily dispose of a
security when its rating is reduced below its rating
at the time of purchase, although Putnam will monitor
the investment to determine whether continued
investment in the security will assist in meeting the
Fund's investment objectives. For more information
about the rating services' descriptions of
lower-grade securities, see "Appendix A - Fixed
Income Security Ratings."
The values of lower-grade securities may often be
affected to a greater extent by changes in general
economic conditions and business conditions affecting
the issuers of such securities and their industries.
Negative publicity or investor perceptions may also
affect adversely the values of lower-grade
securities. In the absence of a liquid trading market
for securities held by it, the Fund may find it more
difficult at times to establish the fair market value
of such securities. Because of the greater number of
investment considerations involved in investing in
lower-grade securities, the achievement of the Fund's
objectives depends more on Putnam's analytical
abilities than would be the case if it were investing
primarily in securities in the higher rating
categories.
Issuers of lower-grade securities are often highly
leveraged, so that their ability to service their
debt obligations during an economic downturn or
during sustained periods of rising interest rates may
be impaired. In addition, such issuers may not have
more traditional methods of financing available to
them, and may be unable to repay debt at maturity by
refinancing. The risk of loss due to default in
payment of interest or principal by such issuers is
significantly greater because such securities
frequently are unsecured and subordinated to the
prior payment of senior indebtedness.
Investments in securities of small capitalization
companies. Based on current market conditions, Putnam
currently expects that Convertible Securities of
small capitalization companies (i.e.,
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companies with equity market capitalizations of less
than $1 billion) will initially represent a
significant portion of the Fund's investments in
Convertible Securities. These securities may involve
certain special risks. Such companies may have
limited product lines, markets, or financial
resources and may be dependent on a limited
management group. Such securities may trade less
frequently and in smaller volume than more widely
held securities. The values of these securities may
fluctuate more sharply than other securities, and the
Fund may experience some difficulty in establishing
or closing out positions in these securities at
prevailing market prices. There may be less publicly
available information about the issuers of these
securities or less market interest in such securities
than in the case of larger companies, and it may take
a longer period of time for the prices of such
securities to reflect the full value of their
issuers' underlying earnings potential or assets.
Zero-coupon and Payment-in-Kind securities. The Fund
may invest in zero-coupon securities of government or
private issuers, including Brady Bonds and other
sovereign debt, and payment-in- kind securities.
Because zero-coupon securities do not (and
payment-in-kind securities may not) pay current
interest prior to maturity, their value is generally
subject to greater fluctuation in response to changes
in market interest rates than securities which pay
interest currently. Such securities usually are
issued and traded at a deep discount from their face
or par value and may involve greater credit risks
than securities paying interest currently. Even
though such securities 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
other investments in order to satisfy its dividend
requirements. To the extent the Fund is required to
liquidate thinly traded securities, the Fund may not
be able to sell such securities at prices
approximating the values the Fund had placed on such
securities.
Illiquid investments. A portion of the Fund's assets
may be invested in securities that are not readily
marketable, including securities the sale of which is
restricted under Federal securities laws. The Fund
may not be able to dispose of such securities in a
timely fashion and for a fair price, which could
result in losses to the Fund. The risks associated
with illiquidity will be particularly acute in
situations in which the Fund's operations require
cash, such as when the Fund
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pays distributions, and could result in the Fund
borrowing to meet short-term cash requirements or
incurring capital losses on the sale of illiquid
securities. In addition, illiquid securities are more
difficult to value.
Redemptions of portfolio securities and Premium
securities. 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
a Convertible Security held by the Fund is called for
redemption, the Fund will be required to redeem the
security, convert it into the underlying security or
sell it to a third party, and the Fund may lose the
value of any premium in the security's market price
attributable to the conversion privilege. If
securities purchased by the Fund at a premium are
called or sold prior to maturity, the Fund will
recognize a capital loss to the extent the call or
sale price is less than the purchase price.
Additionally, the Fund will recognize a capital loss
if it holds such securities to maturity.
Foreign currencies and foreign investments.
Investments in securities principally traded in
foreign markets may involve considerations different
from investments in domestic securities due to
limited publicly available information, lower trading
volume and possible consequent illiquidity, greater
volatility in price, the possible imposition of
withholding or confiscatory taxes, expropriation of
assets, nationalization, or other adverse political
or economic developments. Foreign companies may not
be subject to auditing and financial reporting
standards and requirements comparable to those which
apply to U.S. companies. Foreign brokerage
commissions and other fees are generally higher than
in the United States. It may be more difficult to
obtain and enforce a judgment against a foreign
issuer. In addition, to the extent the Fund's foreign
investments are not U.S. dollar-denominated, the Fund
may be affected favorably or unfavorably by changes
in currency exchange rates or exchange control
regulations and may incur costs in connection with
conversion between currencies. The currencies of
certain countries in which the Fund may invest have
in the past experienced substantial devaluation
relative to the U.S. dollar. The risks described
above are typically increased to the extent the Fund
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invests in under-developed and developing nations,
which are sometimes referred to as "emerging
markets." See "Other Investment Practices."
Anti-takeover provisions. The Agreement and
Declaration of Trust includes provisions that could
limit the ability of other persons or entities to
acquire control of the Fund or to cause it to engage
in certain transactions or to modify its structure.
Such provisions may have the effect of depriving
shareholders of an opportunity to sell their Shares
at a premium over prevailing market prices and may
have the effect of inhibiting the Fund's conversion
to open-end status. See "Description of Shares -
Certain Provisions in the Agreement and Declaration
of Trust" and "Repurchase of Shares; Conversion to
Open-end Status."
Market price of shares. Shares of closed-end
investment companies often trade at a discount to
their net asset values, and the Fund's Shares may
likewise trade at a discount. The risks associated
with this characteristic of closed-end investment
companies may be greater for investors expecting to
sell shares of a closed-end investment company soon
after the completion of an initial public offering of
the company's shares since the net asset value will
be reduced immediately following the offering as a
result of the payment of organizational and offering
expenses. The market price of the Fund's Shares will
be determined by such factors as relative demand for
and supply of such Shares in the market, the Fund's
net asset value, general market and economic
conditions and other factors beyond the control of
the Fund. See "Use of Proceeds," "Determination of
Net Asset Value" and "Repurchase of Shares;
Conversion to Open-end Status."
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<PAGE>
THE FUND
Putnam Convertible Opportunities and Income Trust (the "Fund") is a
closed-end, diversified management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund is a
Massachusetts business trust organized on February 23, 1995. A copy of the
Agreement and Declaration of Trust (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. As a newly organized
entity, the Fund has no operating history. The Fund's principal office is
located at One Post Office Square, Boston, Massachusetts 02109, and its
telephone number is (617) 292-1000.
INVESTMENT MANAGER AND ADMINISTRATOR
The Fund's investment manger and administrator is Putnam Investment
Management, Inc. ("Putnam"), a Massachusetts corporation with offices at One
Post Office Square, Boston, Massachusetts 02109. Putnam is a wholly-owned
subsidiary 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 businesses are international insurance and
reinsurance brokerage, employee benefit consulting and investment management.
Putnam has been managing mutual funds since 1937. The firm serves as the
investment manager for the funds in the Putnam family, with approximately $70
billion in assets in over three million shareholder accounts as of February
28, 1995, including $4.9 billion in assets in 16 closed-end funds. The Putnam
Advisory Company, Inc., an affiliate, manages domestic and foreign
institutional accounts and foreign mutual funds. Another affiliate, Putnam
Fiduciary Trust Company, provides investment advice to institutional clients
under its banking and fiduciary powers. Putnam and its affiliates managed
approximately $99 billion in assets as of February 28, 1995, including
approximately $2 billion invested in convertible securities and $9 billion
invested in high yield securities.
Putnam is an established manager of convertible securities. As of
February 28, 1995, Putnam's 13-member Basic Value Equity Group oversaw over
$2 billion in convertible securities. Putnam views the convertible market as
comprised of three distinct segments--small capitalization, large
capitalization and high yield. Putnam believes this view is the key to
efficient research, effective asset allocation and performance concerning
convertible securities.
Putnam is also among the largest managers of high yield assets in the
industry with nearly $9 billion in assets as of February 28, 1995. Putnam's
High Yield Group, which has been active in this market for 16 years, boasts a
team of 15 investment professionals with an average of 11 years experience
analyzing and selecting high yield securities. Putnam's High Yield Group of
analysts uses a disciplined method of credit analysis. This credit evaluation
process includes management interviews, indenture analysis, examination of
historical and projected financial statements and valuation of the issuing
company.
USE OF PROCEEDS
The proceeds of this offering are estimated to be $ (or
$ if the over-allotment option is exercised by the Underwriters in
full) after deducting organizational and offering expenses of the
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Fund. The Fund will not pay any underwriting fees out of the net proceeds of
the offering, and all of such proceeds will be available to the Fund for
investment in portfolio securities. An underwriting fee of $ per share,
for a total of $ (or $ if the over-allotment option is
exercised in full), will be paid to the Underwriters by Putnam or an
affiliate out of its own funds. See "Underwriting."
The net proceeds will be invested in accordance with the Fund's
investment objectives and policies during a period estimated not to exceed
three months from the completion of this offering, depending on market
conditions and the availability of appropriate securities. Pending such
investment, the proceeds will be invested in high-quality, short-term money
market instruments, investment-grade debt securities and U.S. Government
securities.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objectives are capital appreciation and current
income. The Fund is designed primarily as a long-term investment and not as a
trading vehicle. It is not intended to be a complete investment program, and
there is no assurance that the Fund will achieve its investment objectives.
Basic Investment Strategy
Under normal market conditions, the Fund will invest substantially all of
its assets (and, in any event, normally at least 80% of its total assets) in
a diversified portfolio of convertible securities ("Convertible Securities")
and nonconvertible, higher risk, high yield income securities
("Nonconvertible High Yield Securities"). The Fund expects that all or a
substantial portion of its assets will be invested in lower-grade Convertible
Securities and Nonconvertible High Yield Securities rated at the time of
purchase Ba, B or Caa by Moody's Investors Service, Inc. ("Moody's") or BB, B
or CCC by Standard & Poor's Corporation ("Standard & Poor's") or in non-rated
Convertible Securities and Nonconvertible High Yield Securities of comparable
quality as determined by Putnam. Putnam believes that by investing in a
combination of Convertible Securities and Nonconvertible High Yield
Securities, the Fund has the potential for both the capital appreciation
associated with equity investments and a higher current yield than is
normally associated with investments in common stocks, while at the same time
potentially offering lower principal risk and lower volatility than a
portfolio comprised solely of common stocks of comparable issuers. There can
be no assurance that these potential benefits will be realized by the Fund,
and the Fund may have less potential for capital appreciation than a
portfolio comprised solely of common stocks of comparable issuers.
The portion of the Fund's assets invested in Convertible Securities and
in Nonconvertible High Yield Securities will vary from time to time in light
of the Fund's investment objectives, changes in interest rates and economic
and other factors, although under normal market conditions the Fund will
invest at least 25%, but no more than 75%, of its total assets in Convertible
Securities and at least 25%, but no more than 75%, of its total assets in
Nonconvertible High Yield Securities. Based upon current market conditions,
Putnam expects that initially approximately 50% of the Fund's assets will be
invested in each asset category and that Convertible Securities of small
capitalization companies (generally defined as companies with equity market
capitalizations of less than $1 billion) will initially represent a
significant portion of the Fund's investments in Convertible Securities. See
"Investment Considerations" and "Special Considerations and Risk Factors"
below. The Fund may also invest in common stocks and may hold a portion of
its assets in cash and money market instruments.
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Convertible Securities. Convertible Securities include bonds, debentures,
notes, preferred stocks and other securities that may be converted into or
exchanged for, at a specified price or formula within a particular period of
time, a prescribed amount of common stock or other equity securities of the
same or a different issuer. Like other income-producing securities,
Convertible Securities entitle the holder to receive interest paid or accrued
on debt or dividends paid or accrued on preferred stock until the security
matures or is redeemed, converted or exchanged.
Putnam believes that Convertible Securities offer attractive investment
characteristics because (i) they have relatively high yields as compared to
common stocks, (ii) they have defensive characteristics since they provide a
fixed return even if the market price of the underlying common stock
declines, and (iii) they provide the potential for capital appreciation if
the market price of the underlying common stock increases.
Convertible Securities rank senior to common stock in a corporation's
capital structure and therefore entail less principal risk (i.e., the risk of
not recovering from an issuer in the event of a corporate reorganization)
than the corporation's common stock, although Convertible Securities are
typically subordinated to nonconvertible securities of the same issuer.
Convertible Securities generally offer income yields that are higher than the
dividend yield on the underlying common stock, but lower than the yield on
the nonconvertible debt securities of the same issuer or issuers of similar
investment quality. The extent to which the principal risk associated with a
Convertible Security is lower than the principal risk associated with the
underlying common stock depends in large measure upon the degree to which the
Convertible Security sells above its investment value (as defined below).
The market value of a Convertible Security is a function of its
"investment value" and its "conversion value." A security's "investment
value" represents the value of the security without its conversion feature
(i.e., a nonconvertible security). The investment value may be determined by
reference to its credit quality and the current value of its yield to
maturity or probable call date. At any given time, investment value is
dependent upon such factors as the general level of interest rates, the yield
of similar nonconvertible securities, the financial strength of the issuer
and the seniority of the security in the issuer's capital structure. A
security's "conversion value" is determined by multiplying the number of
shares the holder is entitled to receive upon conversion or exchange by the
current price of the underlying security.
If the conversion value of a Convertible Security is significantly below
its investment value, the Convertible Security will trade like nonconvertible
debt or preferred stock and its market value will not be influenced greatly
by fluctuations in the market price of the underlying security. Conversely,
if the conversion value of a Convertible Security is near or above its
investment value, the market value of the Convertible Security will be more
heavily influenced by fluctuations in the market price of the underlying
security. Based upon current market conditions, Putnam currently expects that
Convertible Securities with conversion values that exceed their investment
values will initially represent a significant portion of the Fund's
investments in Convertible Securities. Such Convertible Securities offer
greater potential for capital appreciation in the event of an increase in the
value of the underlying security than do Convertible Securities with
investment values that exceed their conversion values, but also entail
greater risk of capital loss in the event of a decline in the market value of
the underlying security.
Nonconvertible High Yield Securities. Nonconvertible High Yield
Securities may include bonds, debentures, notes and preferred stocks and will
generally be unsecured. Most of these securities will bear interest at fixed
rates. The Fund may also invest in securities with floating or variable rates
of interest or which
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<PAGE>
involve equity features, such as contingent interest or participations based
on revenues, sales or profits (i.e., interest or other payments, often in
addition to a fixed rate of return, that are based on the borrowers'
attainment of specified levels of revenues, sales or profits and thus enable
the holder of the security to participate in the issuer's business). At
times, the Fund may acquire warrants and other equity securities in
connection with the purchase of such securities. Investments by the Fund in
Nonconvertible High Yield Securities entail certain special risks. See
"Special Considerations and Risk Factors" below.
Investment Considerations
[To be supplied]
Defensive Strategies
There may be times when, in Putnam's judgment, conditions in the
securities markets would make pursuing the Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such times,
Putnam may employ alternative strategies, primarily designed to reduce
fluctuations in the value of the Fund's assets. In implementing these
"defensive" strategies, the Fund may invest all or any portion of its assets
in investment-grade nonconvertible debt securities, including obligations of
the U.S. Government or its agencies and instrumentalities, or in any other
securities which Putnam believes are consistent with such defensive
strategies. It is impossible to predict when, or for how long, such
alternative strategies will be utilized.
Portfolio Turnover
Putnam will buy and sell securities for the Fund to further its
investment objectives. The investment policies of the Fund may lead to
frequent changes in investments, particularly in periods of rapidly
fluctuating interest rates. The Fund's investments may also be traded to take
advantage of perceived short-term disparities in market values or yields
among securities of comparable quality and maturity. From time to time,
consistent with its investment objectives, the Fund may sell securities in
anticipation of a market decline or buy securities in anticipation of a
market rise.
The Fund's portfolio turnover rate may be higher at times than that of
other investment companies. Although it is impossible to predict portfolio
turnover rate, based on its experience in managing similar investments,
Putnam expects that the annual portfolio turnover rate of the Fund will not
exceed 100% after the initial investment of the proceeds of this offering in
accordance with the Fund's investment objectives and policies. 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. Such transactions may result
in the realization of taxable capital gains.
Other Investment Practices
The Fund may engage in the following investment practices, each of which
may involve certain special risks:
Foreign currencies and foreign investments. The Fund may invest up to 25%
of its total assets in securities principally traded in foreign markets,
including securities denominated in foreign currencies. The
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<PAGE>
Fund may also purchase Eurodollar certificates of deposit without regard to
this limit. See "Special Considerations and Risk Factors" for a discussion of
the risks associated with foreign investments.
Futures and options. The Fund may purchase and sell financial futures
contracts and related options and may purchase and sell options on securities
and securities indices to hedge against changes in the values of securities
the Fund owns or expects to purchase. For example, if Putnam expected the
value of the Fund's portfolio securities to decline as a result of an
anticipated general stock market decline, the Fund might sell futures
contracts on the Standard & Poor's 500 Composite Stock Index. If prices were
to fall, the value of securities held by the Fund would decline, but this
decline may be offset, in whole or in part, by an increase in the value of
the Fund's index futures contracts. Conversely, the increased cost of
portfolio securities to be acquired by the Fund caused by a general rise in
the stock market may be offset, in whole or in part, by gains on index
futures purchased by the Funds. The Fund could thus take advantage of the
anticipated rise in the values of securities without actually buying them
until the market had stabilized. The Fund may also purchase and sell put and
call options on index futures or on securities indices for hedging purposes.
The Fund may also, for hedging purposes, purchase and sell futures
contracts and related options with respect to U.S. Government securities,
including U.S. Treasury bills, notes and bonds and may purchase and sell
options directly on U.S. Government securities and other securities eligible
for investment by the Fund. Putnam believes that, under certain market
conditions, price movements in U.S. Government securities futures and related
options and in options on such securities may correlate closely with price
movements in other fixed income securities and may as a result provide
hedging opportunities for the Fund. Such futures and options would be used in
a way similar to the Fund's use of index futures and options. The Fund will
only purchase or sell futures or options when, in the opinion of Putnam,
price movements in such futures and options will correlate closely with price
movements in the securities which are the subject of the hedge.
The successful use of futures and options will usually depend on Putnam's
ability to forecast market movements or interest rates correctly. The Fund's
ability to hedge its portfolio positions through transactions in futures and
options also depends on the degree of correlation between movements in the
prices of such financial futures and options and movements in the prices of
the underlying securities index or U.S. Government securities or of the
securities which are the subject of a hedge. The successful use of futures
and options also depends on the availability of a liquid secondary market to
enable the Fund to close out its positions on a timely basis. There can be no
assurance that such a market will exist at a particular time. In the case of
options purchased by the Fund, the risk of loss is limited to the premium
paid, whereas in the case of options written by the Fund and in the case of
futures transactions, the risk of loss is limited only to the extent that the
increases in the value of the Fund's investments during the period of the
futures contract or option may offset losses on the futures contract or
option over the same period. Certain provisions of the Internal Revenue Code
may limit the Fund's ability to engage in futures and options transactions.
See Appendix B for more detailed information about these practices, including
limitations designed to reduce risks.
Securities loans. The Fund may make secured loans of its portfolio
securities 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-
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<PAGE>
dealers pursuant to agreements requiring that loans be continuously secured
by collateral in cash or short- term debt obligations at least equal at all
times to the value of the 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
in order that the securities may be voted by the Fund if the holders of such
securities are asked to vote upon or consent to matters materially affecting
the investment. The Fund may also call such loans in order to sell the
securities involved.
Forward commitments. The Fund may make contracts to purchase securities
for a fixed price at a future date beyond customary settlement time ("forward
commitments") if it 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 it enters into offsetting
contracts for the forward sale of other securities it owns. Forward
commitments 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 portfolio
securities or for delivery pursuant to options contracts it has entered into,
the Fund may dispose of a commitment prior to settlement if Putnam deems it
appropriate to do so. The Fund may realize short-term capital gains or losses
upon the sale of forward commitments.
Repurchase agreements. The Fund may enter into repurchase agreements with
respect to up to 25% of its total assets (taken at current value). 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 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 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 the 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.
SPECIAL CONSIDERATIONS AND RISK FACTORS
No operating history. The Fund is a closed-end investment company
designed primarily as a long-term investment and not as a trading vehicle. As
a newly organized entity, the Fund has no operating history.
Investments in fixed income securities. The market value of the Fund's
investments in fixed income securities, and thus the net asset value of the
Shares, will change in response to changes in (i) the perceived
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<PAGE>
creditworthiness of issuers of those securities, (ii) interest rates, (iii)
the relative values of the currencies in which the Fund's investments in
fixed income securities are denominated with respect to the U.S. dollar and
(iv) other factors. Thus, a decrease in interest rates will generally result
in an increase in the value of such securities. Conversely, during periods of
rising interest rates, the value of such securities will generally decline.
The extent of the fluctuation will depend on various other factors, such as
the average maturity of the Fund's investments in fixed income securities.
Although the Fund may invest in securities of any maturity, many of the fixed
income securities in which the Fund will invest will have relatively long
maturities. A longer maturity generally is associated with a greater level of
volatility in the market value of such securities in response to changes in
market conditions. In addition, securities issued at a deep discount are
subject to greater fluctuations of market value in response to changes in
interest rates than debt obligations of comparable maturities that were not
issued at a deep discount. Changes by recognized rating services in their
ratings of fixed income securities 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 income derived from such securities, but will affect the Fund's net
asset value.
Although Putnam considers security ratings when making investment
decisions, it performs its own investment analysis and does not rely
principally on the ratings assigned by the rating services. Putnam's analysis
may include consideration of the issuer's experience and management strength,
changing financial condition, borrowing requirements or debt maturity
schedules and its responsiveness to changes in business conditions and
interest rates. Putnam also considers relative values based on anticipated
cash flow, interest or dividend coverage, asset coverage, earnings prospects
and other factors.
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 accounts
managed by Putnam and its affiliates, holds a major portion or all of such
securities. Because there may be relatively few potential purchasers for such
investments, especially 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 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. In many cases, such
securities may be purchased in private placements and, accordingly, will be
subject to restrictions on resale as a matter of contract or under the
securities laws. At times, 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 addition, 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. 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, because as
a regulated investment company the Fund is subject to certain limitations on
its investments and on the nature of its income.
Certain risks associated with investments in lower-grade securities. The
Fund expects to invest substantially all of its assets in lower-grade
securities. Securities rated Ba or lower by Moody's or BB or lower by
Standard & Poor's, commonly known as "junk bonds," are below investment grade
and are regarded by Moody's and Standard & Poor's, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. The lowest quality
securities in
22
<PAGE>
which the Fund will invest are those rated at the time of purchase Caa by
Moody's or CCC by Standard & Poor's or, if unrated, determined by Putnam to
be of comparable quality. Securities rated CCC by Standard & Poor's or Caa by
Moody's and nonrated securities of comparable quality involve a high degree
of risk. Although securities rated CCC, as well securities rated BB and B,
may be regarded by Standard & Poor's as having some quality or protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. Securities rated Caa are regarded by Moody's
as being of poor standing. They may be in default or there may be present
elements of danger with respect to principal or interest.
Investors should carefully consider their ability to assume the risks of
owning shares of a mutual fund which invests in lower-grade securities before
making an investment in the Fund. These securities are considered to be
predominantly speculative with limited protection of interest and principal
payments. 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 value the Fund had placed
on such securities. The values of lower-grade securities may often be
affected to a greater extent by changes in general economic conditions and
business conditions affecting the issuers of such securities and their
industries. Negative publicity or investor perceptions may also affect
adversely the values of lower-grade securities. In the absence of a liquid
trading market for securities held by it, the Fund may find it more difficult
at times to establish the fair market value of such securities. Because of
the greater number of investment considerations involved in investing in
lower-grade securities, the achievement of the Fund's objectives depends more
on Putnam's analytical abilities than would be the case if it were investing
primarily in securities in the higher rating categories.
Issuers of lower-grade securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn
or during sustained periods of rising interest rates may be impaired. Such
issuers may not have more traditional methods of financing available to them
and may be unable to repay outstanding obligations at maturity by
refinancing. The risk of loss due to default in payment of interest or
repayment of principal by such issuers is significantly greater because such
securities frequently are unsecured and subordinated to the prior payment of
senior indebtedness.
Securities ratings are based largely on the issuer's historical financial
condition and the rating agencies' analysis at the time of rating.
Consequently, the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition, which
may be better or worse than the rating would indicate. In addition, the
rating assigned to a security by a rating agency does not reflect an
assessment of the volatility of the security's market value or of the
liquidity of an investment in the security. The Fund will not necessarily
dispose of a security when its rating is reduced below its rating at the time
of purchase, although Putnam will monitor the investment to determine whether
continued investment in the security will assist in meeting the Fund's
investment objectives. For more information about the rating services'
descriptions of lower-rated securities, see Appendix A to this Prospectus.
Investments in securities of small capitalization companies. Based on
current market conditions, Putnam currently expects that convertible
securities of small capitalization companies (generally defined as
23
<PAGE>
companies with equity market capitalizations of less than $1 billion) will
initially represent a significant portion of the Fund's investments in
Convertible Securities. These securities may offer greater opportunities for
current income and capital appreciation than those of larger companies, but
may involve certain special risks. Such companies may have limited product
lines, markets, or financial resources and may be dependent on a limited
management group. While the markets in securities of such companies have
grown rapidly in recent years, such securities may trade less frequently and
in smaller volume than more widely held securities. The values of these
securities may fluctuate more sharply than other securities, and the Fund may
experience some difficulty in establishing or closing out positions in these
securities at prevailing market prices. There may be less publicly available
information about the issuers of these securities or less market interest in
such securities than in the case of larger companies, and it may take a
longer period of time for the prices of such securities to reflect the full
value of their issuers' underlying earnings potential or assets.
Zero-coupon and Payment-in-Kind securities. The Fund may invest in
zero-coupon securities of governmental or private issuers, including Brady
Bonds (as described below) and other sovereign debt, and in payment-in-kind
securities. Because zero-coupon securities do not (and payment-in-kind
securities may not) pay current interest prior to maturity, their value is
generally subject to greater fluctuation in response to changes in market
interest rates than securities which pay interest currently. Both zero-coupon
and payment-in-kind securities allow an issuer to avoid the need to generate
cash to meet current interest payments. Payment-in-kind securities, for
instance, allow the issuer to make current interest payments in additional
securities. Accordingly, such securities usually are issued and traded at a
deep discount from their face or par value and may involve greater credit
risks than securities paying interest currently. Even though such securities
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 other investments in order to satisfy its dividend requirements. To
the extent the Fund is required to liquidate thinly traded securities, the
Fund may not be able to sell such securities at prices approximating the
values the Fund had placed on such securities.
Illiquid investments. A portion of the Fund's assets may be invested in
securities that are not readily marketable, including securities the sale of
which is restricted under Federal securities laws. The Fund may not be able
to dispose of such securities in a timely fashion and for a fair price, which
could result in losses to the Fund. The risks associated with illiquidity
will be particularly acute in situations in which the Fund's operations
require cash, such as when the Fund pays distributions, and could result in
the Fund borrowing to meet short-term cash requirements or incurring capital
losses on the sale of illiquid securities. In addition, illiquid securities
are more difficult to value. The Fund may invest up to 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.
Redemptions of portfolio securities and Premium securities. 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 a Convertible Security held by the Fund is called
for redemption, the Fund will be required to redeem the security, convert it
into the underlying security or sell it to a third party, and the Fund may
lose the value of any premium in the security's market price attributable to
the conversion privilege. The Fund may also invest at times in securities
with
24
<PAGE>
coupon rates greater than current market rates. Because the value of such
"premium" securities tends to approach the principal amount as they approach
maturity (or call price in the case of securities approaching their first
call date), the purchase of such securities may increase the Fund's risk of
capital loss if such securities are held to maturity (or first call date). If
securities purchased by the Fund at a premium are called or sold prior to
maturity, the Fund will recognize a capital loss to the extent the call or
sale price is less than the purchase price.
Foreign currencies and foreign investments. Since foreign securities are
normally denominated and traded in foreign currencies, the value of the
Fund's assets may be affected favorably or unfavorably by currency exchange
rates and exchange control regulations. The currencies of certain countries
in which the Fund may invest have in the past experienced substantial
devaluation relative to the U.S. dollar. Even though a portion of the Fund's
investment income may be received or realized in such foreign currencies, the
Fund will be required to compute and distribute its income in U.S. dollars.
Therefore, if the exchange rate for any such currency declines after the
Fund's income has been earned and translated into U.S. dollars but before
conversion into U.S. dollars, the Fund could be required to liquidate
portfolio securities to make such distributions. The Fund may engage in a
variety of foreign currency exchange transactions in connection with its
foreign investments. See Appendix C.
Foreign securities are subject to certain risks not typically associated
with investments in the securities of U.S. issuers, including risks related
to future political and economic developments. There may be less information
publicly available about a foreign issuer than about a U.S. issuer, and
foreign issuers are not generally subject to accounting, auditing,
recordkeeping and financial reporting standards and practices comparable to
those in the United States. Foreign securities markets may have substantially
less volume and be smaller and the securities of some foreign issuers are
less liquid and at times more volatile than securities of comparable U.S.
issuers. Foreign brokerage commissions and other costs and fees are also
generally higher than 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 that could
adversely affect the Fund's performance. Dividend and interest income
received by the Fund from sources within foreign countries may be reduced by
withholding and other taxes imposed by such countries. Any such taxes paid by
the Fund will reduce its net income available for distribution to
shareholders.
In addition, there may be a possibility of seizure, nationalization or
expropriation of assets, imposition of currency exchange controls,
confiscatory taxation or other foreign governmental laws or restrictions that
might adversely affect the payment of dividends on equity securities and
principal of and interest on debt securities. Additionally, political or
financial instability and diplomatic developments could adversely affect the
value of the Fund's 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, and, in the event of a default on a foreign obligation, it
may be difficult for the Fund to obtain or enforce a judgment against the
issuer. The laws of some foreign countries may limit the Fund's ability to
invest in securities of certain issuers located in those countries. Special
tax considerations apply to foreign securities.
The risks described above are typically increased to the extent that the
Fund invests in issuers located in under-developed and developing nations,
which are sometimes referred to as "emerging markets."
25
<PAGE>
Investments in securities of issuers located in countries with emerging
economies or securities markets are speculative and subject to certain
special risks. Political and economic structures in many of these countries
may be in their infancy and developing rapidly, and such countries may lack
the social, political and economic stability characteristic of more developed
countries. Certain of these countries have in the past failed to recognize
private property rights and have at times nationalized or expropriated the
assets of private companies. In addition, unanticipated political or social
developments may affect the values of the Fund's investments in these
countries and the availability to the Fund of additional investments in these
countries. The small size, limited trading volume and relative inexperience
of the securities markets in these countries may make the Fund's investments
in such countries illiquid and more volatile than investments in more
developed countries, and the Fund may be required to establish special
custodial or other arrangements before making investments in these countries.
There may be little financial or accounting information available with
respect to issuers located in these countries, and it may be difficult as a
result to assess the value or prospects of an investment in such issuers.
The Fund's investments in securities of issuers located in countries with
emerging economies or securities markets may include Brady Bonds. Brady Bonds
are issued by foreign governmental issuers through the exchange of existing
commercial bank loans to such countries for new bonds in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady. Brady Bonds may have no (or
only limited) collateralization, and the payment of interest and principal
may be dependent on the willingness and the ability of foreign governmental
issuer to make payment in accordance with the terms of the Brady Bond.
Anti-takeover provisions. The Agreement and Declaration of Trust includes
provisions that could limit the ability of other persons or entities to
acquire control of the Fund or to cause it to engage in certain transactions
or to modify its structure. Such provisions may have the effect of depriving
shareholders of an opportunity to sell their Shares at a premium over
prevailing market prices and may have the effect of inhibiting the Fund's
conversion to open-end status. See "Description of Shares--Certain Provisions
in the Agreement and Declaration of Trust" and "Repurchase of Shares;
Conversion to Open-end Status."
Market price of shares. Shares of closed-end investment companies often
trade at a discount to their net asset values, and the Fund's Shares may
likewise trade at a discount. The risks associated with this characteristic
of closed-end investment companies may be greater for investors expecting to
sell shares of a closed-end investment company soon after the completion of
an initial public offering of the company's shares. The net asset value per
Share will be reduced immediately following the offering as a result of
organizational and offering expenses. See "Use of Proceeds." The market price
of the Fund's Shares will be determined by such factors as relative demand
for and supply of such Shares in the market, the Fund's net asset value,
general market and economic conditions and other factors beyond the control
of the Fund. The Fund therefore cannot predict whether the Shares will trade
at, below or above the initial offering price. The Shares are designed
primarily for long-term investors, and investors should not view the Fund as
a vehicle for trading purposes. See "Determination of Net Asset Value" and
"Repurchase of Shares; Conversion to Open-end Status."
26
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions which may not
be changed without the affirmative vote of a "majority of the outstanding
voting securities" of the Fund, which is defined in the 1940 Act to mean the
affirmative vote of the lesser of (1) more than 50% of the outstanding Shares
or (2) 67% or more of the Shares present at a meeting if more than 50% of the
outstanding Shares are represented at the meeting in person or by proxy. The
Fund may not:
1. Issue senior securities, as defined in the 1940 Act, other than shares
of beneficial interest with preference rights, except to the extent such
issuance might be involved with respect to borrowings described under
restriction 2 below or with respect to transactions involving financial
futures, options, and other financial instruments.
2. 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 (not for leverage) in situations 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.
3. 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.
4. 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.
5. Purchase or sell commodities or commodity contracts, except that it
may purchase or sell financial futures contracts and options.
6. Make loans, except by purchase of debt obligations in which the Fund
may invest consistent with its investment policies, 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 total assets (taken at current
value).
7. 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
securities of the U.S. Government or its agencies or instrumentalities.
8. With respect to 75% of its total assets, acquire more than 10% of the
voting securities of any issuer.
9. Invest more than 25% of the value of its total assets in securities of
issuers in any one industry. (Securities of the U.S. Government, its
agencies, or instrumentalities, and securities backed by the credit of a
governmental entity are not considered to represent industries.)
27
<PAGE>
All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment. Except for the investment restrictions listed above, the other
investment policies described in this Prospectus are not fundamental and may
be changed by approval of the Trustees. As a matter of policy, the Trustees
would not materially change the Fund's investment objectives without
shareholder approval.
TRUSTEES AND OFFICERS
The Trustees of the Fund are responsible for the general oversight of the
Fund's business. The initial Trustees and executive officers of the Fund and
their principal occupations during the last five years are set forth below.
The mailing address of each of the officers and Trustees is One Post Office
Square, Boston, Massachusetts 02109.
Trustees
George Putnam, Chairman and President. Chairman and Director of Putnam
Investment Management, Inc., and Putnam Mutual Funds Corp. Director of
American Public Broadcasting, Inc., 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.((a)(b))
(a) Trustee who is an "interested person" (as defined in the 1940 Act) of the
Fund, Putnam, and/or Putnam Mutual Funds Corp.
(b) Trustees who, during the offering of the Shares, may be deemed to be
"interested persons" of the Fund and of one or more of the principal
underwriters for the Fund by reason of owning, beneficially or in a
fiduciary capacity, publicly traded securities issued by such an
underwriter or by a company controlling such an underwriter.
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 the
Putnam funds.
Gordon H. Silver, Vice President. Director and Senior Managing Director
of Putnam Investment Management, Inc. and Putnam Investments, Inc. Vice
President of the Putnam funds.
William N. Shiebler, Vice President. Director and Senior Managing
Director of Putnam Investments, Inc. President and Director of Putnam Mutual
Funds Corp. Vice President of the Putnam funds.
John R. Verani, Vice President. Senior Vice President of Putnam
Investment Management, Inc. and Putnam Investments, Inc. Vice President of
the Putnam funds.
Robert F. Lucey, Vice President. President and Director of Putnam
Fiduciary Trust Company. Senior Managing Director of Putnam Investments, Inc.
Vice President of the Putnam funds.
Gary N. Coburn, Vice President. Senior Managing Director of Putnam
Investment Management, Inc. and Putnam Investments, Inc. Vice President of
certain of the Putnam funds.
28
<PAGE>
Thomas V. Reilly, Vice President. Managing Director of Putnam Investment
Management, Inc. Vice President of certain of the Putnam funds.
Edward H. D'Alelio, Vice President. Managing Director of Putnam
Investment Management, Inc. Vice President of certain 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.
Jin W. Ho, Vice President. Managing Director of Putnam Investment
Management, Inc. Vice President of certain of the Putnam funds.
Hugh H. Mullin, Vice President. Senior Vice President of Putnam
Investment Management, Inc. Vice President of certain of the Putnam funds.
John D. Hughes, Treasurer. Treasurer of the Putnam funds.
Paul G. Bucuvalas, Assistant Treasurer. Assistant Treasurer of the Putnam
funds.
Beverly Marcus, Clerk. Clerk of the Putnam funds.
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 November, 1990, Mr. Shiebler was President and Chief
Operating Officer of the InterCapital Division of Dean Witter Reynolds.
Mr. Ho and Mr. Mullin are primarily responsible for the day-to-day
management of the Fund's portfolio. Mr. Ho has been employed by Putnam
Investment Management, Inc. since 1983 and Mr. Mullin has been employed by
Putnam Investment Management, Inc. since 1986.
The Fund pays each Trustee 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 and is responsible for
recommending Trustee compensation, estimates that Committee and Trustee
meeting time together with appropriate preparation requires the equivalent of
at least three business days per Trustee meeting. The fees paid to each
Trustee by the Fund and by all of the Putnam funds are shown below:
<TABLE>
<CAPTION>
Year first Estimated Retirement Total
elected as aggregate benefits accrued compensation
a Trustee of compensation as part of from all
Trustee the Putnam funds from the Fund* Fund's expenses Putnam funds**
<S> <C> <C> <C>
George Putnam 1957 0 $141,850
</TABLE>
* Reflects estimated amounts to be paid by the Fund for its fiscal year
ended , 19 (approximately months). Includes an annual retainer
and an attendance fee for each meeting attended.
29
<PAGE>
** Reflects total payments received from all Putnam funds in the most recent
calendar year. As of December 31, 1994, there were funds in the Putnam
family.
The Fund's 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 the 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 of the Fund will receive similar benefits upon their retirement. A
Trustee who retired in the most recent calendar year 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 of the Fund 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.
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.
INVESTMENT MANAGEMENT CONTRACT
Under a Management Contract between the Fund and Putnam, subject to such
policies as the Trustees may determine, Putnam, at its own 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 also places all orders for the purchase and sale of the Fund's
portfolio securities. Under the Management Contract, Putnam agrees to provide
all necessary investment personnel and related support services and to pay
the costs of their compensation, office space and equipment, as well as
certain costs associated with this offering as described in this Prospectus.
The Fund will pay for its organizational costs and certain other costs
associated with this offering, including the cost of printing prospectuses
and sales literature, the reimbursement of certain expenses incurred by the
Underwriters, auditing and legal fees and registration fees payable to the
SEC and the New York Stock Exchange. The Fund will also pay for all of its
operating expenses to the extent not otherwise borne by Putnam. See
"Administrative Services Contract" below.
As compensation for the services rendered, facilities furnished, and
expenses borne by Putnam, the Fund will pay Putnam a quarterly fee based on
the Fund's average net asset value (determined as described below) at the
annual rate of 1.15%. Average net asset value is to be determined by taking
the average of the weekly determinations of the net asset value, determined
at the close of the last business day of each week, for each week which ends
during the quarter The combined investment management and administrative fees
are higher than those paid by most other investment companies.
30
<PAGE>
The Management Contract provides that Putnam 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.
The Management Contract may be terminated without penalty by vote of the
Trustees or the shareholders of the Fund, or by Putnam, 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 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 1940 Act. See "Investment Restrictions."
Putnam expects to enter into an agreement with [ ] for various
services, including services with respect to the Fund's market performance
and general economic and interest rate conditions. Putnam from its own assets
(and not from the assets of the Fund) will pay a fee for such services in an
amount up to .10% of the net assets of the Fund. No part of the payments to
be made by Putnam to in connection with such services will accrue to or for
the account of any of the other Underwriters. [ ] will have no
responsibility with respect to the Fund's investments or administration.
ADMINISTRATIVE SERVICES CONTRACT
The Fund will pay Putnam a quarterly administrative service fee at the
annual rate of .20% of the Fund's average net asset value pursuant to an
Administrative Services Contract between the Fund and Putnam. Average net
asset value is to be determined by taking the average of the weekly
determination of net asset value, determined at the close of the last
business day of each week, for each week which ends during the quarter. The
combined investment management and administrative fees are higher than those
paid by most other investment companies.
Under the terms and conditions of the Administrative Services Contract,
in addition to the fee paid to Putnam, the Fund reimburses Putnam for a
portion of 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 will be determined annually by the Trustees.
Putnam pays all other salaries of officers of the Fund. The Fund pays all
expenses not otherwise borne by Putnam including, without limitation,
auditing, legal, custody, and shareholder servicing expenses, fees of
Trustees and costs of preparing and mailing periodic reports and proxy
statements to shareholders.
The Administrative Services Contract provides that Putnam 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.
31
<PAGE>
PORTFOLIO TRANSACTIONS
Investment Decisions
Investment decisions for the Fund and for the other investment advisory
clients of Putnam and its affiliates, The Putnam Advisory Company, Inc. and
Putnam Fiduciary Trust Company, 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 clients are selling the security. In some instances,
one client may sell a particular security to another client. Sometimes, 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'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 and other agency transactions
involve the payment by the Fund of negotiated brokerage commissions. Such
commissions vary among different brokers. Also, a particular broker may
charge different commissions according to such factors as the difficulty and
size of the transaction. Transactions in foreign securities markets generally
involve the payment of fixed brokerage commissions, which are generally
higher than those in the United States. There is generally no stated
commission in the case of securities 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.
Putnam will place orders for the purchase and sale of portfolio
securities for the Fund and will buy and sell securities for the Fund through
a substantial number of broker-dealers. In so doing, Putnam will use 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, having in mind the Fund's best interests, considers all
factors it deems relevant, including price, the size of the transaction, the
nature of the market for the security, 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.
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) from broker-dealers which
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 receives brokerage and research services from many
broker-dealers with which Putnam 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 security market
reviews, industry and company reviews, evaluations of securities,
recommendations as to
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<PAGE>
the purchase and sale of securities, newspapers, magazines, pricing services,
quotation services, news services, and personal computers utilized by
Putnam's managers and analysts. Where the services referred to above are not
used exclusively by Putnam for research purposes, Putnam, 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 and its affiliates, The Putnam Advisory Company, Inc. and
Putnam Fiduciary Trust Company, 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 and its affiliates receive these services even
though Putnam might otherwise be required to purchase some of these services
for cash.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended, and by the Management Contract, Putnam may cause the Fund to pay a
broker-dealer which provides brokerage and research services to Putnam an
amount of disclosed commission for effecting a securities transaction for the
Fund in excess of the commission which another broker-dealer would have
charged for effecting that transaction. Putnam'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.
The Management Contract provides that the fee payable to Putnam by the
Fund will be reduced by an amount equal to any commissions, fees, brokerage,
or similar payments received by Putnam or an affiliate in connection with the
purchase and sale of portfolio securities of the Fund, less any direct
expenses approved by the Trustees. Putnam seeks to reduce for the Fund
soliciting dealer fees on the tender of the Fund's portfolio securities in
tender or exchange offers. Any such reductions 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 may consider sales of Shares of the Fund by underwriters and dealers
in this offering (and, if permitted by law, sales of the other Putnam funds)
as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's policy to make monthly distributions to shareholders
from net investment income. The first distribution to shareholders is
expected to be paid within 90 days after the completion of the offering of
the Fund's Shares.
Net investment income of the Fund consists of all interest and other
income (excluding capital gains and losses) accrued on portfolio assets, less
all expenses of the Fund allocable thereto. Income and expenses of the Fund
are accrued each day. It is currently anticipated that amounts which
economically represent the excess of realized capital gains over realized
capital losses, if any, will be distributed to shareholders at least
annually.
To permit the Fund to maintain a more stable monthly distribution, the
Fund may from time to time pay out less than the entire amount of available
net investment income to shareholders earned in any particular period. Any
such amount retained by the Fund would be available to stabilize future
distributions. As a result, the distributions paid by the Fund for any
particular period may be more or less than the amount of net
33
<PAGE>
investment income actually earned by the Fund during such period. For
information concerning the tax treatment of distributions to shareholders,
see "Taxation." The Fund intends, however, to make such distributions as are
necessary for it to qualify as a regulated investment company that is not
subject to federal tax.
Shareholders may have their dividend or distribution checks sent to
parties other than themselves. A "Dividend Order" form is available from
Putnam Investor Services, mailing address: P.O. Box 41203, Providence, Rhode
Island 02940-1203. After Putnam Investor Services receives this completed
form with all registered owners' signatures guaranteed, the shareholder's
distribution checks will be sent to the bank or other person the shareholder
has designated.
DIVIDEND REINVESTMENT PLAN
The Fund offers a Dividend Reinvestment Plan (the "Plan") for
shareholders pursuant to which shareholders will have all cash distributions
automatically reinvested in additional Shares by The First National Bank of
Boston as plan agent (the "Plan Agent"), unless they elect to receive all
distributions in cash. Pursuant to an agreement among the Fund, the Plan
Agent, and Putnam Investor Services, Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, furnishes certain administrative and
bookkeeping services relating to the Plan. Shareholders who elect not to
participate in the Plan will receive all distributions in cash paid by check
in U.S. dollars mailed by Putnam Investor Services, as dividend disbursing
agent, directly to the shareholder of record or to the person designated by
such shareholder in a Dividend Order form (or, if the Shares are held in
Street name, then to the nominee). Shareholders whose Shares are held in the
name of a broker or nominee which provides a dividend reinvestment service
should consult their broker or nominee to ensure that an appropriate election
is made on their behalf by the nominee or broker and should similarly make
such consultation in the event of transfer of their Shares to a new broker or
nominee. Shareholders whose Shares are held by a broker or nominee which does
not provide a dividend reinvestment service may be required to have their
Shares registered in their own names in order to participate in the Plan.
If the Trustees declare a dividend or determine to make a capital gain
distribution payable either in Shares or in cash, as shareholders may have
elected, non-participants in the Plan will receive cash and participants in
the Plan will receive the equivalent in Shares. If the market price (plus
estimated brokerage commissions) of the Shares on the payment date for the
dividend or distribution is equal to or exceeds their net asset value as
determined on the payment date, participants will be issued Shares at a value
equal to the higher of net asset value and 95% of the market price. This
discount reflects savings in underwriting and other costs that the Fund would
otherwise be required to incur to raise additional capital. If the net asset
value exceeds the market price (plus estimated brokerage commissions) of the
Shares at such time, or if the Fund declares a dividend or other distribution
payable only in cash, the Plan Agent will, as agent for Plan participants,
attempt for a specified period (currently, seven days) to buy Shares in the
open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts at a discount from the Shares' net asset value as
determined from time to time during the period. If the Plan Agent is unable
to reinvest the entire amount of a dividend or distribution payable either in
Shares or in cash during the specified period in Shares at a discount from
net asset value, the portion of the dividend or distribution not so
reinvested will in general be invested in newly-issued Shares at a value
equal to the higher of their net asset value as of the last day
34
<PAGE>
of the period and 95% of their market price on the last day of the period.
If, before the Plan Agent has completed reinvestment of the dividend or
distribution, the market price or net asset value of the Shares exceeds the
net asset value of the Shares on the payment date for the dividend or
distribution, the average per share purchase price paid by the Plan Agent for
reinvestment of the dividend or distribution may be higher than if the
dividend or distribution had been paid in Shares issued by the Fund on the
payment date. Because the first distribution paid by the Fund may be paid
before the Plan becomes fully operational, shareholders who are participants
in the Plan may receive that distribution in cash.
The Plan Agent will maintain all shareholders' accounts in the Plan and
will furnish written confirmation of all transactions in the account,
including information needed by shareholders for tax records. Shares in the
accounts of each Plan participant will be held by the Plan Agent in
non-certificated form in the name of the participant, and each shareholder's
proxy will include those Shares purchased pursuant to the Plan.
In the case of shareholders such as banks, brokers, or nominees which
hold Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Shares certified from time
to time by a record shareholder as representing the total amount registered
in the record shareholder's name and held for the account of beneficial
owners who are to participate in the Plan.
Each participant will pay a proportionate share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with the reinvestment of distributions. In each case, the cost per Share
purchased for each participant's account will be the average cost, including
brokerage commissions, of the Shares purchased in the open market. Shares may
be purchased through any of the Underwriters, acting as broker or dealer.
The automatic reinvestment of dividends and distributions will not
relieve participants of any income taxes that may be payable (or required to
be withheld) on dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any distribution paid subsequent to written notice of the change
sent to the participants in the Plan at least 30 days before the record date
for such distribution. The Plan may also be amended or terminated by the Plan
Agent, with the Fund's prior written consent, on at least 30 days' prior
written notice to participants in the Plan. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend
the Plan to include a service charge payable by the participants.
A shareholder participating in the Plan may withdraw from the Plan at any
time. There is no penalty for non-participation in or withdrawal from the
Plan, and shareholders who have previously withdrawn from the Plan may rejoin
it at any time. Upon termination of participation in the Plan, a shareholder
will receive a certificate or certificates for the full Shares held under the
Plan, and a cash adjustment for any fractional Shares. Changes in election
must be in writing and should include the name of the Fund and the
shareholder's name and address as they appear on the share certificate. Such
elections, and all other correspondence concerning the Plan, should be sent
to Putnam Investor Services, mailing address: P.O. Box 41203, Providence,
Rhode Island 02940-1203, or shareholders may call Putnam Investor Services at
(800) 634-1587. An election to withdraw from the Plan will, until such
election is changed, be deemed to be an election by a shareholder to take all
subsequent distributions in cash.
35
<PAGE>
TAXATION
The following discussion is based on the advice of Ropes & Gray, counsel
to the Fund, and reflects provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), existing Treasury regulations, rulings published by the
Internal Revenue Service, and other applicable authority as of the date of
this Prospectus. These authorities are subject to change by legislative or
administrative action. The following discussion is only a summary of some of
the important federal tax considerations generally applicable to investments
in the Fund. There may be other federal tax considerations applicable to
particular investors. In addition, income earned through an investment in the
Fund may be subject to state and local taxes. Prospective shareholders are
therefore urged to consult their tax advisors with respect to the tax
consequences to them of an investment in the Fund.
Taxation of the Fund
The Fund intends to qualify each year for taxation as a regulated
investment company under Subchapter M of the Code. If the Fund so qualifies,
the Fund will not be subject to federal income tax on income distributed
timely to its shareholders in the form of dividends or capital gain
distributions.
Qualification for taxation as a regulated investment company under the
Code requires, among other things, that the Fund distribute to its
shareholders each year (or in distributions attributable to such year) at
least 90% of the sum of its net investment income (including, generally,
interest, dividends and certain other income, less certain expenses), and the
excess, if any, of net short-term capital gains over net long-term capital
losses (the "Distribution Requirement"). Because the Fund may in certain
instances be required to accrue income when it has not actually received cash
(for example, in the case of discount obligations, such as zero- coupon
bonds, payment-in-kind bonds and certain other obligations), the Fund may be
required at times to liquidate other investments in order to satisfy the
Distribution Requirement. If the Fund does not qualify for taxation as a
regulated investment company, the Fund's income will be taxed at the Fund
level, and all distributions from earnings and profits, including
distributions of net capital gain, will be taxable to shareholders as
ordinary income. In addition, in order to requalify as a regulated investment
company, the Fund may be required to recognize unrealized gains, pay
substantial taxes and interest, and make certain distributions.
In general, if the Fund fails to distribute in a calendar year
substantially all of its net investment income and substantially all of the
its capital gain net income for the one-year period ending October 31 of such
year (plus any amount that was not distributed in previous taxable years),
the Fund will be subject to a 4% excise tax on the retained amounts. The Fund
intends generally to make distributions sufficient to avoid imposition of the
4% excise tax.
The Fund's investments and hedging activities are subject to certain
special tax rules. One such rule provides that in order to qualify for
taxation as a regulated investment company, less than 30% of the Fund's gross
income must be derived from the sale or other disposition of certain assets
(including financial futures contracts and options) held for less than three
months (the "Three-Month Rule"). Accordingly, the Fund will be restricted in
selling assets held, or considered to have been held, for less than three
months. Certain Code rules governing the Fund's hedging transactions may
affect the Fund's holding periods in its assets and may, therefore, affect
the Fund's ability to comply with the Three-Month Rule. Code rules may also
alter the timing
36
<PAGE>
and character of certain income, gains and losses realized by the Fund with
respect to its transactions in futures contracts, options, and certain other
investments. These rules could affect the amount, timing and character of
distributions to shareholders. In addition, 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.
Taxation of Shareholders
Dividends and other Distributions. Distributions of net investment income
and the excess, if any, of net short-term capital gains over net long-term
capital losses, will be taxable to shareholders as ordinary income, and are
anticipated not to be eligible for the corporate dividends-received
deduction. Designated distributions of the excess, if any, of net long-term
capital gains over net short-term capital losses ("net capital gain") will be
taxable to Shareholders as long-term capital gains, without regard to how
long a shareholder has held Shares of the Fund, and will not qualify for the
corporate dividends-received deduction. Distributions in excess of the Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
Shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder (assuming such Shares are held as a capital
asset).
Certain of the Fund's transactions (including, but not limited to,
transactions in foreign currency- denominated debt securities and holdings in
securities on which the issuer is in default and has suspended or ceased
payment of current interest) may produce a difference between its book income
and its taxable income. This difference may cause part or all of the Fund's
income distributions to constitute nontaxable returns of capital for tax
purposes or, conversely, require the Fund to make taxable distributions
exceeding book income in order to continue to qualify as a regulated
investment company.
Dividend and capital gain distributions will be taxable as described
above whether received in cash or in Shares under the Dividend Reinvestment
Plan. The amount of a distribution received in the form of Shares under the
Dividend Reinvestment Plan will be reported for federal income tax purposes
as equal to the amount of cash allocated to the Shareholder for the purchase
of Shares on its behalf, notwithstanding whether Shares are actually
purchased or issued by the Fund.
Any dividend declared by the Fund in October, November or December and
payable to shareholders of record on a date in such a month generally is
deemed to have been received by the shareholders on December 31 of such year,
provided that the dividend actually is paid during January of the following
year.
The Fund will notify Shareholders each year of the amount and tax status
of dividends and other distributions, including the amount of any
distribution of net capital gain.
Sales of Shares. Except as set forth below, in general, any gain or loss
realized upon a taxable disposition of Shares by a shareholder will be
treated as long-term capital gain or loss if the Shares have been held for
more than twelve months, and otherwise as short-term capital gain or loss
assuming such Shares are held as a capital asset. However, any loss realized
upon a taxable disposition of Shares held for six months or less will be
treated as long-term, rather than short-term, capital loss to the extent of
any long-term capital gain distributions received by the shareholder with
respect to those Shares. All or a portion of any loss realized
37
<PAGE>
upon a taxable disposition of Shares will be disallowed if other Shares are
purchased (including under the Dividend Reinvestment Plan) 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.
From time to time the Fund may make a tender offer for its Shares. It is
expected that the terms of any such offer will require a tendering
shareholder to tender all Shares held, or considered under certain
attribution rules to be held, by such Shareholder. Shareholders who tender
all Shares held, or considered to be held, by them will be treated as having
sold their Shares and generally will realize a capital gain or loss. If a
shareholder tenders some but not all of its Shares such shareholder may be
treated as having received a taxable dividend upon the tender of its Shares.
In such a case, there is a risk that non-tendering shareholders will be
treated as having received taxable distributions from the Fund.
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 and other non-corporate shareholder who fails to furnish the
Fund with a correct taxpayer identification number, 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. An individual's taxpayer
identification number is his or her social security number. Withholding at a
rate of 30% (or lesser rate established by treaty) may apply to certain
distributions to shareholders that are nonresident aliens or foreign
partnerships, trusts or corporations.
DESCRIPTION OF SHARES
The Trustees of the Fund have authority to issue an unlimited number of
shares of beneficial interest without par value. The Shares outstanding are,
and those offered hereby when issued will be, fully paid and nonassessable by
the Fund, except as set forth in the following paragraph. The Fund's Shares
have no preemptive, conversion, exchange or redemption rights. Each Share has
one vote, with fractional Shares voting proportionately. 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.
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 incurred by
any shareholder held personally liable for the obligations of the Fund. Thus,
the risk of a shareholder's 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.
The Fund has no present intention of offering additional shares, other
than Shares issued pursuant to the Fund's Dividend Reinvestment Plan. Other
offerings of its shares, if made, will require approval of the Trustees. Any
additional offering will not be sold at a price per share (exclusive of
underwriting discounts and commissions) below the then current net asset
value except in connection with an offering to existing shareholders or with
the consent of a majority of the Fund's outstanding Shares.
Certain Provisions in the Agreement and Declaration of Trust
The Agreement and Declaration of Trust includes provisions that could
have the effect of limiting the ability of other entities or persons to
acquire control of the Fund, or to cause it to engage in certain transactions
38
<PAGE>
or to modify its structure. The Fund's Trustees are divided into three
classes, having initial terms of one, two and three years, respectively. At
each annual meeting of shareholders, the term of one class will expire and
Trustees will be elected to serve in that class for terms of three years. The
classification of the Trustees in this manner could delay for up to two years
the replacement of a majority of the Trustees. A Trustee may be removed from
office only by a vote of the holders of at least three-fourths of the Shares
of the Fund entitled to vote on the matter.
The affirmative vote of at least three-fourths of the outstanding Shares
is required to authorize any of the following actions: (1) merger or
consolidation of the Fund, (2) sale of all or substantially all of the assets
of the Fund, (3) liquidation or dissolution of the Fund, (4) conversion of
the Fund to an open-end investment company, or (5) amendment of the Agreement
and Declaration of Trust to reduce the three-quarters vote required to
authorize the actions in (1) through (5) above, unless with respect to any of
the foregoing such action has been authorized by the affirmative vote of
three-fourths of the total number of Trustees and three- fourths of the total
number of Continuing Trustees (as defined below), in which case the
affirmative vote of a majority of the outstanding voting securities of the
Fund is required in connection with the actions in (1) through (4) above, and
the affirmative vote of a majority of the outstanding Shares is required in
connection with an amendment of the Agreement and Declaration of Trust. A
Continuing Trustee is a Trustee of the Fund (1) who is not a person or an
affiliate of a person who enters or proposes to enter into a transaction
resulting in a merger or consolidation of the Fund or the sale of all or
substantially all of the assets of the Fund (an "Interested Party") and (2)
who has been a Trustee for a period of at least twelve months (or since the
Fund's commencement of operations if that period is less than twelve months),
or is a successor of a Continuing Trustee who is unaffiliated with an
Interested Party and is recommended to succeed a Continuing Trustee by a
majority of the then Continuing Trustees. A "majority of the outstanding
securities" of the Fund is defined in the 1940 Act to mean the affirmative
vote of the lesser of (1) more than 50% of the outstanding Shares or (2) 67%
or more of the Shares present at a meeting if more than 50% of the
outstanding Shares are represented at the meeting in person or by proxy.
The Trustees have determined that the three-quarters voting requirements
described above, which are greater than the minimum requirements under the
1940 Act, are in the best interests of the Fund and its shareholders
generally. Reference is made to the Agreement and Declaration of Trust of the
Fund, on file with the Securities and Exchange Commission, for the full text
of these provisions. These provisions could have the effect of depriving
shareholders of an opportunity to sell their Shares at a premium over
prevailing market prices by discouraging a third party from seeking to obtain
control of the Fund in a tender offer or similar transaction and may have the
effect of inhibiting the Fund's conversion to open-end status.
Principal Shareholder
As of the date of this Prospectus, Putnam Investments, Inc. owned all the
outstanding Shares of the Fund, which it purchased in connection with the
contribution of the initial capital of the Fund. Putnam Investments, Inc. has
represented that such Shares were purchased for investment purposes only and
will be sold only pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or an applicable exemption therefrom.
39
<PAGE>
REPURCHASE OF SHARES; CONVERSION TO OPEN-END STATUS
Shares of closed-end investment companies often trade at a discount to
their net asset values, and the Fund's Shares may likewise trade at a
discount to their net asset value. The market price of the Fund's Shares will
be determined by such factors as relative demand for and supply of such
Shares in the market, the Fund's net asset value, general market and economic
conditions, and other factors beyond the control of the Fund. See
"Determination of Net Asset Value." Although the Fund's shareholders will not
have the right to redeem their Shares, the Fund may take action to repurchase
Shares in the open market or make tender offers for its Shares at their net
asset value. This may have the effect of reducing any market discount from
net asset value. The Fund may, by vote of at least three-fourths of the
outstanding Shares (or, under certain circumstances, such lesser percentage
as described above under "Description of Shares - Certain Provisions in the
Agreement and Declaration of Trust") be converted to an open-end investment
company, which would make the Fund's Shares redeemable upon demand of
shareholders at the Shares' net asset value. Certain provisions of the Fund's
Agreement and Declaration of Trust discussed above may have the effect of
depriving shareholders of an opportunity to sell their Shares at a premium
over prevailing market prices and may have the effect of inhibiting the
Fund's conversion to open-end status.
The Fund has no present intention of taking any actions described in the
foregoing paragraph. There is no assurance that the Fund will, in fact,
decide to undertake any of these actions or, if action is undertaken to
repurchase or tender for Shares, that such action will result in the Shares'
trading at a price which approximates their net asset value. Although Share
repurchases and tender offers could have a favorable effect on the market
price of the Fund's Shares, it should be recognized that the acquisition of
Shares by the Fund will decrease the total assets of the Fund and, therefore,
have the effect of increasing the Fund's expense ratio. Any Share repurchases
or tender offers will be made in accordance with requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act. If the Fund
were to make a tender or repurchase offer for its Shares, shareholders would
receive any notice thereof required by applicable law, including any required
information describing the offer and the means by which shareholders might
submit their Shares. If the Fund converted to an open-end company, it could
be required to liquidate its portfolio investments to meet requests for
redemption, and its Shares would no longer be listed on the New York Stock
Exchange.
DETERMINATION OF NET ASSET VALUE
The Fund will determine the net asset value of its Shares at least once
each week as of the close of business on the last day on which the New York
Stock Exchange is open. Net asset value will be determined by dividing the
value of all assets of the Fund (including accrued interest and dividends),
less all liabilities (including accrued expenses), by the total number of
Shares outstanding. Securities and other assets for which quotations are
readily available are valued at market value, which is currently 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.
Reliable market quotations are not considered to be readily available for
long-term corporate bonds and notes, certain preferred stocks or certain
foreign securities. These investments are stated at fair value on the
40
<PAGE>
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
will determine their fair value following procedures approved by the
Trustees. The Trustees periodically review such valuations and procedures.
The fair value of such securities generally will be 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 (both at the time of purchase and
at the time of valuation), 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.
UNDERWRITING
The Underwriters named herein, for whom [ ],
[ ] [and other underwriters] are acting as
Representatives, have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Fund the number
of Shares set forth below opposite their respective names:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
<S> <C>
[ ]
Total
</TABLE>
The Underwriters, through their Representatives, have advised the Fund
that they propose to offer the Shares initially at the public offering price
set forth on the cover page of this Prospectus. There is no sales charge or
underwriting discount charged to investors on purchases of Shares in the
offering. Putnam or an affiliate has agreed to pay the Underwriters from its
own assets a commission in connection with sales of the Shares in the
offering, in the gross amount of $ per Share. Such payment is equal to
6.00% of the initial public offering price per Share. From this amount, the
Underwriters may allow to selected dealers a payment in the amount of $
per Share sold by such dealers and such dealers may reallow a payment of
$ per Share to certain other dealers. The Underwriters reserve the right
to reject orders in whole or in part. After the initial offering, the
offering price and other selling terms may be changed by the Representatives.
The Fund is obligated to sell, and the Underwriters are obligated to
purchase, all of the Shares offered hereby (other than shares covered by the
over-allotment option described below) if any are sold.
Investors must pay for the Shares on the fifth business day following the
date of the final Prospectus. Investors should consult their broker
concerning the manner and method of payment.
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<PAGE>
The Fund has granted to the Underwriters an option, exercisable for 60
days from the date of this Prospectus, to purchase up to additional
Shares at the initial public offering price, less underwriting discounts and
commissions, as set forth on the cover page of this Prospectus. Such option
may be exercised from time to time by the Underwriters during such 60-day
period, but not more than three times. The Underwriters may exercise such
option solely for the purpose of covering over-allotments incurred in the
sale of the Shares offered hereby. To the extent such option to purchase is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
Shares as the number set forth next to such Underwriter's name in the
preceding table bears to .
The Fund and Putnam have each agreed to indemnify the several
Underwriters or contribute to losses arising out of certain liabilities,
including certain liabilities under the Securities Act of 1933, as amended.
The Representatives have informed the Fund that the Underwriters do not
intend to confirm sales to any accounts over which they exercise
discretionary authority.
In order to meet the requirements for listing of the Fund's Shares of the
New York Stock Exchange, the Underwriters will undertake to sell lots of 100
or more Shares to a minimum of 2,000 beneficial owners. The minimum
investment requirement is 100 Shares ($2,000).
Prior to this offering, there has been no public market for the Shares of
the Fund. Consequently, the initial public offering price has been determined
through negotiation among the Fund, Putnam and the Representatives. The Fund
intends to list the Shares for trading on the New York Stock Exchange under
the symbol " ".
The Underwriting Agreement provides that it may be terminated in the
absolute discretion of [ ] without liability on the part of any
Underwriter to the Fund or Putnam if prior to the closing date for the
purchase of the Shares or the closing date for the purchase of the Shares
pursuant to the overallotment option, as the case may be, (1) trading in
securities generally on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq National Market or the Nasdaq Stock Market shall have
been suspended or materially limited or trading in Shares of the Fund shall
have been suspended or materially limited; (2) additional material
governmental restrictions, not in force on the date of the Underwriting
Agreement, have been imposed upon trading in securities generally or a
general moratorium on commercial banking activities in New York or
Massachusetts shall have been declared by either Federal or state
authorities; or (3) any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political, financial
or economic conditions occurs, the effect of which is such as to make it in
the judgment of [ ] impracticable or inadvisable to commence or
continue the offering of the Shares at the offering price to the public set
forth on the cover page of this Prospectus or to enforce contracts for the
resale of the Shares by the Underwriters.
The Underwriters have taken certain actions to discourage short-term
trading of the Shares during a period of time following the initial offering
date. Included in these actions is the withholding of the concession to
dealers in connection with Shares which were sold by such dealers and which
are repurchased for the account of the Underwriters during such period. In
addition, physical delivery of certificates representing Shares is initially
required to transfer ownership.
42
<PAGE>
The Fund anticipates that from time to time the Representatives of the
Underwriters and certain other Underwriters may act as brokers or dealers in
connection with the execution of its portfolio transactions after they have
ceased to be Underwriters and, subject to certain restrictions, may act as
brokers while they are Underwriters.
The Fund has agreed not to offer or sell any additional Shares, other
than Shares issued pursuant to the Fund's Dividend Reinvestment Plan, for a
period of 180 days after the date of the Underwriting Agreement, without the
prior written consent of the Underwriters.
Putnam will enter into an agreement to purchase various services from
[ ]. See "Investment Management Contract."
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND REGISTRAR
The Fund's custodian is Putnam Fiduciary Trust Company, an affiliate of
Putnam (the "Custodian"). The transfer agent, dividend disbursing agent and
registrar for the Shares is Putnam Investor Services, a division of Putnam
Fiduciary Trust Company (the "Transfer Agent"). The principal business
address of the Custodian and the Transfer Agent is One Post Office Square,
Boston, Massachusetts 02109. The Transfer Agent is responsible for, among
other things, establishing and maintaining shareholder accounts, issuing
certificates for the Shares, recording transactions in the Shares, monitoring
the number of Shares issued and outstanding from time to time, and effecting
payments of dividends and other distributions declared from time to time by
the Trustees with respect to the Shares. For these services, the Fund pays
the Transfer Agent a monthly fee based on the number of shareholder accounts
and reimburses the Transfer Agent for certain out-of-pocket expenses. All
correspondence and shareholder inquiries should be directed to Putnam
Investor Services, mailing address: P.O. Box 41203, Providence, Rhode Island
02940-1203; telephone: (800) 225-1581.
LEGAL MATTERS
Certain legal matters in connection with the Shares offered hereby will
be passed upon for the Fund by Ropes & Gray, Boston, Massachusetts and for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom, Boston,
Massachusetts. Skadden, Arps, Slate, Meagher & Flom also acts as counsel to
Putnam Investment Management, Inc. and certain of its affiliates in
connection with other matters.
EXPERTS
The financial statement included in this Prospectus and the Registration
Statement has been so included in reliance on the report of ,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
Further information concerning these securities may be found in the
Registration Statement, of which this Prospectus constitutes a part, on file
with the Securities and Exchange Commission.
43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of
Putnam Convertible Opportunities and Income Trust
We have audited the accompanying statement of assets and liabilities of
Putnam Convertible Opportunities and Income Trust as of April , 1995. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of assets and
liabilities is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
statement of assets and liabilities. Our procedures included the confirmation
of cash held by the custodian as of April , 1995. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement of assets and
liabilities presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Putnam
Convertible Opportunities and Income Trust as of April , 1995 in conformity
with generally accepted accounting principles.
Boston, Massachusetts
April , 1995
44
<PAGE>
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
April , 1995
<TABLE>
<CAPTION>
<S> <C>
Assets
Cash $100,000.00
Deferred organization expenses (Note 1)
$
Liabilities
Accrued expenses $
Commitments (Notes 1 and 2)
$
NET ASSETS, applicable to common shares of beneficial interest without par value
issued and outstanding; unlimited number of common shares authorized $
NET ASSET VALUE PER COMMON SHARE $
</TABLE>
Notes to Financial Statement
[To be supplied.]
45
<PAGE>
APPENDIX A - FIXED INCOME SECURITY RATINGS
Moody's Investors Service, Inc. describes its classifications of bonds as
follows:
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-edge." 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 risks appear somewhat larger than
in 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 a 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.
Standard & Poor's Corporation describes its classifications of bonds as
follows:
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 highest rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher-rated
categories.
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<PAGE>
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 for bonds in higher-rated
categories.
BB-B-CCC - Debt rated BB, B or CCC is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
A-2
<PAGE>
APPENDIX B - OPTIONS AND FUTURES PORTFOLIO STRATEGIES
Purchasing and Selling Put and Call Options
The Fund may purchase put options on securities to protect its portfolio
securities against a substantial decline in market value. 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 its
portfolio securities by the premium paid for the put option and by
transaction costs.
The Fund may also purchase call options on securities to hedge against an
increase in prices of portfolio securities that the Fund ultimately wants to
buy. 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. By using call options in this manner, the
Fund will reduce any profit it might have realized had it bought the
portfolio security at the time it purchased the call option by an amount
equal to the premium paid for the call option plus transaction costs.
The Fund will not purchase call options if, as a result, more than 5% of
its assets would at the time be invested in such options.
The Fund may, as a limited form of hedging, write covered call options
and covered put options on securities when, in the opinion of Putnam, 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. 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 if owned by the Fund. 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
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<PAGE>
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 an 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.
General Characteristics of Futures Contracts and Related Options
The Fund may purchase and sell financial futures contracts and related
options in order to hedge against a change in the values of securities that
the Fund owns or expects to purchase.
The sale of a financial futures contract generally 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. (As described
below, however, index futures contracts do not require actual delivery of
securities making up an index.) The purchase of a financial futures contract
creates an obligation by the purchaser to take delivery of the underlying
financial instrument in a specified delivery month at a stated price. The
specific instruments delivered or taken, respectively, at settlement date are
not determined until at or near that date. The determination is made in
accordance with the rules of the exchange or board of trade on which the sale
or purchase of the futures contract was made. Futures contracts are traded
only on commodity exchanges or boards of trade - known as "contracts markets"
- - approved for such trading by the Commodity Futures Trading Commission, and
must be executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market.
Although most futures contracts 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 and 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 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.
When the Fund purchases or sells a futures contract, it is required to
deposit with the Fund's custodian an amount of cash and/or securities. This
amount is known as "initial margin." The nature of initial margin is similar
to a performance bond or good faith deposit that is returned to the Fund upon
termination of the contract, assuming the Fund satisfies its contractual
obligations.
Subsequent payments to and from the broker involved in the transaction
occur on a daily basis in a process known as "marking to market." These
payments are called "variation margin" and are made as the
B-2
<PAGE>
value of the futures contract fluctuates. For example, when the Fund has
purchased a futures contract and the price of the underlying index or
security has risen, that position may have increased in value, in which event
the Fund would receive from the broker a variation margin payment.
Conversely, when the Fund has purchased a futures contract and the price of
the underlying index or security has declined, the position may be less
valuable, in which event the Fund would be required to make a variation
margin payment to the broker.
When the Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to
the Fund, and the Fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
Index Futures Contracts and Options. An index futures contract is a
contract to buy or sell units of a specified 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 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 based on 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 investment objectives.
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). Index
futures contracts specify that no delivery of the actual securities 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 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 S&P 500 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).
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser (holder)
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), rather than to purchase or sell the futures
contract, at the specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the index 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 maintained with respect to the option, 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 futures contract. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made on the expiration date entirely
B-3
<PAGE>
in cash based on the difference between the exercise price of the option and
the closing level of the index on which the futures contracts are based.
Purchasers of options who fail to exercise their options prior to expiration
suffer a loss of the premium paid.
As an alternative to purchasing and selling call and put options on index
futures contracts, 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 contracts.
U.S. Government securities futures contracts and options. The Fund may,
for hedging purposes, purchase and sell futures contracts and related options
with respect to U.S. Government securities, including U.S. Treasury notes,
bills and bonds, when, in the opinion of Putnam, price movements in such
securities and options will correlate closely with price movements of the
securities which are the subject of a hedge. U.S. Government securities
futures contracts require the seller to deliver, or the purchaser to take
delivery of, the type of U.S. Government security called for in the contract
at a specified date and price. Options on U.S. Government security futures
contracts give the purchaser the right in return for the premium paid to
assume a position in a U.S. Government futures contract at the specified
option exercise price at any time during the period of the option.
Special Risks of Transactions in Futures Contracts and Options
Hedging risks. There are several risks in connection with the use by the
Fund of futures contracts and options on such contracts as a hedging device.
One risk arises in connection with the use of index futures contracts and
options because of the imperfect correlation between movements in the prices
of the index futures contracts and movements in the prices of securities
which are the subject of a hedge. As a result, the Fund's hedging
transactions based on such indices may not achieve their intended purposes
and may result in losses to the Fund. Putnam will attempt to reduce these
risks by purchasing and selling, to the extent possible, futures contracts
and options, the movements of which will, in its judgment, correlate closely
with movements in the prices of the Fund's portfolio securities sought to be
hedged.
Successful use of index futures contracts and related options by the Fund
for hedging purposes is also subject to Putnam's ability to predict correctly
movements in the direction of the market. For example, 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 its futures positions and also
experience a decline in value in its portfolio securities. In addition, the
prices of index futures and related options 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
requirements. Such requirements may cause investors to close futures
contracts through offsetting transactions which could distort the normal
relationship between the index and futures markets. Second, the margin
requirements in the futures market are less onerous than margin requirements
in the securities market in general, 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 distortion, even a correct
forecast of general market trends by Putnam may still not result in a
successful hedging transaction over a short time period.
B-4
<PAGE>
Similarly, successful use of U.S. Government security futures contracts
or options on U.S. Government securities by the Fund is subject to Putnam's
ability to predict correctly movements in the direction of interest rates and
other factors affecting markets for debt securities. For example, if the Fund
has sold U.S. Government security futures contracts or bought put options in
order to hedge against the possibility of an increase in interest rates which
would adversely affect securities held in its portfolio, and the price of
such portfolio securities increases 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 or options 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. Government security
futures contracts and options will not correlate closely with price movements
in the portfolio securities that are the subject of a hedge. For example, if
the Fund has hedged against a decline in the values of its portfolio
securities by selling U.S. Government security futures or buying put options
and the values of U.S. Government securities subsequently increase while
values of such portfolio securities decrease, the Fund would incur losses on
both the futures contracts written by it or put options bought by it and on
such securities held in its portfolio.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on securities, futures contracts, or securities indices
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 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 price of the underlying
securities or index. The writing of an option on a futures contract, security
or securities index 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.
The Fund's use of hedging strategies may result in a higher portfolio
turnover rate and additional brokerage costs.
Liquidity risks. To reduce or eliminate a hedge position held by the Fund
(including for the purpose of taking a subsequent position in the same
futures contract), the Fund may seek to close out a position. Trading in
certain futures contracts and options began only recently. The ability to
establish and close out positions will be subject to the development and
maintenance of a liquid market. It is not certain that this market will
develop or continue to exist. Reasons for the absence of a liquid 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
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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 market on that exchange (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. If a trading market were to become unavailable,
the Fund could no longer engage in closing transactions, and may be required
to maintain a position in a hedging instrument at a time when Putnam would
otherwise have closed out the position. As a result, the Fund may be unable
to limit the amount of any loss resulting from its positions in such an
instrument.
Regulatory Matters
The Fund will not enter into any transactions involving futures or
related options until it has received all necessary regulatory approvals,
including from the Commodity Futures Trading Commission. There can be no
assurance that such approvals will be obtained.
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APPENDIX C - FOREIGN CURRENCY TRANSACTIONS
Foreign Currency Exchange Transactions. The Fund may engage in currency
exchange transactions to protect against uncertainty in the level of future
currency exchange rates. In addition, the Fund may write covered call options
on foreign currencies for the purpose of increasing its current return. The
Fund's ability to engage in these transactions may be limited by the Rating
Agency Guidelines.
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 of the Fund generally arising in connection with the purchase or
sale of its 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 declared,
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 expiration of the option. A put option on currency gives the
Fund the right to sell a 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 currency gives the Fund the right to purchase a
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 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
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<PAGE>
security or securities being hedged is less than the amount of foreign
currency the Fund is obligated to deliver and if 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 the Fund 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.
Currency forward and futures contracts. A forward foreign currency
exchange 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 may either
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.
Positions in 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
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<PAGE>
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 Economic Community's European Monetary System.
The Fund will only purchase or write foreign currency options when Putnam
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 significantly
affected, fixed, or supported directly or indirectly by 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
trades of foreign securities or of
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<PAGE>
foreign currency option exercises may occur within a foreign country, and the
Fund may be required to accept or make delivery of the underlying securities
or foreign 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 (or "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.
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<PAGE>
APPENDIX D--PERFORMANCE DATA
[To be supplied]
D-1
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer contained herein and, if given or
made, such information or representations must not be relied upon as having
been authorized by the Fund, Putnam or any of the Underwriters. This
Prospectus does not constitute an offer of any securities other than those to
which it relates or an offer to sell, or a solicitation of an offer to buy,
those to which it relates in any state to any person to whom it is not lawful
to make such offer in such state. The delivery of this Prospectus at any time
does not imply that the information herein is correct as of any time
subsequent to its date. However, if any material change occurs while this
Prospectus is required by law to be delivered, the Prospectus will be amended
or supplemented accordingly.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Expenses Summary 4
Prospectus Summary 5
The Fund 16
Investment Manager and Administrator 16
Use of Proceeds 16
Investment Objectives and Policies 17
Other Investment Practices 19
Special Considerations and Risk Factors 21
Investment Restrictions 27
Trustees and Officers 28
Investment Management Contract 30
Administrative Services Contract 31
Portfolio Transactions 32
Dividends and Distributions 33
Dividend Reinvestment Plan 34
Taxation 36
Description of Shares 38
Repurchase of Shares; Conversion to Open-End Status 40
Determination of Net Asset Value 40
Underwriting 41
Custodian, Transfer Agent, Dividend Disbursing Agent, and
Registrar 43
Legal Matters 43
Experts 43
Additional Information 43
Report of Independent Accountants 44
Statement of Assets and Liabilities 45
Appendix A - Fixed Income Security Ratings A-1
Appendix B - Options and Futures Portfolio Strategies B-1
Appendix C - Foreign Currency Transactions C-1
Appendix D - Performance Data D-1
</TABLE>
Until , 1995, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may
be required to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
<PAGE>
[LOGO]
SHARES
PUTNAM CONVERTIBLE
OPPORTUNITIES AND
INCOME TRUST
BENEFICIAL INTEREST
P R O S P E C T U S
, 1995
<PAGE>
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements included in Parts A and B:
(a) Report of Independent Accountants--April , 1995.
(b) Statement of Assets and Liabilities--April , 1995.
The Selected Financial Information, Statement of Operations, Statement of
Changes in Net Assets, and Schedules II through VII, inclusive, are omitted
because the required information is included in the financial statement
included in Parts A or B, or because the conditions requiring their filing do
not exist.
(2) Exhibits
(a) - Agreement and Declaration of Trust*
(b) - Bylaws*
(c) - Inapplicable
(d) (1) - Form of Certificate representing shares of beneficial interest*
(2) - Portions of Agreement and Declaration of Trust Relating to
Shareholders' Rights*
(3) - Portions of Bylaws Relating to Shareholders' Rights*
(e) (1) - Form of Terms and Conditions of Dividend Reinvestment Plan**
(2) - Form of Dividend Reinvestment Plan Agency Agreement**
(f) - Inapplicable
(g) - Form of Management Contract
(h) (1) - Form of Master Agreement Among Underwriters**
(2) - Form of Underwriting Agreement
(3) - Form of Master Selected Dealers Agreement**
(i) - Inapplicable
(j) - Form of Custodian Agreement
(k) (1) - Form of Investor Servicing Agreement
(2) - Form of Administrative Services Contract
(l) - Opinion and Consent of Ropes & Gray**
(m) - Inapplicable
(n) - Consent of Independent Accountants**
(o) - Inapplicable
(p) - Form of Initial Capital Agreement**
(q) - Inapplicable
(r) - Inapplicable
*Previously filed
**To be filed by amendment
Item 25. Marketing Arrangements
Reference is made to the Form of Underwriting Agreement for Registrant's
shares of beneficial interest to be filed by amendment to this Registration
Statement.
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<PAGE>
Item 26. Other Expenses of Issuance and Distribution
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission fee $25,043
NASD fees $ *
New York Stock Exchange Listing Fee $ *
Printing $ *
Accounting fees and expenses $ *
Legal fees $ *
Blue Sky fees and expenses $ *
Miscellaneous $ *
Total $ *
</TABLE>
* To be furnished by amendment
Item 27. Persons Controlled by or under Common Control with Registrant
None.
Item 28. Number of Holders of Securities
None.
Item 29. Indemnification
Article VIII of the Registrant's Agreement and Declaration of Trust
provides as follows:
Section 1. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including, but not limited to,
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such Covered Person may be or
may have been threatened, while in office or thereafter, by reason of being
or having been such a Covered Person except with respect to any matter as to
which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding (a) not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interests
of the Trust or (b) to be liable to the Trust or its Shareholders by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by the Trust in advance of the
final disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid
to the Trust if it is ultimately determined that indemnification of such
expenses is not authorized under this Article; provided, however, that either
(a) such Covered Person shall have provided appropriate security for such
undertaking, (b) the Trust shall be insured against losses arising from any
such advance payments or (c) either a majority of the disinterested Trustees
acting on the matter (provided that a majority of the disinterested Trustees
then in office acts on the matter), or independent legal counsel in a written
opinion, shall have determined, based upon a review of readily available
facts (as opposed to a full trial type inquiry), that there is reason to
believe that such Covered Person will be found entitled to indemnification
under this Article.
Section 2. As to any matter disposed of (whether by a compromise payment,
pursuant to a consent decree or otherwise) without an adjudication by a
court, or by any other body before which the proceeding was brought, that
such Covered Person either (a) did not act in good faith in the reasonable
belief that his or her action was in the best interests of the Trust or (b)
is liable to the Trust or its Shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his or her office, indemnification shall be provided if (a)
approved as in the best interests of the Trust, after notice that it involves
such indemnification, by at least a majority of the disinterested Trustees
acting on the matter (provided that a majority of the disinterested Trustees
then in office acts on the matter) upon a determination, based upon a review
of readily available facts (as opposed to a full trial type inquiry), that
such Covered Person acted in good faith in the reasonable belief that his or
her action was in the best interests of the Trust and is not liable to the
Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
or her office, or (b) there has
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<PAGE>
been obtained an opinion in writing of independent legal counsel, based upon
a review of readily available facts (as opposed to a full trial type
inquiry), to the effect that such Covered Person appears to have acted in
good faith in the reasonable belief that his or her action was in the best
interests of the Trust and that such indemnification would not protect such
Covered Person against any liability to the Trust to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
or her office. Any approval pursuant to this Section shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with this Section as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have
acted in good faith in the reasonable belief that such Covered Person's
action was in the best interests of the Trust or to have been liable to the
Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
such Covered Person's office.
Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which such Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall
include such person's heirs, executors and administrators, and a
"disinterested Trustee" is a Trustee who is not an "interested person" of the
Trust as defined in Section 2(a)(19) of the 1940 Act (or who has been
exempted from being an "interested person" by any rule, regulation or order
of the Securities and Exchange Commission) and against whom none of such
actions, suits or other proceedings or another action, suit or other
proceeding on the same or similar grounds is then or has been pending.
Nothing contained in this Article shall affect any rights to indemnification
to which personnel of the Trust, other than Trustees or officers, and other
persons may be entitled by contract or otherwise under law, nor the power of
the Trust to purchase and maintain liability insurance on behalf of any such
person.
Section 4. In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs,
executors, administrators or other legal representatives or, in the case of a
corporation or other entity, its corporate or other general successor) shall
be entitled to be held harmless from and indemnified against all loss and
expense arising from such liability.
Reference is made to the Underwriting Agreement, to be filed by amendment
to this Registration Statement, which contains provisions for the
indemnification by the Underwriters and Putnam Investment Management, Inc. of
the Registrant and Trustees, officers and controlling persons of the
Registrant under certain circumstances. Insofar as indemnification for
liability arising under the Securities Act of 1933 may be permitted to
Trustees, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 30. 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.
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<PAGE>
<TABLE>
<CAPTION>
Non-Putnam business
Name and other connections
<S> <C>
John V. Adduci
Assistant Vice President Prior to July, 1993, Human Resources Manager, First
Security Services, 80 Main St., Reading, MA 01867
Gail S. Attridge
Assistant Vice President Prior to November, 1993, International Analyst, Keystone
Custodian Funds, 200 Berkley Street, Boston, MA 02116
James D. Babcock
Assistant Vice President Prior to June, 1994, Interest 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
Vice President Prior to August, 1994, Vice President and Analyst,
Keystone Custodian Funds, 200 Berkley St., Boston, MA
02110
Sharon A. Berka
Vice President Prior to January, 1994, Vice President-- Compensation
Manager, BayBanks, Inc.,
175 Federal Street, Boston, MA 02110
Thomas Bogan
Senior Vice President Prior to November, 1994, Analyst Lord, Abbett & Co., 767
Fifth Avenue, New York, NY 10153
Michael F. Bouscaren
Senior Vice President Prior to May, 1994, President and 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
Managing Director Prior to April, 1994, Managing Director, Fidelity
Investments, 82 Devonshire St., Boston, MA 02109
Carolyn S. Bunten
Assistant Vice President Prior to July, 1993, Assistant Trader, Scudder Stevens &
Clark, Inc., 175 Federal St., Boston, MA 02110
Andrea Burke
Vice President Prior to August, 1994, Vice President and Portfolio
Manager, Back Bay Advisors, 399 Boylston St., Boston, MA
02116
John M. Burton
Assistant Vice President Prior to June, 1994, Manager -- Marketing Asset
Management Pension Services, The Travelers, Inc., 1
Tower Square, Hartford, CT 06183
Patricia A. Carey
Assistant Vice President Prior to May, 1993, Research Analyst, John Hancock
Financial Services, 100 Clarendon St., Boston, MA 02116
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<PAGE>
Peter Carman
Senior Vice President Prior to August, 1993, Chief 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
Steven Cheshire
Vice President Prior to January, 1994, Assistant Vice President,
Wellington Management, 75 State Street, Boston, MA 02109
Anna Coppola
Assistant Vice President Prior to May, 1993, Associate, Heidrick & Struggles, One
Post Office Square, Boston,
MA 02109
Kenneth L. Daly
Senior Vice President Prior to August, 1993, Vice President, Fidelity
Investments, 82 Devonshire St., Boston,
MA 02109
John A. DeTore
Managing Director Prior to January, 1994, Director of Quantitative
Portfolio Management, Wellington Management, 75 State
Street, Boston,
MA 02109
Theodore J. Deutz
Vice President Prior to January, 1995, Senior Vice President,
Metropolitan West Securities, Inc. 10880 Wilshire Blvd.,
Suite 200, Los Angeles,
CA 90024
Michael G. Dolan
Assistant Vice President Prior to February, 1994, Senior Financial Analyst,
General Electric Company, 1000 Western Ave., Lynn, MA
01905
Joseph J. Eagleeye
Assistant Vice President Prior to August, 1994, Associate, David Taussig &
Associates, 424 University Ave., Sacramento, CA 95813
Michael T. Fitzgerald
Senior Vice President Prior to September, 1994, Senior Vice President, Vantage
Global Advisers, 1201 Morningside Dr., Manhattan Beach,
CA 90266
Jonathan H. Francis
Senior Vice President Prior to March, 1993, President, J.H. Francis & Co., N.
Pheasant Lane, Westport, CT 06880
James F. Giblin
Senior Vice President Prior to April, 1993, Managing Director, CIGNA Corp.
Investments, Inc., 900 Cottage Grove Rd. Bloomfield, CT
06152
Thomas C. Goggins
Vice President Prior to June, 1993, Portfolio Manager, Transamerica
Investment Services, 1150 South Olive Street, Los
Angeles, CA 90015
Mark D. Goodwin
Assistant Vice President Prior to May, 1994, Manager, Audit & Operations Analysis,
Mitre Corporation, 202 Burlington Rd.,
Bedford, MA 01730
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<PAGE>
Stephen A. Gorman
Assistant Vice President Prior to July, 1994, Financial Analyst, Boston Harbor
Trust Company, 100 Federal St., Boston, MA 02110
Kimberly A. Gravel
Assistant Vice President Prior to March, 1993, Account Manager, Estee Lauder
Corp.--Prescriptives Division, 767 Fifth Ave., New York,
NY 10153
Daniel J. Grim
Vice President Prior to May 1993, Consultant, Connie Lee, 2445 M Street
N.W., Washington, D.C. 20037; Chief Operating Officer,
Boardwalk, Inc., Minocqua, WI 54548
Deborah R. Healey
Senior Vice President Prior to June, 1994, Senior Equity Trader, Fidelity
Management & Research Company,
82 Devonshire St., Boston, MA 02109
Lisa Heitman
Vice President Prior to July, 1994, Securities Analyst, Lord, Abbett &
Company, 767 Fifth Ave., New York, NY 10153
Michael F. Hotchkiss
Vice President Prior to May, 1994, Vice President Massachusetts
Financial Services, 500 Boylston St., Boston,
MA 02116
Walter Hunnewell, Jr.
Vice President Prior to April, 1994, Managing Director, Veronis, Suhler
& Associates, 350 Park Avenue, New York, NY 10022
Joseph Joseph
Vice President Prior to October, 1994, Managing 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
Jeffrey L. Knight
Assistant Vice President Prior to March, 1993, Teacher, Greater Newburyport
Educational Collaborative, Newburyport, MA 01950
Jeffrey J. Kobylarz
Vice President Prior to May, 1993, Credit Analyst, Dean Witter Reynolds,
Inc., Two World Trade Center, New York, NY 10048
D. William Kohli
Senior Vice President Prior to September, 1994, Executive 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
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<PAGE>
Karen R. Korn
Vice President Prior to June, 1994, Vice President Assistant to the
President, Designs, Inc. 1244 Boylston St., Chestnut Hill,
MA 02167
Prior to March, 1993, Vice President, Paine Webber, Inc.,
265 Franklin St., Boston, MA 02110
Peter B. Krug
Vice President Prior to January, 1995, Owner and Director, Griswold
Special Care, 42 Ethan Allen Drive, Acton, MA 01720
Lawrence J. Lasser
President, Director and
Chief Executive Officer Director, Marsh & McLennan Companies, Inc., 1221 Avenue of
the Americas, New York, NY 10020
Director, INROADS/Central New England, Inc., 99 Bedford
St., Boston, MA 02111
Jeffrey R. Lindsay
Vice President Prior to April, 1994, Vice President and Board Member,
Strategic Portfolio Management, 900 Ashwood Parkway, Suite
290, Atlanta, GA 30338
Michael Martino
Senior Vice President Prior to January, 1994, Executive Vice President and Chief
Investment Officer until 1992; Senior Vice President and
Portfolio Manager from 1990 to 1992, Back Bay Advisors,
399 Boylston St, Boston, MA 02116
Andrew S. Matteis
Vice President Prior to March, 1993, Vice President, Fitch Investors
Service, One State Street Plaza, New York, NY 10004
Susan A. McCormack
Vice President Prior to May, 1994, Associate Investment Banker, Merril
Lynch & Co., 350 South Grand Ave., Suite 2830, Los
Angeles, CA 90071
Maziar Minovi
Vice President Prior to January, 1995, Associate Privatization
Specialist, The International Bank for Reconstruction and
Development, 1818 H St. N.W., Washington, DC 20433
Michael J. Mufson
Vice President Prior to June, 1993, Senior Equity Analyst, Stein Roe &
Farnham, One South Wacker Drive, Chicago, Il 60606
Paul G. Murphy
Assistant Vice President Prior to January, 1995, Section Manager, First Data Corp.,
53 State Street, Boston, MA 02109
Warren S. Naphtal
Senior Vice President Prior to January, 1994, Managing Director, Continental
Bank, 231 So. Lasalle St., Chicago, IL 60697
C. Patrick O'Donnell, Jr.
Managing Director Prior to May, 1994, President, Exeter Research, Inc., 163
Water Street, Exeter, New Hampshire, 03833
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<PAGE>
Brian O'Keefe
Vice President Prior to December, 1993, Vice President--Foreign Exchange
Trader, Bank of Boston, 100 Federal Street, Boston, MA
02109
Pat G. Patel
Vice President Prior to April, 1993, Regional Manager, Zacks Investment
Research, 155 N. Wacker Drive, Chicago, IL 60606
Margaret Pietropaolo
Assistant Vice President Prior to January, 1994, Data Base/Production Analyst,
Wellington Management, 75 State Street, Boston, MA 02109
George Putnam
Chairman and Director Chairman and Director, Putnam Mutual 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
Robert M. Shafto
Assistant Vice President Prior to January, 1995, Account Manager, IBM Corporation,
404 Wyman St., Waltham, MA 02254
Mark J. Siegel
Vice President Prior to June, 1993, Vice President, Salomon Brothers
International, Ltd., Victoria Plaza, 111 Buckingham Palace
Road, London SW1W 0SB, England
Joanne Soja
Senior Vice President Prior to June, 1993, Managing Director/Portfolio Manager,
Chancellor Capital Management, 153 East 53rd Street, New
York, NY 10002
Steven Spiegel
Senior Managing Director Prior to January, 1995, Managing Director/ Retirement,
Lehman Brothers, Inc., 200 Vesey St., World Financial
Center, New York, NY 10285
George W. Stairs
Vice President Prior to July, 1994, Equity Research Analyst, ValueQuest
Limited, Roundy's Hill, Marblehead, MA 01945
Roger Sullivan
Senior Vice President Prior to December, 1994, Vice President, State Street
Research & Management Co., One Financial Center, Boston,
MA 02111
C-8
<PAGE>
Hillary F. Till
Vice President Prior to May, 1994, Fixed-Income 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
Bonnie L. Troped
Vice President Prior to May, 1993, Assistant Vice President/ Director of
Corporate Events, The Boston Company, One Boston Place,
Boston, MA 02108
Elizabeth A. Underhill
Vice President Prior to August, 1994, Vice President and Senior Equity
Analyst, State Street Bank and Trust Company, 225 Franklin
St., Boston, MA 02110
Charles C. Van Vleet
Senior Vice President Prior to August, 1994, Vice President and Fixed- Income
Manager, Alliance Capital Management, 1345 Avenue of the
Americas, New York,
NY 10105
Francis P. Walsh
Vice President Prior to November, 1994, Research 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
Vice President Prior to March, 1994, Management Consultant, Arthur .
Little, Acorn Park, Cambridge, MA 02140
</TABLE>
Item 31. 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 transfer agent, dividend disbursing agent and
registrar, Putnam Investor Services; and Registrant's custodian, Putnam
Fiduciary Trust Company. The address of the Clerk, investment adviser,
custodian and transfer agent, dividend disbursing agent and registrar is One
Post Office Square, Boston, Massachusetts 02109.
Item 32. Management Services
None.
ITEM 33. Undertakings
(1) The Registrant undertakes to suspend offering of its shares until it
amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent
from its net asset value as of the effective date of the Registration
Statement or (2) the net asset value increases to an amount greater than its
net proceeds as stated in the prospectus.
(2) Inapplicable
(3) Inapplicable
(4) Inapplicable
(5) The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
a registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
C-9
<PAGE>
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post- effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(6) Inapplicable
(7) At such time as the Registrant determines to make a tender or
repurchase offer or to propose conversion of the Registrant to open-end
status, the Registrant will provide to shareholders a notice thereof
containing all of the information specified by Guide 2 or Guide 4 to Form
N-2, as the case may be.
NOTICE
A copy of the Agreement and Declaration of Trust of Putnam Convertible
Opportunities and Income 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 Registrant by an officer of the Registrant as an
officer 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 Registrant.
C-10
<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
Registration Statement to be signed on behalf of the undersigned, thereunto
duly authorized, in the City of Boston, and The Commonwealth of
Massachusetts, on the 23rd day of March, 1995.
PUTNAM CONVERTIBLE OPPORTUNITIES AND
INCOME TRUST
By: Gordon Silver
Name: Gordon Silver
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 23rd day of March, 1995.
<TABLE>
<CAPTION>
<S> <C>
Signature Title
* President and Chairman of the Board;
George Putnam Principal Executive Officer; Trustee
* Treasurer and Principal Financial
John D. Hughes Officer
* Assistant Treasurer and Principal
Paul G. Bucuvalas Accounting Officer
By: Gordon Silver
</TABLE>
Gordon Silver
Attorney-in-Fact Pursuant to
Powers of Attorney Filed
Previously
C-11
<PAGE>
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Title of Exhibit Page
<S> <C> <C>
99.2G Form of Management Contract
99.2H Form of Underwriting Agreement
99.2J Form of Custodian Agreement
99.2K1 Form of Investor Servicing Agreement
99.2K2 Form of Administrative Services Contract
</TABLE>
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
INVESTMENT MANAGEMENT CONTRACT
Management Contract dated as of ________, 1995 between PUTNAM
CONVERTIBLE OPPORTUNITIES AND INCOME TRUST, a Massachusetts business trust (the
"Fund"), and PUTNAM INVESTMENT MANAGEMENT, INC., a Massachusetts corporation
(the "Manager")
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO FUND.
(a) The Manager, at its expense, will furnish continuously an
investment program for the Fund, will determine what investments shall be
purchased, held, sold or exchanged by the Fund and what portion, if any, of the
assets of the Fund shall be held uninvested and shall, on behalf of the Fund,
make changes in the Fund's investments. In the performance of its duties, the
Manager will comply with the provisions of the Agreement and Declaration of
Trust and Bylaws of the Fund and its stated investment objectives, policies and
restrictions, and will use its best efforts to safeguard and promote the welfare
of the Fund and to comply with other policies which the Trustees may from time
to time determine and shall exercise the same care and diligence expected of the
Trustees.
(b) The Manager, at its expense, except as such expense is paid by the
Fund as provided in Section 1(d), will furnish all necessary investment and
related management facilities, including salaries of personnel, required for it
to execute its duties faithfully. Except as otherwise provided in Section 1(d),
the Manager will pay the compensation, if any, of certain officers of the Fund
carrying out the investment management and related duties provided for by this
Contract.
(c) The Manager, at its expense, shall place all orders for the
purchase and sale of portfolio investments for the Fund's account with brokers
or dealers selected by the Manager. In the selection of such brokers or dealers
and the placing of such orders, the Manager shall use 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 for brokerage and
research services as described below. In using its best efforts to obtain for
the Fund the most favorable price and execution available, the Manager, bearing
in mind the Fund's best interests at all times, shall consider all factors it
deems relevant, including by way of illustration, price, the size of the
transaction, the nature of the market for the security, 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 or
dealer involved, and the quality of service rendered by the broker or dealer in
other transactions. Subject to such policies as the Trustees of the Fund may
determine, the Manager shall not be deemed to have acted unlawfully or to have
breached any duty created by this Contract or otherwise solely by reason of its
having caused the Fund to pay a broker or dealer that provides brokerage and
research services to the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission that
another broker or dealer would have charged for effecting that transaction, if
the Manager determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by
3035453.02
<PAGE>
such broker or dealer, viewed in terms of either that particular transaction or
the Manager's overall responsibilities with respect to the Fund and to other
clients of the Manager as to which the Manager exercises investment discretion.
The Manager agrees that in connection with purchases or sales of portfolio
investments for the Fund's account, neither the Manager nor any officer,
director, employee or agent of the Manager shall act as a principal or receive
any commission other than as provided in Section 3.
(d) The Fund will pay or reimburse the Manager for the compensation in
whole or in part of such officers of the Fund and persons assisting them as may
be determined from time to time by the Trustees of the Fund. The Fund will also
pay or reimburse the Manager for all or part of the cost of suitable office
space, utilities, support services and equipment attributable to such officers
and persons, as may be determined in each case by the Trustees of the Fund. The
Fund will pay the fees, if any, of the Trustees of the Fund.
(e) The Manager shall pay all expenses incurred in connection with the
organization of the Fund and the initial public offering and sale of its shares
of beneficial interest, provided that upon the issuance and sale of such shares
to the public pursuant to such offering, and only in such event, the Fund shall
become liable for, and to the extent requested reimburse the Manager for, all
such expenses except to the extent that the Manager has otherwise agreed to pay
the same as described in the Prospectus relating to such offering.
(f) The Manager shall not be obligated to pay any expenses of or for
the Fund not expressly assumed by the Manager pursuant to this Section 1 other
than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers, and
employees of the Fund may be a shareholder, director, officer or employee of, or
be otherwise interested in, the Manager, and in any person controlled by or
under common control with the Manager, and that the Manager and any person
controlled by or under common control with the Manager may have an interest in
the Fund. It is also understood that the Manager and any person controlled by or
under common control with the Manager have and may have advisory, management,
service or other contracts with other organizations and persons, and may have
other interests and business.
3. COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER.
The Fund will pay to the Manager as compensation for the Manager's
services rendered, for the facilities furnished and for the expenses borne by
the Manager pursuant to paragraphs (a), (b), (c) and (e) of Section 1, a fee,
computed and paid quarterly at the annual rate of ____% of the average net asset
value of the Fund. Such average net asset value shall be determined by taking an
average of all of the determinations of such net asset value during such quarter
at the close of business on the last business day of each week, for each week
which ends during such quarter. Such fees shall be payable for each fiscal
quarter within 30 days after the close of such quarter.
The fees payable by the Fund to the Manager pursuant to this Section 3
shall be reduced by any commissions, fees, brokerage or similar payments
received by the Manager or any affiliated person of the Manager in connection
with the purchase and sale of portfolio investments of the Fund, less any direct
expenses approved by the Trustees incurred by the
-2-
3035453.02
<PAGE>
Manager or any affiliated person of the Manager in connection with obtaining
such payments.
In the event that expenses of the Fund for any fiscal year (taking into
account any reduction made by the Manager in the administrative services fee
payable to the Manager under the Administrative Services Contract dated April
__, 1995) should exceed the expense limitation 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 compensation due the
Manager for such fiscal year shall be reduced by the amount of such excess by a
reduction or refund thereof. In the event that the expenses of the Fund exceed
any expense limitation which the Manager may, by written notice to the Fund,
voluntarily declare to be effective subject to such terms and conditions as the
Manager may prescribe in such notice, the compensation due the Manager shall be
reduced, and, if necessary, the Manager shall assume expenses of the Fund, to
the extent required by such expense limitation.
If the Manager shall serve for less than the whole of a quarter, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment be approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Fund who are not interested persons of the Fund or of the
Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this Contract by not
more than sixty days' nor less than thirty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Trustees of the Fund or the shareholders by the
affirmative vote of a majority of the outstanding shares of the Fund, and (ii) a
majority of the Trustees of the Fund who are not interested persons of the Fund
or of the Manager, by vote cast in person at a meeting called for the purpose of
voting on such approval, do not specifically approve at least annually the
continuance of this Contract, then this Contract shall automatically terminate
at the close of business on January 31, 1997 or the expiration of one year from
the effective date of the last such continuance, whichever is later.
Action by the Fund under (a) above may be taken either (i) by vote of a
majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 will be without
the payment of any penalty.
-3-
3035453.02
<PAGE>
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares of the Fund" means the affirmative vote, at a duly
called and held meeting of shareholders of the Fund, (a) of the holders of 67%
or more of the shares of the Fund present (in person or by proxy) and entitled
to vote at such meeting, if the holders of more than 50% of the outstanding
shares of the Fund entitled to vote at such meeting are present in person or by
proxy, or (b) of the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person,"
"control," "interested person," and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; the term "specifically
approve at least annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the Rules and Regulations thereunder; and the
term "brokerage and research services" shall have the meaning given in the
Securities Exchange Act of 1934 and the Rules and Regulations thereunder.
7. NON-LIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager 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 hereunder.
8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the 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 Trustees of the
Fund as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees, officers or shareholders of
the Fund but are binding only upon the assets and property of the Fund.
-4-
3035453.02
<PAGE>
IN WITNESS WHEREOF, PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
and PUTNAM INVESTMENT MANAGEMENT, INC. have each caused this instrument to be
signed in duplicate in its behalf by its President or Vice President thereunto
duly authorized, all as of the day and year first above written.
PUTNAM CONVERTIBLE OPPORTUNITIES
AND INCOME TRUST
By:____________________________
PUTNAM INVESTMENT MANAGEMENT, INC.
By:____________________________
-5-
3035453.02
[ ] Common Shares
PUTNAM CONVERTIBLE OPPORTUNITIES
AND INCOME TRUST
Beneficial Interest
UNDERWRITING AGREEMENT
[ ], 1995
Smith Barney Inc.
[ ]
[ ]
[ ]
As Representatives of the Several Underwriters
c/o Smith Barney Inc.
1345 Avenue of the Americas
New York, New York 10105
Ladies and Gentlemen:
The undersigned, Putnam Convertible Opportunities and Income Trust, a
voluntary association with transferable shares organized and existing under and
by virtue of the laws of The Commonwealth of Massachusetts (commonly referred to
as a "Massachusetts business trust") (the "Fund"), and Putnam Investment
Management, Inc., a Delaware corporation (the "Manager"), address you as
Underwriters and as the representatives (the "Representatives") of each of the
other persons, firms and corporations, if any, listed in Schedule I hereto
(herein collectively called "Underwriters"). The Fund proposes to issue and sell
to the several Underwriters an aggregate of [ ] common shares (the "Firm
Shares") of beneficial interest, without par value, of the Fund (the "Common
Shares"), as set forth in Schedule I. The Fund also proposes to issue and sell
up to an additional [ ] Common Shares (the "Additional Shares"), solely for the
purpose of covering over-allotments in the sale of the Firm Shares. The Firm
Shares and Additional Shares are herein sometimes referred to as the "Shares"
and are more fully described in the Prospectus, as hereinafter defined.
The Fund and the Manager wish to confirm as follows their respective
agreements with you and the other several Under-
<PAGE>
writers, on whose behalf you are acting, for the several
purchases of the Shares.
The Fund is entering into an advisory agreement with the Manager dated
[ ], 1995, an administration contract with the Manager dated [ ], 1995, a
custodian agreement with Putnam Fiduciary Trust Company dated [May 31, 1991], as
amended [July 13, 1992] and a transfer agency agreement with Putnam Fiduciary
Trust Company dated [July 1, 1991] and such agreements are herein referred to as
the "Management Agreement," the "Administration Agreement," the "Custodian
Agreement" and the "Transfer Agency Agreement" respectively. This Underwriting
Agreement is herein referred to as the "Agreement." Collectively, the Management
Agreement, the Administration Agreement, the Custodian Agreement and the
Transfer Agency Agreement are referred to herein as the "Fund Agreements." The
Manager is entering into a Services Agreement with Smith Barney Inc., dated as
of [ ], 1995 (the "Services Agreement").
1. Registration Statement and Prospectus. The Fund has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended (the "1940
Act"), and the rules and regulations of the Commission under the 1933 Act (the
"1933 Act Rules and Regulations") and the 1940 Act (the "1940 Act Rules and
Regulations" and together with the 1933 Act Rules and Regulations, the "Rules
and Regulations") a registration statement on Form N-2 (File Nos. 33-[ ] and
811-[ ]) under the 1933 Act, the 1940 Act and the Rules and Regulations (the
"registration statement"), including a prospectus subject to completion relating
to the Shares, and a notification of registration of the Fund as an investment
company under the 1940 Act on Form N-8A (the "1940 Act Notification"). The term
"Registration Statement" as used in this Agreement means the registration
statement (including all financial schedules and exhibits), as amended at the
time it becomes effective, or, if the registration statement became effective
prior to the execution of this Agreement, as supplemented or amended prior to
the execution of this Agreement. If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the registration
statement will be filed and must be declared effective before the offering of
the Shares may commence, the term "Registration Statement" as used in this
Agreement means the registration statement as amended by said post-effective
amendment. The
2
<PAGE>
term "Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement or, if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the 1933
Act Rules and Regulations and such information is included in a prospectus filed
with the Commission pursuant to Rule 497(h) under the 1933 Act Rules and
Regulations, the term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement as supplemented by
the addition of the information contained in the prospectus filed with the
Commission pursuant to Rule 497(h). The term "Prepricing Prospectus" as used in
this Agreement refers to the prospectus subject to completion in the form
included in the registration statement at the time of the initial filing of the
registration statement with the Commission, and as such prospectus shall have
been amended from time to time prior to the date of the Prospectus, together
with any other prospectus relating to the Fund used prior to the effective date
of the Registration Statement.
The Fund has furnished the Representatives with copies of such
registration statement, each amendment to such registration statement filed by
the Fund with the Commission and any Prepricing Prospectus filed by the Fund
with the Commission or the National Association of Securities Dealers, Inc. (the
"NASD") or used by the Fund or the Manager.
2. Agreements to Sell and Purchase. The Fund hereby agrees to issue and
to sell to each Underwriter and each Underwriter, severally and not jointly,
upon the basis of the representations, warranties and agreements of the Fund and
the Manager herein contained and subject to receipt by the Underwriters of the
payment with respect to the Firm Shares referred to in Section 4(d) hereof and
to the other terms and conditions set forth herein, agrees to purchase from the
Fund at a purchase price per share of $[ ] (the "purchase price per Share"), the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto (or such number of Firm Shares increased as set forth in
Section 10 hereof).
The Fund hereby also agrees to issue and to sell to each Underwriter,
in not more than 3 installments, and, upon the basis of the representations,
warranties and agreements of the Fund and the Manager herein contained and
subject to the terms and conditions set forth herein, and the Underwriters shall
have the right to purchase from the Fund, at the purchase price per Share,
pursuant to an option (the "over-allotment
3
<PAGE>
option") which may be exercised at any time and from time to time prior to 9:00
p.m., New York City time on the 60th day after the date of the Prospectus (or if
such 60th day shall be a Saturday or a Sunday or a holiday, on the next business
day thereafter when the New York Stock Exchange (the "NYSE") is open for
trading), up to an aggregate of [ ] Additional Shares. Additional Shares may be
purchased solely for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. Upon any exercise of the over-allotment
option, each Underwriter, severally and not jointly, upon the basis of the
representations, warranties and agreements of the Fund and the Manager herein
contained and subject to receipt by the Underwriters of the payment referred to
in Section 4(d) hereof with respect to the Additional Shares with respect to
which the over-allotment option has been exercised and to the other terms and
conditions set forth herein, agrees to purchase from the Fund the number of
Additional Shares (subject to such adjustments as you may determine to avoid
fractional shares) which bears the same proportion to the number of Additional
Shares to be purchased by the Underwriters as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I (or such number of
Firm Shares increased as set forth in Section 10 hereof) bears to the aggregate
number of Firm Shares.
The Manager hereby agrees to make the payment to the Underwriters with
respect to the Firm Shares or the Additional Shares, as the case may be, as
required by Section 4(d) hereof.
3. Terms of Public Offering. The Fund and the Manager have been advised
by you that the Underwriters propose to make a public offering of their
respective portions of the Firm Shares as soon after the Registration Statement
and this Agreement become effective as in your judgment is advisable and
initially to offer the Firm Shares upon the terms set forth in the Prospectus.
4. Delivery of Shares and Payments with Respect Thereto.
(a) Delivery to the Underwriters of and payment to the Fund
for the Firm Shares and payment to the Underwriters of compensation
with respect thereto shall be made at the office of Smith Barney Inc.,
1345 Avenue of the Americas, New York, New York 10105, or through the
facilities of the Depository Trust Company or another
4
<PAGE>
mutually agreeable facility, at 10:00 a.m., New York City time, five
business days after the date hereof (the "Closing Date"). The Closing
Date may be varied by agreement between you and the Fund.
(b) Delivery to the Underwriters of and payment to the Fund
for any Additional Shares to be purchased by the Underwriters and
payment to the Underwriters of compensation with respect thereto shall
be made at said office of Smith Barney Inc. on such date and at such
time (an "Option Closing Date"), which may be the same as the Closing
Date, but shall in no event be earlier than the Closing Date nor
earlier than three nor later than ten business days after the giving of
the notice hereinafter referred to, as shall be specified in a notice
from you to the Fund of your determination to purchase a number,
specified in said notice, of Additional Shares.
(c) Certificates for the Firm Shares and for any Additional
Shares to be purchased hereunder shall be registered in such names and
in such denominations as you shall request prior to 2:00 p.m., New York
City time, on the third business day preceding the Closing Date or any
Option Closing Date, as the case may be. Such certificates will be made
available to you for inspection and packaging in New York City not
later than 9:30 a.m., New York City time, on the business day next
preceding the Closing Date or any Option Closing Date, as the case may
be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the
Closing Date or the Option Closing Date, as the case may be, against
payment of the purchase price therefor by certified or official bank
check or checks payable in New York Clearing House (next day) funds to
the order of the Fund.
(d) Simultaneous with delivery to the Underwriters of and
payment by the Underwriters for (i) Firm Shares on the Closing Date and
(ii) Additional Shares on any Option Closing Date, the Manager will pay
to the Underwriters an amount equal to six percent of the purchase
price per Share for each share to be purchased by the Underwriters on
such date in New York Clearing House (next-day) funds, to the order of
Smith Barney Inc.
5
<PAGE>
5. Agreements of the Fund and the Manager. The Fund
and the Manager, jointly and severally agree with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post-effective
amendment thereto to be declared effective before the offering of the
Firm Shares may commence, the Fund will use its best efforts, which may
include filing a further amendment or amendments (collectively, the
"Final Amendment"), to cause the registration statement or such
post-effective amendment to become effective as soon as possible and
the Fund or the Manager will advise you promptly and, if requested by
you, will confirm such advice in writing (i) when the Registration
Statement and any such post-effective amendment becomes effective, (ii)
when the Prospectus has been timely filed pursuant to Rule 497(c) or
Rule 497(h) of the 1933 Act Rules and Regulations or the certification
permitted pursuant to Rule 497(j) of the 1933 Act Rules and Regulations
has been timely filed, whichever is applicable, (iii) of any request
made to the Fund, the Manager or any affiliate thereof by the
Commission for amendments or supplements to the Registration Statement,
any Prepricing Prospectus or the Prospectus (or any amendments or
supplements thereto) or for additional information with respect to any
of the foregoing or any of the matters contemplated thereby, by this
Agreement, any of the Fund Agreements or by the Services Agreement,
(iv) of the receipt by the Fund or the Manager of notice of the
issuance by the Commission of any order suspending the effectiveness of
the Registration Statement or prohibiting or suspending the use of the
Prospectus, any Prepricing Prospectus (or any amendments or supplements
thereto) or any sales material (as hereinafter defined) or of any
notice pursuant to Section 8(e) of the 1940 Act or the initiation or
contemplated initiation of any proceedings for such purposes, (v) of
receipt by the Fund, the Manager, any affiliate thereof or any
representative or attorney of the Fund, the Manager or any such
affiliate of any other communication from the Commission, the NASD, any
state securities commission, any national securities exchange or any
other regulatory body or agency relating to the Fund, the Registration
Statement, the Notification, any Prepricing Prospectus, the Prospectus
(or any amendments or supplements thereto), any sales material (as
hereinafter defined) or any of the matters contem-
6
<PAGE>
plated thereby, by this Agreement, any of the Fund Agreements or by the
Services Agreement except for routine or non-material communications
occurring more than one year from the date of this Agreement and
communications not relating to the Underwriters occurring more than
three years from the date of this Agreement and (vi) within the period
of time referred to in (e) below, of the happening of any event which
makes any statement made in the Registration Statement, the Prospectus
or any Prepricing Prospectus (as then amended or supplemented) untrue,
in any material respect, or which requires the making of any additions
to or changes in the Registration Statement, the Prospectus or any
Prepricing Prospectus (or any amendments or supplements thereto) or any
sales material (as hereinafter defined) in order to make the statements
therein not misleading. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement
(or any amendment or supplement thereto), the Fund will make every
reasonable effort to obtain the withdrawal of such order at the
earliest possible moment.
(b) The Fund will furnish to you, without charge, signed
copies of the registration statement and the 1940 Act Notification as
originally filed with the Commission and of each amendment thereto,
including all exhibits thereto, (except any post-effective amendment
required by Rule 8b-16 of the 1940 Act Rules and Regulations which is
filed with the Commission after the later of (x) one year from the date
of this Agreement and (y) the date on which the distribution of the
Shares is completed) and will also furnish to you, without charge, for
transmittal to each of the other Underwriters and for other uses, such
number of conformed copies of the registration statement as originally
filed and of each amendment thereto (except any post-effective
amendment required by Rule 8b-16 of the 1940 Act Rules and Regulations
which is filed with the Commission after the later of (x) one year from
the date of this Agreement and (y) the date on which the distribution
of the Shares is completed), with or without exhibits, as you shall
reasonably request.
(c) The Fund will not (i) file any amendment to the
registration statement (including any post-effective amendment) or make
any amendment or supplement to the Prospectus, any Prepricing
Prospectus, or any sales material (as hereinafter defined) (or any
amendment or
7
<PAGE>
supplement to any of the foregoing) (except any post-effective
amendment required by Rule 8b-16 of the 1940 Act Rules and Regulations
which is filed with the Commission after the later of (x) one year from
the date of this Agreement and (y) the date on which the distribution
of the Shares is completed) unless a copy thereof shall first have been
submitted to you a reasonable time before its filing and you shall not
have reasonably objected to its filing within a reasonable time of your
receipt of such copy or (ii) so long as, in the reasonable opinion of
counsel for the Underwriters, a Prospectus (or any amendment or
supplement thereto) is required to be delivered in connection with
sales of Shares by any Underwriter or dealer, file any information,
documents or reports pursuant to the Securities Exchange Act of 1934,
as amended (the "1934 Act"), without delivering a copy of such
information, documents or reports to you, as Representatives of the
Underwriters, prior to or concurrently with such filing.
(d) Prior to the execution and delivery of this Agreement, the
Fund has delivered or will deliver to each of the Underwriters, without
charge, in such quantities as it has requested or may hereafter
request, copies of each form of the Prepricing Prospectus. The Fund and
the Manager consent to the use, in accordance with the provisions of
the 1933 Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several
Underwriters and by dealers, prior to the date of the Prospectus, of
each Prepricing Prospectus so furnished by the Fund.
(e) As soon after the execution and delivery of this Agreement
as is practicable and thereafter from time to time, for such period as
in the opinion of counsel for the Underwriters a prospectus is required
by law to be delivered in connection with sales of any of the Shares by
any Underwriter or dealer, the Fund will deliver to each of the
Underwriters and each of the dealers, without charge, as many copies of
the Prospectus (and of any amendments or supplements thereto) as it may
request. The Fund consents to the use of the Prospectus (and of any
supplements or amendments thereto) in accordance with the provisions of
the 1933 Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several
Underwriters and by all dealers to whom Shares may be sold, both in
connection with
8
<PAGE>
the offering or sale of the Shares and for such period of time
thereafter as the Prospectus (or any amendment or supplement thereto)
is required by law to be delivered in connection with sales by any
Underwriter or dealer. If during such period of time any event shall
occur which in the judgment of the Fund or in the reasonable opinion of
counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth
therein in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it is
necessary to supplement or amend the Prospectus (or any amendment or
supplement thereto) to comply with the 1933 Act, the 1940 Act, the
Rules and Regulations or any other law, rule or regulation, the Fund
will forthwith prepare and, subject to the provisions of paragraph (c)
above, file with the Commission an appropriate supplement or amendment
thereto and will expeditiously furnish to the Underwriters and dealers,
without charge, such number of copies thereof as the Underwriters and
dealers shall request; provided that, if the supplement or amendment is
required exclusively as a result of a misstatement in or omission from
the information provided to the Fund in writing by the Underwriters
expressly for use in the Prospectus, the Fund may deliver such
supplement or amendment to the Underwriter at a reasonable charge not
to exceed the actual cost thereof to the Fund. In the event that the
Fund and you, as Representatives of the several Underwriters, agree
that the Prospectus (or any amendment or supplement thereto) should be
amended or supplemented, the Fund, if requested by you, will promptly
issue a press release announcing or disclosing the matters to be
covered by the proposed amendment or supplement.
(f) The Fund will take such actions as you may reasonably
request or as may be necessary in connection with the registration or
qualification of the Shares for offering and sale by the several
Underwriters and dealers under the securities or Blue Sky laws of such
jurisdictions as you may request and will file such consents to service
of process or other documents as may be necessary in order to effect
such registration or qualification; provided that the Fund shall not be
required in connection therewith or as a condition thereto to qualify
as a foreign corporation in any jurisdiction in which it is not
otherwise required to so qualify or to execute a general consent to
service of process.
9
<PAGE>
(g) The Fund will make generally available to its security
holders an earnings statement covering a twelve-month period beginning
not later than the first day of the Fund's fiscal quarter next
following the effective date of the Registration Statement, as soon as
practicable, but not later than the last day of the 18th full calendar
month following the calendar quarter in which the Registration
Statement becomes effective, which earnings statement shall satisfy the
provisions of Section 11(a) of the 1933 Act and Rule 158 of the 1933
Act Rules and Regulations.
(h) During the period of five years hereafter, the Fund will
furnish to you (i) as soon as publicly available, a copy of each report
of the Fund mailed to shareholders or filed with the Commission and
(ii) from time to time such other information concerning the Fund as
you may reasonably request.
(i) The Fund will not sell, contract to sell or otherwise
dispose of, prior to the expiration of 180 days after the effective
date of the Registration Statement, without your prior written consent,
any shares of beneficial interest other than the Shares being sold to
the Underwriters hereunder and any preferred shares of beneficial
interest of the Fund as contemplated by the Prospectus.
(j) The Fund will file the requisite copies of the Prospectus
with the Commission in a timely fashion pursuant to Rule 497(c) or Rule
497(h) of the 1933 Act Rules and Regulations, whichever is applicable
or, if applicable, will file in a timely fashion the certification
permitted by Rule 497(j) of the 1933 Act Rules and Regulations.
(k) Except as provided in this Agreement and other than with
respect to open market purchases made in connection with the Fund's
Dividend Reinvestment Plan, the Fund will not sell, contract to sell or
otherwise dispose of, any Common Shares or any securities convertible
into or exercisable or exchangeable for Common Shares or grant any
options or warrants to purchase Common Shares, for a period of 180 days
after the date of the Prospectus, without the prior written consent of
Smith Barney.
10
<PAGE>
(l) Except as stated in this Agreement and in the Prospectus,
neither the Fund nor the Manager has taken, nor will it take, directly
or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the
price of the Common Shares; it being understood that the Underwriters
include certain affiliates of the Manager and that stabilization or
other activity by the Representatives on behalf of the Underwriters
shall not be deemed to be violative of this representation.
(m) The Fund will use its best efforts to list the
Shares on the New York Stock Exchange, Inc. (the "NYSE")
and comply with the rules and regulations of such ex-
change.
(n) The Fund will direct the investment of the proceeds of the
offering of the Shares in such a manner as to comply with the
investment objective, policies and restrictions of the Fund as
described in the Prospectus.
6. Representations and Warranties of the Fund and the Manager. The Fund
and the Manager jointly and severally represent and warrant to each Underwriter
on the date hereof, and shall be deemed to represent and warrant to each
Underwriter on the Closing Date and any Option Closing Date that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment
or supplement thereto, or filed pursuant to Rule 497 of the 1933 Act
Rules and Regulations, complied when so filed in all material respects
with the provisions of the 1933 Act, the 1940 Act and the Rules and
Regulations and the Commission has not issued any order preventing or
suspending the use of any Prepricing Prospectus.
(b) The Registration Statement, in the form in which it became
or becomes effective and also in such form as it may be when any
post-effective amendment thereto shall become effective and on the
Closing Date and any Option Closing Date, the Prospectus, and any
supplement or amendment thereto when filed with the Commission under
Rule 497 of the 1933 Act Rules and Regulations and on the Closing Date
and any Option Closing Date and the 1940 Act Notification when
originally filed with the Commission, when any amendment or supplement
11
<PAGE>
thereto was or is filed with the Commission and on the Closing Date and
any Option Closing Date complied or will comply, as the case may be, in
all material respects with the requirements of the 1933 Act and the
1940 Act and the Rules and Regulations and on the date the Registration
Statement and any post-effective amendment thereto became or becomes
effective and on the Closing Date and any Option Closing Date, the
Registration Statement did not or will not contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and on each such effective date and on the Closing Date and
any Option Closing Date, the Prospectus (and any amendment or
supplement thereto) did not or will not, and on the date of any filing
of the Prospectus pursuant to Rule 497(c) or 497(h) or, if applicable,
any filing of the certification contemplated by Rule 497(j), as the
case may be, and on the date of any filing pursuant to Rule 497(d) of
the 1933 Act Rules and Regulations, the Prospectus (and any amendment
or supplement thereto) will not, include any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; except that this representation
and warranty does not apply to (i) statements in or omissions from the
Registration Statement or the Prospectus (or any amendment to
supplement thereto) made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Fund in
writing by or on behalf of any Underwriter expressly for use therein or
(ii) with respect to the representations of the Fund, the description
of the Manager contained in the Prospectus under the heading
"Investment Manager and Administrator."
(c) The Fund is not in violation of its Agreement and
Declaration of Trust or By-Laws or in breach of or default under any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which it is a party or by which it or any of its property
may be bound or affected; and the execution and delivery of this
Agreement, the Management Agreement, the Administration Agreement, the
Custodian Agreement and the Transfer Agency Agreement and the
consummation of the transactions contemplated herein and therein have
been duly authorized by all necessary action by the Fund and do not or
will not conflict with or constitute a breach of, or default
12
<PAGE>
under, or result in the creation or imposition of any material lien,
charge or encumbrance upon any property or assets of the Fund pursuant
to any contract, indenture, mortgage, loan, agreement, note, lease or
other instrument to which the Fund is a party or by which it may be
bound or to which any of the property or assets of the Fund is subject,
nor will such action result in any violation of the provisions of the
Declaration of Trust or By-Laws of the Fund or any law, rule,
regulation, decree or order of any court, governmental instrumentality,
securities exchange or association or arbitrator applicable to the Fund
which violation would have a material adverse effect on the Fund, on
the ability of the Fund to conduct its business or operations as
contemplated by the Prospectus (and any amendment or supplement
thereto) or on the ability of the Fund to perform its obligations under
any such agreement; and no consent, approval, authorization or order of
any court or governmental authority or agency or body or securities
exchange or securities association is required for the consummation by
the Fund of the transactions contemplated by this Agreement, the
Management Agreement, the Administration Agreement, the Custody
Agreement or the Transfer Agency Agreement, except such as has been
obtained under the 1933 Act, the 1934 Act, the 1940 Act, the by-laws
and rules of the NASD or the NYSE or as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters.
(d) Since the date as of which information is given in the
Registration Statement and the Prospectus (and any amendments or
supplements thereto), except as otherwise stated therein, (i) there has
been no material adverse change in the condition, financial or
otherwise, of the Fund, or in the earnings, business affairs or
business prospects of the Fund, whether or not arising in the ordinary
course of business; (ii) there have been no transactions entered into
by the Fund which are material to the Fund other than those in the
ordinary course of its business or as described in the Prospectus (and
any amendment or supplement thereto); and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Fund
on any class of its shares of beneficial interest except, with respect
to declarations, as to any Option Closing Date occurring more than 30
days
13
<PAGE>
from the date of the Prospectus, as is contemplated by
the Prospectus.
(e) There is not now pending nor, to the knowledge of the
Fund, threatened, any action, suit or proceeding to which the Fund is a
party before or by any court or governmental agency or body which
reasonably might result in any material adverse change in the condition
(financial or otherwise), business or prospects of the Fund, might
materially and adversely affect the properties or assets thereof or are
of a nature required to be described in the Registration Statement or
the Prospectus; and there are no contracts or documents of the Fund
which would be required to be described in or filed as exhibits to the
Registration Statement by the 1933 Act, the 1940 Act or by the Rules
and Regulations which have not been described or filed as required.
(f) The Fund has a duly and validly authorized capitalization
as described in the Prospectus (and any amendment or supplement
thereto); the outstanding Common Shares of the Fund and the Shares
conform to the description thereof in the Registration Statement and
the Prospectus (and any amendments or supplements thereto) and if
issued are, or, when issued by the Fund to the Underwriters pursuant to
this Agreement against payment of the consideration set forth in this
Agreement will be, validly issued, fully paid and, except as set forth
in the Prospectus (and any amendment or supplement thereto),
non-assessable; and, except as set forth in the Prospectus (and any
amendment or supplement thereto), the issuance of the Shares to be
purchased by the Underwriters from the Fund hereunder is not subject to
preemptive or similar rights.
(g) The Fund has been duly organized and is validly existing
as a Massachusetts business trust in good standing under the laws of
The Commonwealth of Massachusetts, with full power and authority to
conduct all activities conducted by it, to own or lease all assets
owned or leased by it and to conduct its business as described in the
Registration Statement and the Prospectus (and any amendments or
supplements thereto); the Fund is duly licensed or qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or ownership of its property necessitates
such qualification and in which the failure to be so licensed
14
<PAGE>
or qualified would have a material adverse effect on the Fund, on its
ability to conduct its business or operations as contemplated by the
Prospectus (and any amendment or supplement thereto) or on the ability
of the Fund to perform its obligations under this Agreement or any of
the Fund Agreements; and the Fund has no subsidiaries.
(h) [ ], which has audited the Statement of Assets and
Liabilities filed with the Commission as a part of the Registration
Statement, and which is included in the Prospectus, is an independent
public accounting firm with respect to the Fund within the meaning of
the 1933 Act, the 1940 Act and the Rules and Regulations.
(i) The Statement of Assets and Liabilities, together with
related schedules and notes, included in the Registration Statement and
the Prospectus (and any amendments or supplements thereto) presents
fairly the financial position of the Fund on the basis stated in the
Registration Statement (and any amendment or supplement thereto) at the
date to which it applies and has been prepared in conformity with
generally accepted accounting principles in the United States applied
on a consistent basis and the other financial and statistical
information and data included in the Registration Statement and the
Prospectus (and any amendments or supplements thereto) are accurately
presented and prepared on a basis consistent with such Statement of
Assets and Liabilities and the books and records of the Fund.
(j) The Fund, subject to the filing of any Final Amendment,
the Registration Statement having been declared effective and the
filing of the Prospectus under Rule 497 under the Rules and
Regulations, has taken all required action under the 1933 Act, the 1940
Act and the Rules and Regulations to make the public offering and
consummate the sale of the Shares as contemplated by this Agreement.
(k) The Fund is in compliance with all, and is not in
violation of any, laws, ordinances or governmental rules or regulations
to which it is subject except as to any non-compliance or violations
which, alone or in the aggregate, would not have a material adverse
effect on the Fund, on the ability of the Fund to conduct its business
or operations as contemplated by the Prospectus
15
<PAGE>
(and any amendment or supplement thereto) or on the ability of the Fund
to perform its obligations under this Agreement or any of the Fund
Agreements, and the Fund owns, possesses or has obtained and currently
maintains all licenses, permits, franchises, consents, orders or other
governmental authorizations or approvals necessary to the ownership,
leasing or operation of its property or to the conduct of its business
(as described in the Prospectus) except as to those which the failure
by the Fund to own, possess, obtain or maintain, alone or in the
aggregate, would not have a material adverse effect on the Fund, on the
ability of the Fund to conduct its business or operations as
contemplated by the Prospectus (and any amendment or supplement
thereto) or on the ability of the Fund to perform its obligations under
this Agreement or any of the Fund Agreements.
(l) The Fund maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization and with the investment policies and
restrictions of the Fund and the applicable requirements of the 1940
Act, the 1940 Act Rules and Regulations and the Internal Revenue Code;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles, to calculate net asset value, to maintain accountability
for assets and to maintain material compliance with the books and
records requirements under the 1940 Act and the 1940 Act Rules and
Regulations; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the
recorded account for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(m) The conduct by the Fund of its business as described in
the Prospectus (and any amendment or supplement thereto) does not
require it to be the owner, possessor or licensee of any patents,
patent licenses, trademarks, service marks or trade names.
(n) Except (i) with respect to stabilization activities
conducted by the Underwriters and (ii) share repurchases, tender offers
or purchases of Shares in the open market pursuant to the Fund's
dividend reinvestment plan
16
<PAGE>
effected following the date on which the distribution of the Shares is
completed, in accordance with the policies of the Fund as set forth in
the Prospectus, the Fund has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be
expected to cause or result in, or which will constitute, stabilization
or manipulation of the price of the Common Shares, and the Fund is not
aware of any such action taken or to be taken by any affiliates of the
Fund.
(o) The Fund is duly registered under the 1940 Act as a
closed-end, diversified management investment company. The Fund has not
received any notice from the Commission pursuant to Section 8(e) of the
1940 Act with respect to the 1940 Act Notification or the Registration
Statement.
(p) All advertising and other sales literature (including
"prospecting letters" and "prospectus wrappers") prepared or authorized
by or on behalf of the Fund or the Manager for use in connection with
the public offering and sale of the Shares (collectively, "public sales
material") complied and comply in all material respects, as the case
may be, with the requirements of the 1933 Act, the 1933 Act Rules and
Regulations and the rules and interpretations of the NASD and no such
public sales material contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact required to
be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
Fund and the Manager confirm that the only such public sales material
is the prospectus wrapper initially filed with the NASD on [ ], 1995
and the prospecting letter initially filed with the NASD on [ ], 1995,
as the same may have been revised for use pursuant to the comments of
the NASD.
(q) The material (i.e., "broker kits," "road show slides" and
"road show scripts") prepared or approved by the Fund or the Manager
for distribution to and use internally by brokers and dealers
participating in the offering of the Shares (such material, together
with the public sales material, the "sales material") accurately and
fairly presents the information contained therein in all material
respects for purposes of such internal use
17
<PAGE>
and contains only information the substance of which is
included in the Prospectus.
(r) Each of the Management Agreement, the Administration
Agreement, the Custody Agreement and the Transfer Agency Agreement has
been duly and validly authorized, executed and delivered by the Fund,
and, assuming due authorization, execution and delivery by the other
parties thereto, is a legal, valid and binding obligation of the Fund
enforceable in accordance with its terms and complies in all material
respects with all applicable provisions of the 1940 Act, the 1940 Act
Rules and Regulations, the Investment Advisers Act of 1940 (the
"Advisers Act") and the rules and regulations adopted by the Commission
under the Advisers Act (the "Advisers Act Rules and Regulations"),
subject as to enforcement to applicable bankruptcy, reorganization,
insolvency or other similar laws relating to or affecting creditors
rights generally and to equitable principles and principles of public
policy that may restrict the availability of remedies. This Agreement
has been duly and validly authorized, executed and delivered by the
Fund, and, assuming due authorization, execution and delivery by the
other parties thereto, is a legal and valid obligation of the Fund and
complies in all material respects with all applicable provisions of the
1940 Act, the 1940 Act Rules and Regulations, the Advisers Act and the
Advisers Act Rules and Regulations, subject as to enforcement to
applicable bankruptcy, reorganization, insolvency or other similar laws
relating to or affecting creditors rights generally and to equitable
principles and principles of public policy that may restrict the
availability of remedies.
(s) No person has rights to the registration of any
securities of the Fund as a result of the filing of the
registration statement.
(t) The Shares have been duly approved for listing upon notice
of issuance on the NYSE and the Fund's registration statement on Form
8-A, under the 1934 Act, has become effective.
18
<PAGE>
7. Representations and Warranties of the Manager.
The Manager represents and warrants to each Underwriter as
follows:
(a) The Manager has been duly incorporated as a corporation
and is in good standing under the laws of the State of Delaware with
full corporate power and authority to conduct its business as described
in the Prospectus (and any amendment or supplement thereto); the
Manager is duly qualified to transact business and is in good standing
in each jurisdiction in which such qualification is required except
where the failure to so qualify would not have a material adverse
effect on the condition, financial or otherwise, of the Manager or on
the ability of the Manager to perform its obligations hereunder, under
the Management Agreement, under the Administration Agreement or under
the Services Agreement.
(b) The Manager is duly registered as an investment adviser
under the Advisers Act and is not prohibited by the Advisers Act, the
1940 Act, the Advisers Act Rules and Regulations or the 1940 Act Rules
and Regulations from acting under the Management Agreement or the
Administration Agreement for the Fund as contemplated by the Prospectus
(and any amendment or supplement thereto).
(c) The Management Agreement, the Administration Agreement and
the Services Agreement have been duly and validly authorized, executed
and delivered by the Manager and, assuming due authorization, execution
and delivery by the other parties thereto, each constitutes a legal,
valid and binding obligation of the Manager enforceable in accordance
with its terms, subject as to enforcement to applicable bankruptcy,
reorganization, insolvency or other similar laws relating to or
affecting creditors rights generally and to equitable principles and
principles of public policy that may restrict the availability of
remedies; this Agreement has been duly and validly authorized, executed
and delivered by the Manager and, assuming due authorization, execution
and delivery by the other parties thereto, is a legal and valid
obligation of the Manager, subject as to enforcement to applicable
bankruptcy, reorganization, insolvency or other similar laws relating
to or affecting creditors rights generally and to equitable principles
and principles of public policy that may restrict the availability of
remedies; and neither the execution and delivery of this Agreement,
19
<PAGE>
the Management Agreement, the Administration Agreement or the Services
Agreement nor the performance by the Manager of its obligations
hereunder or thereunder conflicts with or will conflict with, or
results or will result in a breach of, or a default under the
Certificate of Incorporation or By-Laws of the Manager or any agreement
or instrument to which the Manager is a party or by which it is bound,
or any law, order, rule or regulation applicable to it of any
jurisdiction, court, federal or state regulatory body, administrative
agency or other governmental body, stock exchange or securities
association or arbitrator which conflict, breach or default, alone or
in the aggregate, would have a material adverse effect on the Manager
or on the ability of the Manager to perform its obligations under any
such agreement.
(d) The Manager has the financial resources available to it
necessary for the performance of its services and obligations as
contemplated in the Prospectus (and any amendment or supplement
thereto) and under this Agreement, the Management Agreement, the
Administration Agreement and the Services Agreement.
(e) The description of the Manager in the Registration
Statement and the Prospectus (and any amendments or supplements
thereto) complies in all material respects with all requirements of the
1933 Act, the 1940 Act, the Advisers Act, the Rules and Regulations and
the Advisers Act Rules and Regulations and does not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein (with respect to the Prospectus, in the light of the
circumstances under which they were made) not misleading.
(f) Except as described in the Registration Statement (and any
amendment or supplement thereto), there is no litigation or proceeding
pending or, to the knowledge of the Manager, threatened against the
Manager which, individually or in the aggregate, reasonably might
result in any material adverse change in the condition, financial or
otherwise, business affairs or business prospects of the Manager,
reasonably might have a material adverse effect on the ability of the
Manager to fulfill its obligations hereunder or under the Management
Agreement or is or are of a nature required to be disclosed in the
20
<PAGE>
Registration Statement or Prospectus (or any amendments or supplements
thereto).
(g) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus (and any
amendments or supplements thereto), there has not been a material
adverse change in or affecting the general affairs, management or
financial position of the Manager.
(h) The Manager owns, possesses or has obtained and currently
maintains all governmental licenses, permits, consents, orders,
approvals and other authorizations required to carry on its business as
contemplated in the Prospectus (and any amendment or supplement
thereto) except as to those the failure of the Manager to own, possess,
obtain or maintain, alone or in the aggregate, would not have a
material adverse effect on the Manager or on the ability of the Manager
to perform its obligations under this Agreement, the Management
Agreement, the Administration Agreement or the Services Agreement.
(i) Each of this Agreement, the Management Agreement, the
Administration Agreement and the Services Agreement complies, as to the
obligations of the Manager, with all applicable provisions of the 1940
Act, the Advisers Act, the 1940 Act Rules and Regulations and the
Advisers Act Rules and Regulations.
(j) No consent, approval, authorization or order of any court,
governmental agency or body or securities exchange or securities
association is required for the execution, delivery or consummation of
the transactions contemplated in this Agreement, the Management
Agreement, the Administration Agreement or the Services Agreement, by
the Manager, except such as have been obtained.
(k) Except (i) with respect to stabilization activities
conducted by the Underwriters and (ii) share repurchases, tender offers
or purchases of Shares in the open market pursuant to the Fund's
dividend reinvestment plan effected following the date on which the
distribution of the Shares is completed, in accordance with the
policies of the Fund as set forth in the Prospectus, the Manager has
not taken and will not take, directly or indirectly, any action
designed, or which might be expected to cause
21
<PAGE>
or result in, or which will constitute, stabilization or
manipulation of the price of the Common Shares.
8. Indemnification and Contribution.
(a) The Fund and the Manager, jointly and severally, agree to
indemnify and hold harmless each Underwriter, and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the
1933 Act or Section 20(a) of the 1934 Act, from and against any and all
losses, claims, damages, liabilities and expenses, joint or several
(including investigation, legal or other expenses reasonably incurred
and any amount paid in settlement of any action, suit or proceeding or
any claim asserted), arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in the
registration statement or the Registration Statement, the Prepricing
Prospectus or the Prospectus, in any amendments or supplements thereto,
or in the sales material or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading (in the case of the Prepricing Prospectus and the
Prospectus, in light of the circumstances under which such statements
were made), except insofar as such losses, claims, damages, liabilities
or expenses arise out of or are based upon any untrue statement or
omission or allegation thereof which has been made therein or omitted
therefrom in reliance upon and in conformity with information furnished
in writing to the Fund by or on behalf of any Underwriter through you
expressly for use in connection therewith; provided, however, that the
indemnity agreement contained in this paragraph with respect to any
Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on
account of any such loss, claim, damage, liability or expense arising
from the sale of the Shares by such Underwriter to any person if a copy
of the Prospectus shall not have been delivered or sent to such person
within the time required by the 1933 Act and the 1933 Act Rules and
Regulations, and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus, provided that
the Fund has delivered the Prospectus to the several Underwriters in
requisite quantity on a timely basis to permit such
22
<PAGE>
delivery or sending. The foregoing indemnity agreement
shall be in addition to any liability which the Fund may
otherwise have.
(b) If any action, suit or proceeding shall be brought or
asserted against any Underwriter or any person controlling any
Underwriter, in respect of which indemnity may be sought from the Fund
or the Manager, such Underwriter or such controlling person shall
promptly notify the Fund or the Manager, and the Fund or the Manager
shall assume the defense thereof, including the employment of counsel
and the payment of all expenses. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in
any such action, suit or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of such Underwriter or controlling person unless (i) the
employment thereof has been specifically authorized by the Fund or the
Manager in writing, (ii) the Fund and the Manager have failed to assume
the defense and employ counsel within a reasonable time after receiving
notice of commencement of the action or (iii) the named parties to any
such action, suit or proceeding (including any impleaded parties)
include both such Underwriter or such controlling person and the Fund
and/or the Manager, and such Underwriter or such controlling person
shall have been advised by its counsel that representation of such
indemnified party and the Fund and/or the Manager by the same counsel
would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between
them (in which case the Fund and the Manager shall not have the right
to assume the defense of such action on behalf of such Underwriter or
such controlling person). It is understood, however, that the Fund and
the Manager shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions,
suits or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances be liable for the fees and
expenses of only one separate firm of attorneys (in addition to any
local counsel) at any time for all such Underwriters and controlling
persons not having actual or potential differing interests with the
Fund or the Manager, which firm shall be designated in writing by Smith
Barney Inc. and that all such fees and expenses shall be
23
<PAGE>
reimbursed as they are incurred. The Fund and the Manager shall not be
liable for any settlement of any such action, suit or proceeding
effected without the written consent of the Fund or the Manager, but if
settled with such written consent, or if there be a final judgment for
the plaintiff in any such action, suit or proceeding, the Fund and the
Manager agree to indemnify and hold harmless each Underwriter, to the
extent provided in the preceding paragraph, and each such controlling
person from and against any loss, claim, liability, damage or expense
by reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Fund and the Manager, each of their
directors, each of the officers of the Fund who sign the Registration
Statement, and each person, if any, who controls the Fund or the
Manager within the meaning of Section 15 of the 1933 Act or Section
20(a) of the 1934 Act, to the same extent as the foregoing indemnity
from the Fund and the Manager to each Underwriter, but only with
respect to information relating to such Underwriter furnished in
writing to the Fund by it or on its behalf through you expressly for
use in the Registration Statement, the Prospectus or the Prepricing
Prospectus (or any amendments or supplements thereto). If any action,
suit or proceeding shall be brought or asserted against the Fund or the
Manager (or their directors, such officer or any such controlling
person), based on the Registration Statement, the Prospectus or the
Prepricing Prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Underwriter
pursuant to this paragraph (c), such Underwriter shall have the rights
and duties given to the Fund by paragraph (b) above (except that if the
Fund or the Manager shall have assumed the defense thereof such
Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees
and expenses of such counsel shall be at such Underwriter's expense),
and the Fund and the Manager (and their directors, such officer, and
any such controlling person) shall have the rights and duties given to
the Underwriters by paragraph (b). The foregoing indemnity agreement
shall be in addition to any liability which the Underwriters may
otherwise have.
24
<PAGE>
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof
in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then an indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Fund and
the Manager on the one hand (treated jointly for this purpose as one
person) and the Underwriters on the other hand from the offering of the
Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of the Fund and the Manager on the one hand
(treated jointly for this purpose as one person) and of the
Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative benefits received by the Fund and the Manager on the one hand
(treated jointly for this purpose as one person) and the Underwriters
on the other hand shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses)
received by the Fund as set forth in the table on the cover page of the
Prospectus less 6% bears to the total payments received by the
Underwriters with respect to the Firm Shares pursuant to Section 4(d)
hereof. The relative fault of the Fund and the Manager on the one hand
(treated jointly for this purpose as one person) and of the
Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Fund and the Manager on the
one hand (treated jointly for this purpose as one person) or by the
Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(e) The Fund, the Manager and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro
25
<PAGE>
rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in paragraph
(d) above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses
referred to in paragraph (d) above shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 8, no
Underwriter (except as may be provided in the Master Agreement Among
Underwriters dated July 18, 1985) shall be required to contribute any
amount in excess of the amount by which the total sales commissions
received by such Underwriter in respect of the Shares underwritten by
it and distributed to the public exceeds the amount of any damages
which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant
to this Section 8 are several in proportion to the respective numbers
of Firm Shares set forth opposite their names in Schedule I hereto (or
such number of Firm Shares increased as set forth in Section 10 hereof)
and not joint.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which any
indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such
settlement.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or
contribution under this Section 8 shall be paid by the indemnifying
party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred. The indemnity and contribution
26
<PAGE>
agreements contained in this Section 8 and the representations and
warranties of the Fund and the Manager set forth in this Agreement
shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Fund, the Manager or their directors
or officers or any person controlling the Fund or the Manager, (ii)
acceptance of any Shares and payment therefor hereunder and (iii) any
termination of this Agreement, provided that the Underwriters shall not
be entitled pursuant to this Section 8 to seek or enforce any claim for
damages measured by their own lost profits as a result of any
termination of this Agreement. A successor to any Underwriter, the
Fund, the Manager or their directors or officers or any person
controlling an Underwriter or the Fund or the Manager shall be entitled
to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section8.
9. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase any Shares hereunder are subject to, in the
reasonable judgment of the Underwriters, the accuracy of and compliance with the
representations, warranties and agreements of and by the Fund and the Manager
contained herein on and as of the date hereof, the date on which the
Registration Statement becomes or became effective, the date of the Prospectus
(and any amendments or supplements thereto), the Closing Date and, with respect
to any Additional Shares, any Option Closing Date, to the accuracy and
completeness of all statements made by the Fund, the Manager or any of their
officers in any certificate delivered to the Representatives or their counsel
pursuant to this Agreement and to the following further conditions:
(a) That the Registration Statement shall have become
effective by 5:30 p.m., New York City time, on the date of this
Agreement or at such later time as the Representatives consent to in
writing and any post-effective amendment thereto shall be effective by
such time as the Representatives shall designate in writing and all
filings required by Rules 497 and 430A under the 1933 Act shall have
been timely made.
(b) That you shall have received on the Closing Date an
opinion or opinions, dated the Closing Date, in form and scope
satisfactory to you and your counsel, of Ropes & Gray, counsel for the
Fund, addressed to you as
27
<PAGE>
Representatives of the several Underwriters to the effect that:
(i) The Fund has been duly organized and is validly
existing as an unincorporated voluntary association under and
by virtue of the laws of The Commonwealth of Massachusetts.
(ii) The Fund has full power and authority to own,
lease and operate its properties and conduct its business as
contemplated in the Registration Statement and Prospectus and,
to the extent required, is duly qualified as a foreign entity
and in good standing in each jurisdiction in which the Fund
has informed such counsel that it owns or leases property or
conducts business (as described in the Prospectus) and in
which the failure to qualify would have a material adverse
effect on its business or operations, except that such counsel
expresses no opinion as to any qualification required under
state securities or "blue sky" laws as a result of the sale
and delivery of the Shares pursuant to the Underwriting
Agreement.
(iii) The capitalization of the Fund is as set forth
in the Registration Statement and Prospectus and all
outstanding shares of beneficial interest of the Fund,
including the Shares (when issued and delivered to and paid
for by the Underwriters in accordance with this Agreement),
have been duly authorized. All outstanding shares of
beneficial interest of the Fund have been, and the Shares,
when delivered to and paid for by the Underwriters pursuant to
the Underwriting Agreement, will be validly issued, fully paid
and nonassessable; and the issuance of the Shares is not
subject to preemptive or other similar rights.
(iv) Under Massachusetts law, shareholders could,
under certain circumstances, be held personally liable for the
obligations of the Fund. However, the 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 Declaration of Trust
provides for indemnification
28
<PAGE>
out of the Fund's property for all loss and expense of any
shareholder held personally liable solely by reason of his
being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself
would be unable to meet its obligations.
(v) The Fund has all necessary power and authority to
enter into each of this Agreement and the Management Agreement
and such agreements (A) have been duly and validly authorized,
signed and delivered by the Fund and (B) comply with all
applicable provisions of the 1933 Act, the 1933 Act Rules and
Regulations, the 1940 Act, the 1940 Act Rules and Regulations,
the Advisers Act and the Advisers Act Rules and Regulations.
(vi) The Fund has all necessary power and authority
to enter into each of the Administrative Services Contract,
the Custodian Agreement and the Transfer Agency Agreement, and
each such agreement (A) has been duly and validly authorized,
signed and delivered by the Fund, (B) complies with all
applicable provisions of the 1940 Act and the 1940 Act Rules
and Regulations and (C) assuming the due authorization,
execution and delivery by the other party thereto, constitutes
the legal, valid and binding obligation of the Fund
enforceable in accordance with its terms, subject, as to
enforcement, to applicable bankruptcy, reorganization,
insolvency or other similar laws relating to or affecting
creditor's rights generally and to general principles of
equity.
(vii) No consent, approval, authorization, or order
of any court, governmental authority or agency or body or
securities exchange is required by or of the Fund for the
performance by the Fund of, or for the consummation by the
Fund of the transactions contemplated by this Agreement, the
Management Agreement, the Administration Agreement, the
Transfer Agency Agreement or the Custody Agreement, except
such as have been obtained under the 1933 Act, the 1940 Act,
the Rules and Regulations or the by-laws and rules of the NYSE
and such as may be required by the NASD or under state
securities laws in
29
<PAGE>
connection with the purchase and distribution of the
Shares by the several Underwriters pursuant to the
Underwriting Agreement.
(viii) The execution and delivery of this Agreement,
the Management Agreement, the Administration Agreement, the
Transfer Agency Agreement and the Custody Agreement by the
Fund, performance by the Fund of its obligations therein and
consummation of the transactions contemplated therein do not
and will not conflict with or constitute a breach of the
Declaration of Trust or the By-laws of the Fund or a default
under any contract, indenture, mortgage, loan, agreement,
note, lease or other agreement or instrument known to such
counsel after due inquiry to which the Fund is a party or by
which it may be bound or any of the property or assets of the
Fund is subject as of the date hereof, or violates any law,
administrative regulation, known to such counsel after due
inquiry, administrative, court or arbitrator order or decree
in effect as of the date hereof.
(ix) The Registration Statement is effective under
the 1933 Act and, to the best of such counsel's knowledge and
information after due inquiry, no stop order suspending the
effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus has been issued and no
proceeding for that purpose, to the best of such counsel's
knowledge and information after due inquiry, has been
instituted or is threatened or pending; any required filing by
the Fund of the Prospectus or any supplements thereto required
under Rule 497 of the 1933 Act Rules and Regulations have been
made in the manner and within the time required by such rule.
(x) The Fund is duly registered with the Commission
under the 1940 Act as a closed-end diversified management
investment company, and all required action has been taken by
the Fund under the 1933 Act, the 1940 Act and the Rules and
Regulations in connection with the issuance and sale of the
Shares to make the public offering and consummate the sale of
the Shares pursuant to this Agreement.
30
<PAGE>
(xi) The information in the Prospectus under the
caption "Taxation," to the extent that it constitutes matters
of law or legal conclusions provides a fair and accurate
summary of such laws or conclusions.
(xii) As of the Closing Date and, with respect to the
Registration Statement, at the time the Registration Statement
became effective, and, with respect to the Prospectus, at the
date of the Prospectus, the Registration Statement and the
Prospectus (other than the statement of assets and liabilities
and other financial and statistical data included therein, as
to which such counsel need not express an opinion) comply and
complied as to form in all material respects with the
requirements of the 1933 Act, the 1940 Act and the Rules and
Regulations. The authorized shares of beneficial interest of
the Fund conform in all material respects to the description
thereof contained in the Registration Statement and Prospectus
insofar as such statements relate to legal matters, and the
form of certificate used to evidence the Shares is in proper
form and complies with all applicable statutory requirements.
(xiii) To the best of such counsel's knowledge and
information after due inquiry, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other
documents or instruments to which the Fund is a party or by
which the Fund or its property is bound or affected required
to be described or referred to in the Registration Statement
or the Prospectus or to be filed as exhibits to the
Registration Statement other than those described or referred
to therein or filed as exhibits thereto, and the descriptions
thereof or references thereto are correct.
(xiv) The Shares are duly authorized for listing,
subject to official notice of issuance, on the NYSE, and the
Fund's registration statement on Form 8-A under the 1934 Act
has become effective.
(xv) To the best of such counsel's knowledge and
information after due inquiry, there are no legal or
governmental actions, suits or proceedings
31
<PAGE>
pending or threatened against the Fund which are required to
be disclosed in the Registration Statement or Prospectus other
than those disclosed therein.
(xvi) All descriptions in the Prospectus of statutes,
regulations or legal or governmental proceedings under the
laws of the United States or The Commonwealth of Massachusetts
are accurate and fairly present the information shown in all
material respects.
Such counsel shall also state that nothing has come to their
attention that has led them to believe that the Registration
Statement, at the time it became effective or at the Closing
Date, contained or contains any untrue statement of a material
fact or omitted or omits to state any material fact required
to be stated in it or necessary in order to make the
statements in it not misleading or that the Prospectus as of
its date or at the Closing Date, contained or contains any
untrue statement of any material fact or omitted or omits to
state any material fact necessary in order to make the
statements in it, in light of the circumstances under which
they were made, not misleading. Such counsel need express no
opinion or belief as to the financial statements, including
the notes thereto, or any financial or statistical data set
forth or referred to in the Registration Statement or the
Prospectus or as to any statements in or omissions from the
Prospectus or the Registration Statement made in reliance upon
and in conformity with written information furnished to the
Fund by you specifically for use therein.
In rendering any such opinions, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on
certificates of responsible officers of the Fund, the Manager
and public officials.
(c) That you shall have received on the Closing Date an
opinion dated the Closing Date in form and scope satisfactory to you
and your counsel, of William H. Woolverton, Esq., counsel to the
Manager, addressed to you as Representatives of the several
Underwriters to the effect that:
32
<PAGE>
(i) The Manager has been duly organized and is
validly existing as a corporation in good standing under the
laws of the State of Delaware with full corporate power and
authority to own its properties and conduct its business as
described in the Pro- spectus;
(ii) The Manager is duly qualified to transact
business as a foreign corporation and is in good standing in
each jurisdiction where such qualification is required except
where the failure to so qualify would not have a material
adverse effect on the condition, financial or otherwise, of
the Manager, or on the ability of the Manager to perform its
obligations hereunder or under the Management Agreement, the
Administration Agreement and the Services Agreement;
(iii) The Manager is duly registered as an investment
adviser under the Advisers Act and is not prohibited by the
Advisers Act, the 1940 Act, or the Rules and Regulations under
such acts, from acting as investment adviser for the Fund
under the Management Agreement or to perform its obligations
under the Administration Agreement as contemplated by the
Prospectus;
(iv) Each of the Management Agreement, the
Administration Agreement and the Services Agreement has been
duly and validly authorized, executed and delivered by the
Manager, complies in all material respects with all provisions
of the Advisers Act, the 1940 Act and the Rules and
Regulations thereunder applicable to the Manager and
constitutes a legal, valid, binding and enforceable agreement
of the Manager in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws affecting enforcement of
creditors' rights generally and to equitable principles and
principles of public policy that may restrict the availability
of remedies; this Agreement has been duly and validly
authorized, executed and delivered by the Manager; and neither
the execution and delivery by the Manager of this Agreement,
the Management Agreement, the Administration Agreement or the
Services Agreement nor the consummation by the Manager of the
transactions contem-
33
<PAGE>
plated thereunder or hereunder does or will, to the best of
such counsel's knowledge and information after due inquiry,
result in a breach or violation of the terms and provisions
of, or constitute a default under, any agreement or instrument
to which the Manager is a party or of which it or its property
is subject nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-Laws of
the Manager or of any law, rule, regulation or order of any
court, governmental instrumentality, securities exchange or
association or arbitrator, which breach, violation or default,
alone or in the aggregate, would have a material adverse
effect on the Manager or on the ability of the Manager to
perform its obligations under any such agreement;
(v) The description of the Manager and its business
in the Prospectus complies with all requirements of the 1933
Act, the 1940 Act and the Rules and Regulations;
(vi) To the best of such counsel's knowledge and
information after due inquiry, there are no actions,
proceedings or suits before or by any court, commission,
regulatory body, administrative agency or other governmental
body now pending or threatened to which the Manager is a party
or to which the Manager or any property of the Manager is
subject, other than as set forth in the Prospectus, that are
required to be disclosed in the Prospectus or that might
individually or in the aggregate have a material adverse
effect on the condition, business affairs or business
prospects of the Manager or the ability of the Manager to
perform its obligations as contemplated by this Agreement, the
Management Agreement, the Administration Agreement or the
Services Agreement;
(vii) The Manager owns, possesses or has obtained and
currently maintains all governmental licenses, permits,
consents, orders, approvals and other authorizations as is
necessary for the Manager to perform its obligations under
this Agreement, the Management Agreement, the Administration
Agreement and the Services Agreement;
34
<PAGE>
(viii) No consent, approval, authorization or order
of any court, governmental agency or body or securities
exchange or association is required for the consummation by
the Manager of the transactions contemplated in this
Agreement, the Management Agreement, the Administration
Agreement or the Services Agreement except such as have been
obtained.
Such counsel shall also state that nothing has come to his
attention that has led him to believe that the Registration
Statement, at the time it became effective or at the Closing
Date, contained or contains any untrue statement of a material
fact or omitted or omits to state any material fact required
to be stated in it or necessary to make the statements in it
not misleading or that the Prospectus, as of its date or at
the Closing Date, contained or contains any untrue statement
of a material fact or omitted or omits to state any material
fact necessary in order to make the statements in it, in light
of the circumstances under which they were made, not
misleading. Such counsel need express no opinion or belief as
to the financial statements, including the notes thereto, or
any financial or statistical data set forth or referred to in
the Registration Statement or the Prospectus or as to any
statements in or omissions from the Prospectus or the
Registration Statement made in reliance upon and in conformity
with written information furnished to the Fund by you
specifically for use therein.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on
certificates of responsible officers of the Fund, the Manager
and public officials.
(d) That you shall have received on the Closing Date an
opinion, dated the Closing Date, of Skadden, Arps, Slate, Meagher &
Flom, counsel for the Underwriters, with respect to such matters as the
Underwriters may require, and the Fund, the Manager and their
respective counsels shall have furnished to such counsel such documents
as they may request for the purpose of enabling them to pass upon such
matters.
35
<PAGE>
In rendering any such opinion, such counsel may rely,
as to matters of fact, to the extent such counsel deems proper, on
certificates of responsible officers of the Fund, the Manager and
public officials.
(e) That you shall have received by 1:00 p.m., New York City
time, on the date this Agreement is signed and delivered by the
Representatives a signed letter, dated such date, substantially in the
form of Annex A to this Agreement from the firm of accountants
designated in such Annex. You also shall have received on the Closing
Date a signed letter from such accountants, dated such Closing Date,
confirming on the basis of a review in accordance with the procedures
set forth in their earlier letter that nothing has come to their
attention during the period from a date not more than five business
days before the date of this Agreement, specified in the letter, to a
date not more than five business days before such Closing Date, that
would require any change in their letter referred to in the foregoing
sentence.
(f) That the Shares have been approved for listing,
subject to notice of issuance, on the NYSE.
(g) That no order suspending the effectiveness of the
registration statement or the Registration Statement or prohibiting or
suspending the use of the Prospectus or any Prepricing Prospectus (or
any amendments or supplements thereto) or any sales material shall have
been issued and no proceedings for such purpose or for the purpose of
commencing an enforcement action against the Fund or, with respect to
the transactions contemplated by the Prospectus and this Agreement, the
Manager or the Underwriter may be pending before or, to the knowledge
of the Fund, the Manager or any Underwriter or in the reasonable view
of counsel to the Underwriters expressed in writing, shall be
threatened or contemplated by the Commission, that any request for
additional information (to be included in the registration statement,
the Prospectus or otherwise) on the part of the Commission be complied
with to the satisfaction of the Representatives.
(h) (i) there shall not have been any change in the securities
of the Fund nor any material increase in debt of the Fund from that set
forth in the Prospectus (and any amendment or supplement thereto) and
the Fund shall not have sustained any material liabilities or obliga-
36
<PAGE>
tions, direct or contingent, other than those reflected in the
Prospectus (and any amendment or supplement there- to); (ii) since the
date of the Prospectus (and any amendment or supplement thereto) there
shall not have been any material adverse change in the general affairs,
management, business, financial condition or results of operation of
the Fund or the Manager; (iii) the Fund and the Manager must not have
sustained any material loss or interference with its business from any
court or from legislative or other governmental action, order or decree
or from any other occurrence not described in the Registration
Statement and the Prospectus, and (iv) all of the representations and
warranties of the Fund and the Manager contained in this Agreement
shall be true and correct on and as of the date hereof and as of the
Closing Date as if made on and as of the Closing Date.
(i) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the general affairs, management,
business, financial condition or results of operations of the Fund or
the Manager not contemplated by the Prospectus, which in your opinion,
as Representatives of the several Underwriters, would materially,
adversely affect the market for the Shares, or (ii) any event or
development relating to or involving the Fund, the Manager or any
officer or director of the Fund or the Manager which makes any
statement made in the Prospectus (or any amendment or supplement
thereto) untrue or which, in the opinion of the Fund and its counsel or
the Underwriters and their counsel, requires the making of any addition
to or change in the Prospectus (or any amendment or supplement thereto)
in order to state a material fact required by the Act, the 1940 Act,
the Rules and Regulations or any other law to be stated therein or
necessary in order to make the statements therein not misleading, if
amending or supplementing the Prospectus to reflect such event or
development would, in your opinion, as Representatives of the several
Underwriters, materially adversely affect the market for the Shares.
(j) That neither the Fund nor the Manager shall have failed at
or prior to the Closing Date to have performed or complied with any of
the agreements herein contained and required to be performed or
complied with by them at or prior to the Closing Date.
37
<PAGE>
(k) That you shall have received on the Closing
Date the payment required pursuant to Section 4(d) here-
of.
(l) That you shall have received on the Closing Date a
certificate, dated such date, of two executive officers of each of the
Fund and the Manager reasonably acceptable to the Underwriters
certifying that the signers have carefully examined the Registration
Statement, the Prospectus (and any amendments or supplements thereto)
and this Agreement, and that, to the best of their knowledge and
information after due inquiry (i) the representations and warranties of
the Fund (with respect to the certificates from such Fund officers) and
the representations and warranties of the Manager (with respect to the
certificates from such officers of the Manager) in this Agreement are
true and correct on and as of the date of the certificate as if made on
such date, (ii) since the date of the Prospectus (and any amendment or
supplement thereto) there has not been any material adverse change in
the general affairs, prospects, management, business, financial
condition or results of operations of the Fund (with respect to the
certificates from such Fund officers) or the Manager (with respect to
the certificates from such officers of the Manager), (iii) after
reasonable investigation of any proceedings by the Commission, no order
under the 1933 Act or the 1940 Act suspending the effectiveness of the
Registration Statement or prohibiting the sale of any of the Shares, or
having a material adverse effect on the Fund (with respect to the
certificates from such Fund officers) or the Manager (with respect to
the certificates from such officers of the Manager) has been issued and
no proceedings for any such purpose are pending before or threatened by
the Commission or any court or other regulatory body, (iv) each of the
Fund (with respect to certificates from such Fund officers) and the
Manager (with respect to certificates from such officers of the
Manager) has performed and complied with all agreements that this
Agreement require it to perform by such Closing Date, (v) neither the
Fund (with respect to the certificate from such officers of the Fund)
nor the Manager (with respect to the certificate from such officers of
the Manager) has sustained any material loss or interference with its
business from any court or from legislative or other governmental
action, order or decree or from any other occurrence not described in
the Registration Statement
38
<PAGE>
and the Prospectus and (vi) with respect to the certificate from such
officers of the Fund, there has not been any change in the shares of
beneficial interest of the Fund nor any material increase in the debt
of the Fund from that set forth in the Prospectus (and any amendment or
supplement thereto) and the Fund has not sustained any material
liabilities or obligations, direct or contingent, other than those
reflected in the Prospectus (and any amendment or supplement thereto),
and that the Fund and the Manager shall have furnished to you such
further certificates, documents and opinions of counsel as you shall
reasonably request (including certificates of officers of the Fund and
the Manager).
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to (i) the accuracy of and
compliance with the representations and warranties of the Fund and the
Manager contained herein on and as of the Option Closing Date as though
made on an Option Closing Date, (ii) satisfaction on and as of an
Option Closing Date of the conditions set forth in this Section 9
(substituting references to the Closing Date with references to the
Option Closing Date as appropriate) and (iii) the absence of
circumstances on or prior to the Option Closing Date which would permit
termination of this Agreement pursuant to Section 11 if they existed on
or prior to the Closing Date.
Any certificate or document signed by an officer of the Fund
or the Manager and delivered to you, as Representatives of the
Underwriters, or to Underwriters's counsel, shall be deemed a
representation and warranty by the Fund or the Manager to each
Underwriter as to the statements made therein.
10. Effective Date of Agreement. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the Registration Statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Fund by notifying you, or by
you, as Representatives of the several Underwriters, by notifying the Fund.
39
<PAGE>
If any one or more of the Underwriters shall fail or refuse to purchase
Firm Shares which it or they have agreed to purchase hereunder, and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of the Firm Shares, each non-defaulting Underwriter
shall be obligated, severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the aggregate number of Firm
Shares set forth opposite the names of all non-defaulting Underwriters, or in
such other proportions as you may specify in accordance with Section 20 of the
Smith Barney Inc. Master Agreement Among Underwriters, to purchase Firm Shares
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase. If any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares and
arrangements satisfactory to you and the Fund for purchase of such Firm Shares
by one or more non-defaulting Underwriters or other party or parties approved by
you and the Fund are not made within 36 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Underwriter
or the Fund (provided, however, that the Fund shall be responsible for the fees,
costs and expenses specified in the first paragraph of Section 12 of this
Agreement). In any such case which does not result in termination of this
Agreement, either you or the Fund shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or any other
documents or arrangements may be effected. Any action taken under this paragraph
shall not relieve any defaulting Underwriter from liability in respect of any
such default of any such Underwriter under this Agreement. The term
"Underwriter" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule I hereto who, with your approval and
the approval of the Fund, purchases Firm Shares which a defaulting Underwriter
agreed, but failed or refused, to purchase.
Any notice under this Section 10 may be made by telecopy or telephone
but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be
subject to termination in your absolute discretion, without
liability on the part of any Underwriter to the Fund or the
40
<PAGE>
Manager by notice given to the Fund if on or prior to the Closing Date or any
Option Closing Date (if different from the Closing Date and then only as to the
Additional Shares), as the case may be, (i) trading in securities generally on
any national securities exchange or the Nasdaq National Market or the Nasdaq
Stock Market shall have been suspended or materially limited or trading in
securities of the Fund shall have been suspended or materially limited, (ii)
additional material governmental restrictions not in force on the date of this
Agreement have been imposed upon trading in securities generally or a general
moratorium on commercial banking activities in New York or The Commonwealth of
Massachusetts shall have been declared by either Federal or state authorities or
(iii) there shall have occurred any outbreak or escalation of hostilities or
other international or domestic calamity, crisis or change in political,
financial or economic conditions the effect of which is such as to make it, in
your judgment, impracticable or inadvisable to commence or continue the offering
of the Shares at the offering price to the public set forth on the cover page of
the Prospectus or to enforce contracts for the resale of the Shares by the
Underwriters. Notice of such termination shall be given to the Fund and the
Manager by telecopy or telephone but shall be subsequently confirmed by letter.
12. Certain Agreements Relating to Expenses. The Fund agrees to pay all
fees, costs and expenses incident to the performance by the Fund of its
obligations hereunder, including (a) the preparation, printing or reproduction,
and filing (including, without limitation, the filing fees prescribed by the
1933 Act, the 1940 Act and the Rules and Regulations) and distribution of the
Registration Statement (including exhibits thereto), each Prepricing Prospectus,
the Prospectus and the 1940 Act Notification, and all amendments or supplements
thereto, (b) the preparation, printing authentication, issuance and delivery of
certificates for the Shares, including any stamp taxes and transfer agent and
registrar fees payable in connection with the original issuance and sale of such
Shares, (c) the registrations or qualifications referred to in Section 5(f)
hereof, including the reasonable fees and disbursements of counsel for the
Underwriters relating to the preparation, printing or reproduction, and delivery
of the preliminary and supplemental Blue Sky Memoranda and such registrations or
qualifications, (d) the fees and expenses of the Fund's independent accountants,
counsel for the Fund and of the transfer agent, (e) the expenses of printing or
reproduction and delivery to the Underwriters and dealers (includ-
41
<PAGE>
ing postage, air freight and the cost of counting and packaging) of copies of
the registration statement, Registration Statement, the Prospectus, each
Prepricing Prospectus, all amendments or supplements thereto and any sales
material as may be requested for use in connection with the offering and sale of
the Shares, (f) printing or otherwise reproducing this Agreement, any dealer
agreements, the preliminary and supplemental Blue Sky Memoranda and all other
agreements, memoranda, correspondence and other documents printed or reproduced
and delivered in connection with the offering of the Shares, (g) the fees and
expenses incurred with respect to the review of the offering of the Shares by
the NASD, including filing fees and reasonable fees and expenses of counsel, (h)
the fees and expenses incurred with respect to the listing of the Shares on the
NYSE, (i) the registration of the Shares under the 1934 Act and (j) an amount
not to exceed $[ ] payable on the Closing Date to the Underwriters in partial
reimbursement of their expenses in connection with the offering.
If this Agreement shall be terminated pursuant to any of the provisions
hereof (otherwise than by notice given by you pursuant to Section 10 (except as
otherwise provided in Section 10) or pursuant to Section 11 hereof), or if this
Agreement shall be terminated by the Underwriters because of any failure or
refusal on the part of the Fund or the Manager to comply with the terms or
fulfill any of the conditions of this Agreement, the Fund and Manager agree to
reimburse the several Underwriters for all out-of-pocket expenses (including
reasonable fees and expenses of counsel for the Underwriters) incurred by them
in connection herewith but without any further obligation on the part of the
Fund and the Manager for loss of profits or otherwise. In the event that this
Agreement shall be terminated pursuant to Section 10 (otherwise than by notice
given by the Fund pursuant to Section 10) or Section 11 hereof, the Fund shall
be responsible only for the costs and expenses identified in the preceding
paragraph.
Notwithstanding the foregoing, the Manager will pay the costs and
expenses of the Fund set forth above in this Section 12 unless the sale of the
Firm Shares is consummated pursuant to Section 2 hereof.
13. Information Furnished by the Underwriters. The
stabilization legend set forth on the inside front cover page
of the Prospectus and the statements in the first and second
paragraphs under the caption "Underwriting" in the Prospectus
constitute the only information furnished by or on behalf of
42
<PAGE>
the Underwriters to you expressly for use in the Prospectus as
such information is referred to in this Agreement.
14. Miscellaneous. Except as otherwise provided in
Sections 5, 10 and 11 hereof, notice given pursuant to any
provision of this Agreement shall be in writing and shall be
delivered (a) to the Fund and the Manager at Putnam Investment
Management, Inc., One Post Office Square, Boston, MA 02109,
Attention: John R. Verani or (b) to you, as Representatives of
the Underwriters, at the office of Smith Barney Inc. at 1345
Avenue of the Americas, New York, NY 10105, Attention: Manag-
er, Corporate Finance Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Fund, the Manager, the controlling persons, directors
and officers referred to in Section 8 hereof and their respective successors and
assigns, to the extent provided herein, and no other person shall acquire or
have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Shares in his
status as such purchaser. The terms "director," "directors" or "board of
directors" when used with respect to the Fund shall be deemed to include any
trustee, trustees or board of trustees of the Fund.
15. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute
one and the same instrument.
16. Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New
York applicable to contracts made and to be performed with the
State of New York.
17. Limitation of Liability. A copy of the Agreement and Declaration of
Trust of the Fund is on file with the Secretary of State of The Commonwealth of
Massachusetts, and, pursuant thereto, notice is hereby given that this Agreement
has been executed on behalf of the Fund by an officer of the Fund as an officer
and not individually and the obligations of the Fund arising out of this
Agreement are not binding upon any of the trustees, officers or shareholders of
the Fund individually but are binding only upon the assets and property of the
Fund.
43
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Fund, the Manager and the several Underwriters.
Very truly yours,
PUTNAM CONVERTIBLE OPPORTUNITIES
AND INCOME TRUST
By:
Name:
Title:
PUTNAM INVESTMENT MANAGEMENT, INC.
By:
Name:
Title:
44
<PAGE>
Confirmed as of the date first above written on behalf of themselves and the
other several Underwriters named in Schedule 1 hereto.
By: SMITH BARNEY INC.
[ ]
[ ]
[ ]
By: SMITH BARNEY INC.
By:
Name: William B. Ogden IV
Title: Managing Director
45
CUSTODIAN AGREEMENT
AGREEMENT made as of the 3rd day of May, 1991, as amended July 13,
1992, between each of the Putnam Funds listed in Schedule A, each of such Funds
acting on its own behalf separately from all the other Funds and not jointly or
jointly and severally with any of the other Funds (each of the Funds being
hereinafter referred to as the "Fund"), and Putnam Fiduciary Trust Company (the
"Custodian").
WHEREAS, the Custodian represents to the Fund that it is eligible to
serve as a custodian for a management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), and
WHEREAS, the Fund wishes to appoint the Custodian as the Fund's
custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Appointment of Custodian. The Fund hereby employs and appoints the Custodian
as custodian of its assets for the term and subject to the provisions of this
Agreement. At the direction of the Custodian, the Fund agrees to deliver to the
Sub-Custodians appointed pursuant to Section 2 below (the "Sub-Custodians")
securities, funds and other property owned by it. The Custodian shall have no
responsibility or liability for or on account of securities, funds or other
property not so delivered to the Sub-Custodians. Upon request, the Fund shall
deliver to the Custodian or to such Sub-Custodians as the Custodian may direct
such proxies, powers of attorney or other instruments as may be reasonably
necessary or desirable in connection with the performance by the Custodian or
any Sub-Custodian of their respective obligations under this Agreement or any
applicable Sub-Custodian Agreement.
2. Appointment of Sub-Custodians. The Custodian may at any time and from time to
time appoint, at its own cost and expense, as a Sub-Custodian for the Fund any
bank or trust company which meets the requirements of the 1940 Act and the rules
and regulations thereunder to act as a custodian, provided that the Fund shall
have approved in writing any such bank or trust company and the Custodian gives
prompt written notice to the Fund of any such appointment. The agreement between
the Custodian and any Sub-Custodian shall be substantially in the form of the
Sub-Custodian agreement attached hereto as Exhibit 1 (the "Sub-Custodian
Agreement") unless otherwise approved by the Fund, provided, however, that the
agreement between the Custodian and any Sub-Custodian appointed primarily for
the purpose of holding
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<PAGE>
foreign securities of the Fund shall be substantially in the form of the
Sub-Custodian Agreement attached hereto as Exhibit 1(A) (the "Foreign
Sub-Custodian Agreement"; the "Sub-Custodian Agreement" and the "Foreign
Sub-Custodian Agreement" are herein referred to collectively and each
individually as the "Sub-Custodian Agreement"). All Sub-Custodians shall be
subject to the instructions of the Custodian and not the Fund. The Custodian
may, at any time in its discretion, remove any bank or trust company which has
been appointed as a Sub-Custodian but shall in such case promptly notify the
Fund in writing of any such action. Securities, funds and other property of the
Fund delivered pursuant to this Agreement shall be held exclusively by
Sub-Custodians appointed pursuant to the provisions of this Section 2.
The Sub-Custodians which the Fund has approved to date are set forth in
Schedule B hereto. Schedule B shall be amended from time to time as
Sub-Custodians are changed, added or deleted. The Fund shall be responsible for
informing the Custodian sufficiently in advance of a proposed investment which
is to be held at a location not listed on Schedule B, in order that there shall
be sufficient time for the Custodian to put the appropriate arrangements in
place with such Sub-Custodian pursuant to such Sub-Custodian Agreement.
With respect to the securities, funds or other property held by a
Sub-Custodian, the Custodian shall be liable to the Fund if and only to the
extent that such Sub-Custodian is liable to the Custodian. The Custodian shall
nevertheless be liable to the Fund for its own negligence in transmitting any
instructions received by it from the Fund and for its own negligence in
connection with the delivery of any securities, funds or other property of the
Fund to any such Sub-Custodian.
In the event that any Sub-Custodian appointed pursuant to the
provisions of this Section 2 fails to perform any of its obligations under the
terms and conditions of the applicable Sub-Custodian Agreement, the Custodian
shall use its best efforts to cause such Sub-Custodian to perform such
obligations. In the event that the Custodian is unable to cause such
Sub-Custodian to perform fully its obligations thereunder, the Custodian shall
forthwith terminate such Sub-Custodian and, if necessary or desirable, appoint
another Sub-Custodian in accordance with the provisions of this Section 2. The
Custodian may with the approval of the Fund commence any legal or equitable
action which it believes is necessary or appropriate in connection with the
failure by a Sub-Custodian to perform its obligations under the applicable
Sub-Custodian Agreement. Provided the Custodian shall not have been negligent
with respect to any such matter, such action shall be at the expense of the
Fund. The Custodian shall keep the Fund fully informed regarding such action and
the Fund may at any time upon notice to the Custodian elect to take
2
<PAGE>
responsibility for prosecuting such action. In such event the Fund shall have
the right to enforce and shall be subrogated to the Custodian's rights against
any such Sub-Custodian for loss or damage caused the Fund by such Sub-Custodian.
At the written request of the Fund, the Custodian will terminate any
Sub-Custodian appointed pursuant to the provisions of this Section 2 in
accordance with the termination provisions of the applicable Sub-Custodian
Agreement. The Custodian will not amend any Sub-Custodian Agreement in any
material manner except upon the prior written approval of the Fund and shall in
any case give prompt written notice to the Fund of any amendment to the
Sub-Custodian Agreement.
3. Duties of the Custodian with Respect to Property of the Fund
Held by Sub-Custodians.
3.1 Holding Securities - The Custodian shall cause one or more
Sub-Custodians to hold and, by book-entry or otherwise, identify as belonging to
the Fund all non-cash property delivered to such Sub-Custodian.
3.2 Delivery of Securities - The Custodian shall cause Sub-Custodians
holding securities of the Fund to release and deliver securities owned by the
Fund held by the Sub-Custodian or in a Securities System account of the
Sub-Custodian only upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the following
cases:
3.2.1 Upon sale of such securities for the account
of the Fund and receipt of payment therefor;
provided, however, that a Sub-Custodian may
release and deliver securities prior to the
receipt of payment therefor if (i) in the
Sub-Custodian's judgment, (A) release and
delivery prior to payment is required by the
terms of the instrument evidencing the
security or (B) release and delivery prior
to payment is the prevailing method of
settling securities transactions between
institutional investors in the applicable
market and (ii) release and delivery prior
to payment is in accordance with generally
accepted trade practice and with any
pplicable governmental regulations and the
rules of Securities Systems or other
securities depositories and clearing
agencies in the applicable market. The
Custodian agrees, upon request, to advise
the Fund of all pending transactions in
3
<PAGE>
which release and delivery will be made
prior to the receipt of payment therefor;
3.2.2 Upon the receipt of payment in connection
with any repurchase agreement related to
such securities entered into by the Fund;
3.2.3 In the case of a sale effected through a
Securities System, in accordance with the
provisions of Section 3.12 hereof;
3.2.4 To the depository agent in connection with
tender or other similar offers for portfolio
securities of the Fund; provided that, in
any such case, the cash or other
consideration is thereafter to be delivered
to the Sub-Custodian;
3.2.5 To the issuer thereof or its agent, when
such securities are called, redeemed,
retired or otherwise become payable;
provided that, in any such case, the cash or
other consideration is to be delivered to
the Sub-Custodian;
3.2.6 To the issuer thereof, or its agent for
transfer into the name of the Fund or into
the name of any nominee or nominees of the
Sub-Custodian or into the name or nominee
name of any agent appointed pursuant to
Section 3.11 or any other name permitted
pursuant to Section 3.3; or for exchange for
a different number of bonds, certificates or
other evidence representing the same
aggregate face amount or number of units;
provided that, in any such case, the new
securities are to be delivered to the Sub-
Custodian;
3.2.7 Upon the sale of such securities for the
account of the Fund, to the broker or its
clearing agent, against a receipt, for
examination in accordance with "street
delivery" custom; provided that in any such
case, the Sub-Custodian shall have no
responsibility or liability for any loss
arising from the delivery of such securities
prior to receiving payment for such
securities except as may arise from the Sub-
Custodian's own negligence or willful
misconduct;
4
<PAGE>
3.2.8 For exchange or conversion pursuant to any
plan of merger, consolidation,
recapitalization, reorganization or
readjustment of the securities of the issuer
of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit
agreement; provided that, in any such case,
the new securities and cash, if any, are to
be delivered to the Sub-Custodian;
3.2.9 In the case of warrants, rights or similar
securities, the surrender thereof in the
exercise of such warrants, rights or similar
securities or the surrender of interim
receipts or temporary securities for
definitive securities; provided that, in any
such case, the new securities and cash, if
any, are to be delivered to the Sub-
Custodian;
3.2.10 For delivery in connection with any loans of
securities made by the Fund, but only
against receipt of adequate collateral as
agreed upon from time to time by the
Custodian and the Fund, which may be in the
form of cash or obligations issued by the
United States government, its agencies or
instrumentalities; except that in connection
with any loan of securities held in a
Securities System for which collateral is to
credited to the Sub-Custodian's account in
another Securities System, the Sub-Custodian
will not be held liable or responsible for
delivery of the securities prior to the
receipt of such collateral.
3.2.11 For delivery as security in connection with
any borrowings by the Fund requiring a
pledge of assets by the Fund, but only
against receipt of amounts borrowed;
3.2.12 Upon receipt of instructions from the
transfer agent ("Transfer Agent") for the
Fund, for delivery to such Transfer Agent or
to the shareholders of the Fund in
connection with distributions in kind, as
may be described from time to time in the
Fund's Declaration of Trust and currently
effective registration statement, if any, in
satisfaction of requests by Fund
shareholders for repurchase or redemption;
5
<PAGE>
3.2.13 For delivery to another Sub-Custodian of the
Fund; and
3.2.14 For any other proper corporate purpose, but
only upon receipt of, in addition to Proper
Instructions, a certified copy of a
resolution of the Trustees or of the
Executive Committee of the Fund signed by an
officer of the Fund and certified by its
Clerk or an Assistant Clerk, specifying the
securities to be delivered, setting forth
the purpose for which such delivery is to be
made, declaring such purposes to be proper
corporate purposes, and naming the person or
persons to whom delivery of such securities
shall be made.
3.3 Registration of Securities. Securities of the Fund held by
the Sub-Custodians hereunder (other than bearer securities) shall be
registered in the name of the Fund or in the name of any nominee of the
Fund or of any nominee of the Sub-Custodians or any 17f-5 Sub-Custodian
or Foreign Depository (as each of those terms is defined in the Foreign
Sub-Custodian Agreement, which nominee shall be assigned exclusively to
the Fund, unless the Fund has authorized in writing the appointment of
a nominee to be used in common with other registered investment
companies having the same investment adviser as the Fund, or in the
name or nominee name of any agent appointed pursuant to Section 3.12.
Notwithstanding the foregoing, a Sub-Custodian, agent, 17f-5
Sub-Custodian or Foreign Depository may hold securities of the Fund in
a nominee name which is used for its other clients provided that such
name is not used by the Sub-Custodian, agent, 17f-5 Sub-Custodian or
Foreign Depository for its own securities and that securities of the
Fund are, by book-entry or otherwise, at all times identified as
belonging to the Fund and distinguished from other securities held for
other clients using the same nominee name. In addition, and
notwithstanding the foregoing, a Sub-Custodian or agent thereof or
17f-5 Sub-Custodian or Foreign Depository may hold securities of the
Fund in its own name if such registration is the prevailing method in
the applicable market by which custodians register securities of
institutional clients and provided that securities of the Fund are, by
book-entry or otherwise, at all times identified as belonging to the
Fund and distinguished from other securities held for other clients or
for the Sub-Custodian or agent thereof or 17f-5 Sub-Custodian or
Foreign Depository. All securities accepted by a Sub-Custodian under
the terms of a Sub-Custodian Agreement shall be in good delivery form.
6
<PAGE>
3.4 Bank Accounts. The Custodian shall cause one or more
Sub-Custodians to open and maintain a separate bank account or accounts in the
name of the Fund or the Custodian, subject only to draft or order by the
Sub-Custodian acting pursuant to the terms of a Sub-Custodian Contract or by the
Custodian acting pursuant to this Agreement, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a bank
account established and used in accordance with Rule 17f-3 under the Investment
Company Act of 1940. Funds held by the Sub-Custodian for the Fund may be
deposited by it to its credit as sub-custodian or to the Custodian's credit as
custodian in the Banking Department of the Sub-Custodian or in such other banks
or trust companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be qualified to
act as a custodian under the Investment Company Act of 1940 and that each such
bank or trust company and the funds to be deposited with each such bank or trust
company shall be approved by vote of a majority of the Trustees of the Fund.
Such funds shall be deposited by the Sub-Custodian or the Custodian in its
capacity as sub-custodian or custodian, respectively, and shall be withdrawable
by the Sub-Custodian or the Custodian only in that capacity. The Sub-Custodian
shall be liable for actual losses incurred by the Fund attributable to any
failure on the part of the Sub-Custodian to report accurate cash availability
information with respect to the Fund's or the Custodian's bank accounts
maintained by the Sub-Custodian or any of its agents.
3.5 Payments for Shares. The Custodian shall cause one or more
Sub-Custodians to deposit into the Fund's account amounts received from the
Transfer Agent of the Fund for shares of the Fund issued by the Fund and sold by
its distributor. The Custodian will provide timely notification to the Fund of
any receipt by the Sub-Custodian from the Transfer Agent of payments for shares
of the Fund.
3.6 Availability of Federal Funds. Upon mutual agreement between the
Fund and the Custodian, the Custodian shall cause one or more Sub-Custodians,
upon the receipt of Proper Instructions, to make federal funds available to the
Fund as of specified times agreed upon from time to time by the Fund and the
Custodian with respect to amounts received by the Sub-Custodians for the
purchase of shares of the Fund.
3.7 Collection of Income. The Custodian shall cause one or more
Sub-Custodians to collect on a timely basis all income and other payments with
respect to registered securities held hereunder, including securities held in a
Securities System, to which the Fund shall be entitled either by law or pursuant
to custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer
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securities if, on the date of payment by the issuer, such securities are held by
the Sub-Custodian or agent thereof and shall credit such income, as collected,
to the Fund's account. Without limiting the generality of the foregoing, the
Custodian shall cause the Sub-Custodian to detach and present for payment all
coupons and other income items requiring presentation as and when they become
due and shall collect interest when due on securities held under the applicable
Sub-Custodian Agreement. Arranging for the collection of income due the Fund on
securities loaned pursuant to the provisions of Section 3.2.10 shall be the
responsibility of the Fund. The Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such information or
data as may be necessary to assist the Fund in arranging for the timely delivery
to the Sub-Custodian of the income to which the Fund is properly entitled.
3.8 Payment of Fund Monies. Upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the parties, the
Custodian shall cause one or more Sub-Custodians to pay out monies of the Fund
in the following cases only:
3.8.1 Upon the purchase of securities for the
account of the Fund but only (a) against the
delivery of such securities to the Sub-
Custodian (or any bank, banking firm or
trust company doing business in the United
States or abroad which is qualified under
the Investment Company Act of 1940, as
amended, to act as a custodian and has been
designated by the Sub-Custodian as its agent
for this purpose) or any 17f-5 Sub-Custodian
or any Foreign Depository registered in the
name of the Fund or in the name of a nominee
of the Sub-Custodian referred to in Section
3.3 hereof or in proper form for transfer;
provided, however, that the Sub-Custodian
may cause monies of the Fund to be paid out
prior to delivery of such securities if (i)
in the Sub-Custodian's judgment, (A) payment
prior to delivery is required by the terms
of the instrument evidencing the security or
(B) payment prior to delivery is the
prevailing method of settling securities
transactions between institutional investors
in the applicable market and (ii) payment
prior to delivery is in accordance with
generally accepted trade practice and with
any applicable governmental regulations and
the rules of Securities Systems or other
securities depositories and clearing
agencies in the applicable market; the
8
<PAGE>
Custodian agrees, upon request, to advise
the Fund of all pending transactions in
which payment will be made prior to the
receipt of securities in accordance with the
provision to the foregoing sentence; (b) in
the case of a purchase effected through a
Securities System, in accordance with the
conditions set forth in Section 3.13 hereof;
or (c)(i) in the case of a repurchase
agreement entered into between the Fund and
the Sub-Custodian, another bank, or a
broker-dealer against delivery of the
securities either in certificate form or
through an entry crediting the Sub-
Custodian's account at the Federal Reserve
Bank with such securities or (ii) in the
case of a repurchase agreement entered into
between the Fund and the Sub-Custodian,
against delivery of a receipt evidencing
purchase by the Fund of Securities owned by
the Sub-Custodian along with written
evidence of the agreement by the Sub-
Custodian to repurchase such securities from
the Fund; or (d) for transfer to a time
deposit account of the Fund in any bank,
whether domestic or foreign, which transfer
may be effected prior to receipt of a
confirmation of the deposit from the
applicable bank or a financial intermediary;
3.8.2 In connection with conversion, exchange or
surrender of securities owned by the Fund as
set forth in Section 3.2 hereof;
3.8.3 For the redemption or repurchase of Shares
issued by the Fund as set forth in Section
3.10 hereof;
3.8.4 For the payment of any expense or liability
incurred by the Fund, including but not
limited to the following payments for the
account of the Fund: interest, taxes,
management, accounting, transfer agent and
legal fees, including the Custodian's fee;
and operating expenses of the Fund whether
or not such expenses are to be in whole or
part capitalized or treated as deferred
expenses;
3.8.5 For the payment of any dividends or other
distributions declared to shareholders of
the Fund;
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3.8.6 For transfer to another Sub-Custodian of the
Fund;
3.8.7 For any other proper purpose, but only upon
receipt of, in addition to Proper
Instructions, a certified copy of a
resolution of the Trustees or of the
Executive Committee of the Fund signed by an
officer of the Fund and certified by its
Clerk or an Assistant Clerk, specifying the
amount of such payment, setting forth the
purpose for which such payment is to be
made, declaring such purpose to be a proper
purpose, and naming the person or persons to
whom such payments is to be made.
3.9 Liability for Payment in Advance of Receipt of Securities
Purchased. Except as otherwise provided in this Agreement, in any and every case
where payment for purchase of securities for the account of the Fund is made by
a Sub-Custodian in advance of receipt of the securities purchased in the absence
of specific written instructions from the Fund to so pay in advance, the
Custodian shall cause the Sub-Custodian to be absolutely liable to the Fund in
the event any loss results to the Fund from the payment by the Sub-Custodian in
advance of delivery of such securities.
3.10 Payments for Repurchase or Redemptions of Shares of the Fund. From
such funds as may be available, the Custodian shall, upon receipt Proper
Instructions, cause one or more Sub-Custodians to make funds available for
payment to a shareholder who has delivered to the Transfer Agent a request for
redemption or repurchase of shares of the Fund. In connection with the
redemption or repurchase of shares of the Fund, the Custodian is authorized,
upon receipt of Proper Instructions, to cause one or more Sub-Custodian, to wire
funds to or through a commercial bank designated by the redeeming shareholder.
In connection with the redemption or repurchase of Shares of the Fund, the
Custodian, upon receipt of Proper Instructions, shall cause one or more Sub-
Custodians to honor checks drawn on the Sub-Custodian by a shareholder when
presented to the Sub-Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time among the Fund, the Custodian and
the Sub-Custodian.
3.11 Appointment of Agents. The Custodian may permit any Sub-Custodian
at any time or times in its discretion to appoint (and may at any time remove)
any other bank or trust company which is itself qualified under the Investment
Company Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Section 3 as the Sub-Custodian may from time
to time direct; provided, however, that
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the appointment of any agent shall not relieve the Custodian or any
Sub-Custodian of its responsibilities or liabilities hereunder and provided that
any such agent shall have been approved by vote of the Trustees of the Fund. The
Custodian may also permit any Sub-Custodian to which foreign securities of the
Fund have been delivered to direct such securities to be held by 17f-5
Sub-Custodians and to use the facilities of Foreign Depositories, as those terms
are defined in the Foreign Sub-Custodian Agreement, in accordance with the
terms of the Foreign Sub-Custodian Agreement.
The agents which the Fund and the Custodian have approved to date are
set forth in Schedule B hereto. Schedule B shall be amended from time to time as
agents are changed, added or deleted. The Fund shall be responsible for
informing the Custodian, and the Custodian shall be responsible for informing
the appropriate Sub-Custodian, sufficiently in advance of a proposed investment
which is to be held at a location not listed on Schedule B, in order that there
shall be sufficient time for the Sub-Custodian to complete the appropriate
contractual and technical arrangements with such agent. Any Sub-Custodian
Agreement shall provide that the engagement by the Sub-Custodian of one or more
agents shall not relieve the Sub-Custodian of its responsibilities or
liabilities thereunder.
3.12 Deposit of Fund Assets in Securities Systems. The Custodian may
permit any Sub-Custodian to deposit and/or maintain securities owned by the Fund
in a clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively referred
to herein as "Securities System" in accordance with applicable rules and
regulations (including Rule 17f-4 of the 1940 Act) and subject to the following
provisions:
3.12.1 The Sub-Custodian may, either directly or
through one or more agents, keep securities
of the Fund in a Securities System provided
that such securities are represented in an
account ("Account") of the Sub-Custodian in
the Securities System which shall not
include any assets of the Sub-Custodian
other than assets held as a fiduciary,
custodian or otherwise for customers;
3.12.2 The records of the Sub-Custodian with
respect to securities of the Fund which are
maintained in a Securities System shall
identify by book-entry those securities
belonging to the Fund;
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<PAGE>
3.12.3 The Sub-Custodian shall pay for securities
purchased for the account of the Fund upon
(i) receipt of advice from the Securities
System that such securities have been
transferred to the Account, and (ii) the
making of an entry on the records of the
Sub-Custodian to reflect such payment and
transfer for the account of the Fund. The
Sub-Custodian shall transfer securities sold
for the account of the Fund upon (i) receipt
of advice from the Securities System that
payment for such securities has been
transferred to the Account, and (ii) the
making of an entry on the records of the
Sub-Custodian to reflect such transfer and
payment for the account of the Fund. Copies
of all advices from the Securities System of
transfers of securities for the account of
the Fund shall identify the Fund, be
maintained for the Fund by the Sub-Custodian
or such an agent and be provided to the Fund
at its request. The Sub-Custodian shall
furnish the Fund confirmation of each
transfer to or from the account of the Fund
in the form of a written advice or notice
and shall furnish to the Fund copies of
daily transaction sheets reflecting each
day's transactions in the Securities System
for the account of the Fund on the next
business day;
3.12.4 The Sub-Custodian shall provide the Fund
with any report obtained by the Sub-
Custodian on the Securities System's
accounting system, internal accounting
controls and procedures for safeguarding
securities deposited in the Securities
System;
3.12.5 The Sub-Custodian shall utilize only such
Securities Systems as are approved by the
Board of Trustees of the Fund, and included
on a list maintained by the Custodian;
3.12.6 Anything to the contrary in this Agreement
notwithstanding, the Sub-Custodian shall be
liable to the Fund for any loss or damage to
the Fund resulting from use of the
Securities System by reason of any
negligence, misfeasance or misconduct of the
Sub-Custodian or any of its agents or of any
of its or their employees or from failure of
12
<PAGE>
the Sub-Custodian or any such agent to
enforce effectively such rights as it may
have against the Securities System; at the
election of the Fund, it shall be entitled
to be subrogated to the rights of the Sub-
Custodian with respect to any claim against
the Securities System or any other person
which the Sub-Custodian may have as a
consequence of any such loss or damage if
and to the extent that the Fund has not been
made whole for any such loss or damage.
3.12A Depositary Receipts. Only upon receipt of Proper Instructions,
the Sub-Custodian shall instruct a 17f-5 Sub-Custodian or an agent of the
Sub-Custodian appointed pursuant to the applicable Foreign Sub-Custodian
Agreement (an "Agent") to surrender securities to the depositary used by an
issuer of American Depositary Receipts or International Depositary Receipts
(hereinafter collectively referred to as "ADRs") for such securities against a
written receipt therefor adequately describing such securities and written
evidence satisfactory to the 17f-5 Sub-Custodian or Agent that the depositary
has acknowledged receipt of instructions to issue with respect to such
securities ADRs in the name of the Sub-Custodian, or a nominee of the
Sub-Custodian, for delivery to the Sub-Custodian.
Only upon receipt of Proper Instructions, the Sub-Custodian shall
surrender ADRs to the issuer thereof against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the Sub-Custodian that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depository to deliver the securities underlying such
ADRs to a 17f-5 Sub-Custodian or an Agent.
3.12B Foreign Exchange Transactions and Futures Contracts. Only upon
receipt of Proper Instructions, the Sub-Custodian shall enter into foreign
exchange contracts or options to purchase and sell foreign currencies for spot
and future delivery on behalf and for the account of the Fund or shall enter
into futures contracts or options on futures contracts. Such transactions may be
undertaken by the Sub-Custodian with such banking institutions, including the
Sub-Custodian and 17f-5 Sub-Custodian(s) appointed pursuant to the applicable
Foreign Sub-Custodian Agreement, as principals, as approved and authorized by
the Fund. Foreign exchange contracts, futures contracts and options, other than
those executed with the Sub-Custodian, shall for all purposes of this Agreement
be deemed to be portfolio securities of the Fund.
3.12C Option Transactions. Only upon receipt of Proper
Instructions, the Sub-Custodian shall enter into option
transactions in accordance with the provisions of any agreement
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<PAGE>
among the Fund, the Custodian and/or the Sub-Custodian and a
broker-dealer.
3.13 Ownership Certificates for Tax Purposes. The Custodian shall cause
one or more Sub-Custodians as may be appropriate to execute ownership and other
certificates and affidavits for all federal and state tax purposes in connection
with receipt of income or other payments with respect to securities of the Fund
held by the Sub-Custodian and in connection with transfers of securities.
3.14 Proxies. The Custodian shall, with respect to the securities held
by the Sub-Custodians, cause to be promptly executed by the registered holder of
such securities, if the securities are registered other than in the name of the
Fund or a nominee of the fund, all proxies, without indication of the manner in
which such proxies are to be voted, and shall promptly deliver to the Fund such
proxies, all proxy soliciting materials and all notices relating to such
securities.
3.15 Communications Relating to Fund Portfolio Securities. The
Custodian shall cause the Sub-Custodians to transmit promptly to the Custodian,
and the Custodian shall transmit promptly to the Fund, all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith) received by the Sub-Custodian
from issuers of the securities being held for the account of the Fund. With
respect to tender or exchange offers, the Custodian shall cause the
Sub-Custodian to transmit promptly to the Fund, all written information received
by the Sub-Custodian from issuers of the securities whose tender or exchange is
sought and from the party (or his agents) making the tender or exchange offer.
If the Fund desires to take action with respect to any tender offer, exchange
offer or any other similar transaction, the Fund shall notify the Custodian of
the action the Fund desires such Sub-Custodian to take, provided, however,
neither the Custodian nor the Sub-Custodian shall be liable to the Fund for the
failure to take any such action unless such instructions are received by the
Custodian at least four business days prior to the date on which the
Sub-Custodian is to take such action or, in the case of foreign securities, such
longer period as shall have been agreed upon in writing by the Custodian and the
Sub-Custodian.
3.16 Proper Instructions. Proper Instructions as used throughout this
Agreement means a writing signed or initialed by one or more person or persons
who are authorized by the Trustees of the Fund and the Custodian. Each such
writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such action is
requested. Oral instructions will be considered Proper Instructions if the
Custodian or Sub-Custodian, as the case may
14
<PAGE>
be, reasonably believes them to have been given by a person authorized to give
such instructions with respect to the transaction involved. All oral
instructions shall be confirmed in writing. Proper Instructions also include
communications effected directly between electro-mechanical or electronic
devices provided that the Trustees have approved such procedures.
Notwithstanding the foregoing, no Trustee, officer, employee or agent of the
Fund shall be permitted access to any securities or similar investments of the
Fund deposited with any Sub-Custodian or any agent of any Sub-Custodian for any
reason except in accordance with the provisions of Rule 17f-2 under the 1940
Act.
3.17 Actions Permitted Without Express Authority. The
Custodian may in its discretion, and may permit one or more Sub-
Custodians in their discretion, without express authority from
the Fund to:
3.17.1 make payments to itself or others for minor
expenses of handling securities or other
similar items relating to its duties under
this Agreement, or in the case of a Sub-
Custodian, under the applicable Sub-
Custodian Agreement, provided that all such
payments shall be accounted for to the Fund;
3.17.2 surrender securities in temporary form for
securities in definitive form;
3.17.3 endorse for collection, in the name of the
Fund, checks, drafts and other negotiable
instruments; and
3.17.4 in general, attend to all non-discretionary
details in connection with the sale,
exchange, substitution, purchase, transfer
and other dealings with the securities and
property of the Fund except as otherwise
directed by the Trustees of the Fund.
3.18 Evidence of Authority. The Custodian shall be protected in acting
upon any instructions, notice, request, consent, certificate or other instrument
or paper believed by it to be genuine and to have been properly executed by or
on behalf of the Fund.
3.19 Investment Limitations. In performing its duties generally, and
more particularly in connection with the purchase, sale and exchange of
securities made by or for the Fund, the Custodian may assume, unless and until
notified in writing to the contrary, that Proper Instructions received by it are
not in conflict with or in any way contrary to any provisions of the Fund's
Declaration of Trust or By-Laws (or comparable documents)
15
<PAGE>
or votes or proceedings of the shareholders or Trustees of the Fund. The
Custodian shall in no event be liable to the Fund and shall be indemnified by
the Fund for any violation of any investment limitations to which the Fund is
subject or other limitations with respect to the Fund's powers to expend funds,
encumber securities, borrow or take similar actions affecting its portfolio.
4. Performance Standards. The Custodian shall use its best
efforts to perform its duties hereunder in accordance with the
standards set forth in Schedule C hereto. Schedule C may be
amended from time to time as agreed to by the Custodian and the
Trustees of the Fund.
5. Records. The Custodian shall create and maintain all records relating to the
Custodian's activities and obligations under this Agreement and cause all
Sub-Custodians to create and maintain all records relating to the
Sub-Custodian's activities and obligations under the appropriate Sub-Custodian
Agreement in such manner as will meet the obligations of the Fund under the 1940
Act, with particular attention to Sections 17(f) and 31 thereof and Rules 17f-2,
31a-1 and 31a-2 thereunder, applicable federal and state tax laws, and any other
law or administrative rules or procedures which may be applicable to the Fund.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian or during the regular business hours
of the Sub-Custodian, as the case may be, be open for inspection by duly
authorized officers, employees or agents of the Custodian and Fund and employees
and agents of the Securities and Exchange Commission. At the Fund's request, the
Custodian shall supply the Fund and cause one or more Sub-Custodians to supply
the Custodian with a tabulation of securities owned by the Fund and held under
this Agreement. When requested to do so by the Fund and for such compensation as
shall be agreed upon, the Custodian shall include and cause one or more
Sub-Custodians to include certificate numbers in such tabulations.
6. Opinion and Reports of Fund's Independent Accountants. The Custodian shall
take all reasonable actions, as the Fund may from time to time request, to
furnish such information with respect to its activities hereunder as the Fund's
independent public accountants may request in connection with the accountant's
verification of the Fund's securities and similar investments as required by
Rule 17f-2 under the 1940 Act, the preparation of the Fund's registration
statement and amendments thereto, the Fund's reports to the Securities and
Exchange Commission, and with respect to any other requirements of such
Commission.
The Custodian shall also direct any Sub-Custodian to take all
reasonable actions, as the Fund may from time to time request, to furnish such
information with respect to its
16
<PAGE>
activities under the applicable Sub-Custodian Agreement as the Fund's
independent public accountant may request in connection with the accountant's
verification of the Fund's securities and similar investments as required by
Rule 17f-2 under the 1940 Act, the preparation of the Fund's registration
statement and amendments thereto, the Fund's reports to the Securities and
Exchange Commission, and with respect to any other requirements of such
Commission.
7. Reports of Custodian's and Sub-Custodians' Independent Accountants. The
Custodian shall provide the Fund, at such times as the Fund may reasonably
require, with reports by its independent public accountant on its accounting
system, internal accounting controls and procedures for safeguarding securities,
including securities deposited and/or maintained in Securities Systems, relating
to services provided by the Custodian under this Agreement. The Custodian shall
also cause one or more of the Sub-Custodians to provide the Fund, at such time
as the Fund may reasonably require, with reports by independent public
accountants on their accounting systems, internal accounting controls and
procedures for safeguarding securities, including securities deposited and/or
maintained in Securities Systems, relating to services provided by those
Sub-Custodians under their respective Sub-Custody Agreements. Such reports,
which shall be of sufficient scope and in sufficient detail as may reasonably be
required by the Fund, shall provide reasonable assurance that any material
inadequacies would be disclosed by such examinations, and, if there is no such
inadequacies, shall so state.
8. Compensation. The Custodian shall be entitled to reasonable
compensation for its services and expenses as custodian, as
agreed upon from time to time between the Fund and the Custodian.
Such expenses shall not include, however, the fees paid by the
Custodian to any Sub-Custodian.
9. Responsibility of Custodian. The Custodian shall exercise reasonable care and
diligence in carrying out the provisions of this Agreement and shall not be
liable to the Fund for any action taken or omitted by it in good faith without
negligence. So long as and to the extent that it is in the exercise of
reasonable care, neither the Custodian nor any Sub-Custodian shall be
responsible for the title, validity or genuineness of any property or evidence
of title thereto received by it or delivered by it pursuant to this Agreement
and shall be held harmless in acting upon any notice, request, consent,
certificate or other instrument reasonably believed by it to be genuine and, if
in writing, reasonably believed by it to be signed by the proper party or
parties. It shall be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Fund) on all matters, and shall be without liability for
any action reasonably taken or omitted pursuant to such advice. Notwithstanding
the foregoing, the responsibility of the Custodian or a Sub-Custodian
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<PAGE>
with respect to redemptions effected by check shall be in accordance with a
separate Agreement entered into between the Custodian and the Fund. It is also
understood that the Custodian shall not be liable for any loss resulting from a
Sovereign Risk. A "Sovereign Risk" shall mean nationalization, expropriation,
devaluation, revaluation, confiscation, seizure, cancellation, destruction or
similar action by any governmental authority, de facto or de jure; or enactment,
promulgation, imposition or enforcement by any such governmental authority of
currency restrictions, exchange controls, taxes, levies or other charges
affecting the Fund's property; or acts of war, terrorism, insurrection or
revolution; or any other similar act or event beyond the Custodian's control.
If the Fund requires the Custodian which in turn may require a
Sub-Custodian to take any action with respect to securities, which action
involves the payment of money or which action may, in the opinion of the
Custodian or the Sub-Custodian result in the Custodian or its nominee or a
Sub-Custodian or its nominee being liable for the payment of money or incurring
liability of some other form, the Fund, as a prerequisite to requiring the
Custodian or the Custodian requiring any Sub-Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
The Fund agrees to indemnify and hold harmless the Custodian and its
nominee from and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) incurred or assessed against it or its
nominee or any Sub-Custodian or its nominee in connection with the performance
of this Agreement, or any Sub-Custodian Agreement except, as to the Custodian,
such as may arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, and as to a Sub-Custodian, such as may
arise from such Sub-Custodian's or its nominee's own negligent action,
negligent failure to act or willful misconduct. The negligent action, negligent
failure to act or willful misconduct of the Custodian shall not diminish the
Fund's obligation to indemnify the Custodian in the amount, but only in the
amount, of any indemnity required to be paid to a Sub-Custodian under its
Sub-Custodian Agreement. The Custodian may assign this indemnity from the Fund
directly to, and for the benefit of, any Sub-Custodian. The Custodian is
authorized, and may authorize any Sub-Custodian, to charge any account of the
Fund for such items and such fees. To secure any such authorized charges and any
advances of cash or securities made by the Custodian or any Sub-Custodian to or
for the benefit of the Fund for any purpose which results in the Fund incurring
an overdraft at the end of any business day or for extraordinary or emergency
purposes during any business day, the Fund (except a Fund specified in Schedule
D to this Agreement) hereby grants to the Custodian a security interest in and
pledges to the Custodian securities up to a maximum of 10% of the value
18
<PAGE>
of the Fund's net assets for the purpose of securing payment of any such
advances and hereby authorizes the Custodian on behalf of the Fund to grant to
any Sub-Custodian a security interest in and pledge of securities held for the
Fund (including those which may be held in a Securities System) up to a maximum
of 10% of the value of the net assets held by such Sub-Custodian. The specific
securities subject to such security interest may be designated in writing from
time to time by the Fund or its investment adviser. In the absence of any
designation of securities subject to such security interest, the Custodian or
the Sub-Custodian, as the case may be, may designate securities held by it.
Should the Fund fail to repay promptly any authorized charges or advances of
cash or securities, the Custodian or the Sub-Custodian shall be entitled to use
such available cash and to dispose of pledged securities and property as is
necessary to repay any such authorized charges or advances and to exercise its
rights as a secured party under the U.C.C. The Fund agrees that a Sub-Custodian
shall have the right to proceed directly against the Fund and not solely as
subrogee to the Custodian with respect to any indemnity hereunder assigned to a
Sub-Custodian, and in that regard, the Fund agrees that it shall not assert
against any Sub-Custodian proceeding against it any defense or right of set-off
the Fund may have against the Custodian arising out of the negligent action,
negligent failure to act or willful misconduct of the Custodian, and hereby
waives all rights it may have to object to the right of a Sub-Custodian to
maintain an action against it.
10. Successor Custodian. If a successor custodian shall be appointed by the
Trustees of the Fund, the Custodian shall, upon termination, cause to be
delivered to such successor custodian, duly endorsed and in the form for
transfer, all securities, funds and other properties then held by the
Sub-Custodians and all instruments held by the Sub-Custodians relative thereto
and cause the transfer to an account of the successor custodian all of the
Fund's securities held in any Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Trustees of
the Fund, cause to be delivered at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Trustees shall have been delivered to the
Custodian on or before the date when such termination shall become effective,
then the Custodian shall have the right to deliver to a bank or trust company,
which meets the requirements of the 1940 Act and the rules and regulations
thereunder, such securities, funds and other properties. Thereafter, such bank
or trust company shall be the successor of the Custodian under this Agreement.
In the event that such securities, funds and other properties remain in
the possession of the Custodian or any Sub-
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Custodian after the date of termination hereof owing to failure of the Fund to
procure the certified copy of the vote referred to or of the Trustees to appoint
a successor custodian, the Custodian shall be entitled to fair compensation for
its services during such period as the Sub-Custodians retain possession of such
securities, funds and other properties and the provisions of this Agreement
relating to the duties and obligations of the Custodian shall remain in full
force and effect.
11. Effective Period, Termination and Amendment. This Agreement shall become
effective as of its execution, shall continue in full force and effect until
terminated as hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid to the other party,
such termination to take effect not sooner than thirty (30) days after the date
of such delivery or mailing; provided either party may at any time immediately
terminate this Agreement in the event of the appointment of a conservator or
receiver for the other party or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction. No provision of this Agreement may be amended or terminated except
by a statement in writing signed by the party against which enforcement of the
amendment or termination is sought.
Upon termination of the Agreement, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian and through the Custodian any Sub-Custodian for
its costs, expenses and disbursements.
12. Interpretation. This Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof. In
connection with the operation of this Agreement, the Custodian and the Fund may
from time to time agree in writing on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. No interpretive or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Agreement.
13. Governing Law. This instrument is executed and delivered in
The Commonwealth of Massachusetts and shall be governed by and
construed according to the internal laws of said Commonwealth,
without regard to principles of conflicts of law.
14. Notices. Notices and other writings delivered or mailed postage prepaid to
the Fund addressed to the Fund attention: John Hughes, or to such other person
or address as the Fund may have designated to the Custodian in writing, or to
the Custodian at One Post Office Square, Boston, Massachusetts 02109 attention:
George Crane, or to such other address as the Custodian may have designated to
the Fund in writing, shall be deemed to have been
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properly delivered or given hereunder to the respective
addressee.
15. Binding Obligation. This Agreement shall be binding on and shall inure to
the benefit of the Fund and the Custodian and their respective successors and
assigns, provided that neither party hereto may assign this Agreement or any of
its rights or obligations hereunder without the prior written consent of the
other party.
16. Declaration of Trust. A copy of the Declaration of Trust of each of the
Funds is on file with the Secretary of The Commonwealth of Massachusetts and
notice is hereby given that this instrument is executed on behalf of the
Trustees of each of the Funds as Trustees and not individually and that the
obligations of this instrument are not binding on any of the Trustees or
officers or shareholders individually, but are binding only on the assets and
property of each Fund with respect to its obligations hereunder.
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IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf as of the day and year first above written.
THE PUTNAM FUNDS LISTED
IN SCHEDULE A
John D. Hughes
By ----------------------------
Vice President and Treasurer
PUTNAM FIDUCIARY TRUST COMPANY
Robert F. Lucey
By ----------------------------
President
Putnam Investments, Inc. ("Putnam"), the sole owner of the Custodian,
agrees that Putnam shall be the primary obligor with respect to compensation due
the Sub-Custodians pursuant to the Sub-Custodian Agreements in connection with
the Sub-Custodians' performance of their responsibilities thereunder and agrees
to take all actions necessary and appropriate to assure that the Sub-Custodians
shall be compensated in the amounts and on the schedules agreed to by the
Custodian and the Sub-Custodians pursuant to those Agreements.
PUTNAM INVESTMENTS, INC.
Douglas B. Jamieson
By ----------------------------
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EXHIBIT 1
MASTER SUB-CUSTODIAN AGREEMENT
AGREEMENT made this day of , 199 , between
Putnam Fiduciary Trust Company, a Massachusetts-chartered trust
company (the "Custodian"), and , a
(the "Sub-Custodian").
WHEREAS, the Sub-Custodian represents to the Custodian that it is
eligible to serve as a custodian for a management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), and
WHEREAS, the Custodian has entered into a Custodian Agreement between
it and each of the Putnam Funds listed in Schedule A, each of such Funds acting
on its own behalf separately from all the other Funds and not jointly or jointly
and severally with any of the other Funds (each of the Funds being hereinafter
referred to as the "Fund"), and
WHEREAS, the Custodian and the Fund desire to utilize sub-custodians
for the purpose of holding cash and securities of the Fund, and
WHEREAS, the Custodian wishes to appoint the Sub-Custodian
as the Fund's Sub-Custodian,
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Appointment of Custodian. The Custodian hereby employs and appoints
the Sub-Custodian as a Sub-Custodian for the Fund for the term and subject to
the provisions of this Agreement. Upon request, the Custodian shall deliver to
the Sub-Custodian such proxies, powers of attorney or other instruments as may
be reasonably necessary or desirable in connection with the performance by the
Sub-Custodian of its obligations under this Agreement on behalf of the Fund.
2. Duties of the Sub-Custodian with Respect to Property of the Fund
Held by It. The Custodian may from time to time deposit securities or cash owned
by the Fund with the Sub-Custodian. The Sub-Custodian shall have no
responsibility or liability for or on account of securities, funds or other
property of the Fund not so delivered to it. The Sub-Custodian shall hold and
dispose of the securities hereafter held by or deposited with the Sub-Custodian
as follows:
2.1 Holding Securities. The Sub-Custodian shall hold and
physically segregate for the account of the Fund all non-cash
property, including all securities owned by the Funds, other than
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securities which are maintained pursuant to Section 2.13 in a Securities System.
All such securities are to be held or disposed of for, and subject at all times
to the instructions of, the Custodian pursuant to the terms of this Agreement.
The Sub-Custodian shall maintain adequate records identifying the securities as
being held by it as Sub-Custodian of the Fund.
2.2 Delivery of Securities. The Sub-Custodian shall release and deliver
securities of the Fund held by it hereunder (or in a Securities System account
of the Sub-Custodian) only upon receipt of Proper Instructions (as defined in
Section 2.17), which may be continuing instructions when deemed appropriate by
the parties, and only in the following cases:
1) Upon sale of such securities for the account of
the Fund and receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into by
the Fund;
3) In the case of a sale effected through a
Securities System, in accordance with the provisions of Section
2.13 hereof;
4) To the depository agent in connection with tender
or other similar offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or otherwise become
payable; provided that, in any such case, the cash or other
consideration is to be delivered to the Sub-Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees of the
Sub-Custodian or into the name or nominee name of any agent appointed pursuant
to Section 2.12; or for exchange for a different number of bonds, certificates
or other evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are to be delivered
to the Sub-Custodian;
7) Upon the sale of such securities for the account of the
Fund, to the broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that, in any such case, the
Sub-Custodian shall have no responsibility or liability for any loss arising
from the delivery of such securities prior to receiving payment for such
securities except as may arise from the Sub-Custodian's own negligence or
willful misconduct;
8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such securities,
or pursuant to provisions for conversion contained in such
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securities, or pursuant to any deposit agreement; provided that,
in any such case, the new securities and cash, if any, are to be
delivered to the Sub-Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for definitive
securities; provided that, in any such case, the new securities and cash, if
any, are to be delivered to the Sub-Custodian;
10) For delivery in connection with any loans of securities
made by the Fund, but only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Sub-Custodian, which may be in the
form of cash or obligations issued by the United States government, its agencies
or instrumentalities;
11) For delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Fund, but only against receipt
of amounts borrowed;
12) Upon receipt of instructions from the transfer agent for
the Fund (the "Transfer Agent"), for delivery to such Transfer Agent or to the
shareholders of the Fund in connection with distributions in kind, as may be
described from time to time in the Fund's Declaration of Trust and currently
effective registration statement, if any, in satisfaction of requests by
shareholders for repurchase or redemption;
13) For delivery to another Sub-Custodian of the Fund;
and
14) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of the
Trustees or of the Executive Committee of the Fund signed by an officer of the
Fund and certified by its Clerk or an Assistant Clerk, specifying the securities
to be delivered, setting forth the purpose for which such delivery is to be
made, declaring such purposes to be proper corporate purposes, and naming the
person or persons to whom delivery of such securities is to be made.
2.3 Registration of Securities. Securities of the Fund held by the
Sub-Custodian hereunder (other than bearer securities) shall be registered in
the name of the Fund or in the name of any nominee of the Fund or of any nominee
of the Sub-Custodian, which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee to be
used in common with other registered investment companies having the same
investment adviser as the Fund, or in the name or nominee name of any agent
appointed pursuant to Section 2.12. Notwithstanding the foregoing, a Sub-
Custodian or agent thereof may hold securities of the Fund in a nominee name
which is used for its other clients provided such
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name is not used by the Sub-Custodian or agent for its own securities and that
securities of the Fund are physically segregated at all times from other
securities held for other clients using the same nominee name. All securities
accepted by the Sub-Custodian under the terms of this Agreement shall be in
"street name" or other good delivery form.
2.4 Bank Accounts. The Sub-Custodian shall open and maintain a separate
bank account or accounts in the name of the Fund, subject only to draft or order
by the Sub-Custodian acting pursuant to the terms of this Agreement, and shall
hold in such account or accounts, subject to the provisions hereof, all cash
received for the account of the Funds, other than cash maintained by the Fund in
a bank account established and used in accordance with Rule 17f-3 under the 1940
Act. Funds held by the Sub-Custodian for the Fund shall be deposited by it to
its credit as Sub-Custodian of the Fund in the Banking Department of the Sub-
Custodian or other banks. Such funds shall be deposited by the Sub-Custodian in
its capacity as Sub-Custodian and shall be withdrawable by the Sub-Custodian
only in that capacity. The Sub-Custodian shall be liable for losses incurred by
the Fund attributable to any failure on the part of the Sub-Custodian to report
accurate cash availability information with respect to the Fund's bank accounts
maintained by the Sub-Custodian or any of its agents, provided that such
liability shall be determined solely on a cost-of-funds basis.
2.5 Payments for Shares. The Sub-Custodian shall receive from any
distributor of the Fund's shares or from the Transfer Agent of the Fund and
deposit into the Fund's account such payments as are received for shares of the
Fund issued or sold from time to time by the Fund. The Sub-Custodian will
provide timely notification to the Custodian, and the Transfer Agent of any
receipt by it of payments for shares of the Fund.
2.6 Investment and Availability of Federal Funds. Upon
mutual agreement between the Custodian and the Sub-Custodian, the
Sub-Custodian shall, upon the receipt of Proper Instructions,
1) invest in such instruments as may be set forth in
such instructions on the same day as received all federal funds
received after a time agreed upon between the Sub-Custodian and
the Custodian; and
2) make federal funds available to the Fund as of specified
times agreed upon from time to time by the Custodian and the Sub-Custodian in
the amount of checks, when cleared within the Federal Reserve System, received
in payment for shares of the Fund which are deposited into the Fund's account or
accounts.
2.7 Collection of Income. The Sub-Custodian shall collect on a timely
basis all income and other payments with respect to registered securities held
hereunder to which the Fund shall be entitled either by law or pursuant to
custom in the securities
26
<PAGE>
business, and shall collect on a timely basis all income and other payments with
respect to bearer securities if, on the date of payment by the issuer, such
securities are held hereunder and shall credit such income, as collected, to the
Fund's account. Without limiting the generality of the foregoing, the Sub-
Custodian shall detach and present for payment all coupons and other income
items requiring presentation as and when they become due and shall collect
interest when due on securities held hereunder. Arranging for the collection of
income due the Fund on securities loaned pursuant to the provisions of Section
2.2(10) shall be the responsibility of the Custodian. The Sub-Custodian will
have no duty or responsibility in connection therewith, other than to provide
the Custodian with such information or data as may be necessary to assist the
Custodian in arranging for the timely delivery to the Sub-Custodian of the
income to which the Fund is properly entitled.
2.8 Payment of Fund Monies. Upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the parties, the
Sub-Custodian shall cause monies of a Fund to be paid out in the following cases
only:
1) Upon the purchase of securities for the account of the Fund
but only (a) against the delivery of such securities to the Sub-Custodian (or
any bank, banking firm or trust company doing business in the United States or
abroad which is qualified under the 1940 Act, as amended, to act as a custodian
and has been designated by the Sub-Custodian as its agent for this purpose)
registered in the name of the Fund or in the name of a nominee referred to in
Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase
effected through a Securities System, in accordance with the conditions set
forth in Section 2.13 hereof; or (c) in the case of repurchase agreements
entered into between the Fund and the Sub-Custodian, or another bank, (i)
against delivery of the securities either in certificate form or through an
entry crediting the Sub-Custodian's account at the Federal Reserve Bank with
such securities or (ii) against delivery of the receipt evidencing purchase by
the Fund of securities owned by the Sub-Custodian along with written evidence of
the agreement by the Sub-Custodian to repurchase such securities from the Fund;
2) In connection with conversion, exchange or
surrender of securities owned by the Fund as set forth in Section
2.2 hereof;
3) For the redemption or repurchase of shares issued
by the Fund as set forth in Section 2.10 hereof;
4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for the account of the
Fund: interest, taxes, management, accounting, custodian and Sub-Custodian,
transfer agent and legal fees, including the Custodian's fee; and operating
expenses of the Fund whether or not such expenses are
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<PAGE>
to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends declared pursuant
to the governing documents of the Fund;
6) For transfer to another Sub-Custodian of the Fund;
and
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of the
Trustees or of the Executive Committee of the Fund signed by an officer of the
Fund and certified by its Clerk or an Assistant Clerk, specifying the amount of
such payment, setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the person or persons
to whom such payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for purchase of securities for
the account of a Fund is made by the Sub-Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from the
Custodian to so pay in advance, the Sub-Custodian shall be absolutely liable to
the Fund and the Custodian in the event any loss results to the Fund or the
Custodian from the failure of the Sub-Custodian to make such payment against
delivery of such securities, except that in the case of repurchase agreements
entered into by the Fund with a bank which is a member of the Federal Reserve
System, the Sub-Custodian may transfer funds to the account of such bank prior
to the receipt of written evidence that the securities subject to such a
repurchase agreement have been transferred by book-entry into a segregated
non-proprietary account of the Sub-Custodian maintained with any Federal Reserve
Bank or of the safe-keeping receipt, provided that such securities have in fact
been so transferred by book-entry.
2.10 Payments for Repurchases or Redemptions of Shares of the Fund.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and By-Laws and any applicable votes of
the Trustees of the Fund pursuant thereto, the Sub-Custodian shall, upon receipt
of instructions from the Custodian, make funds available for payment to
shareholders of the Fund who have delivered to the Transfer Agent a request for
redemption or repurchase of their shares. In connection with the redemption or
repurchase of shares of the Fund, the Sub-Custodian, upon receipt of Proper
Instructions, is authorized to wire funds to or through a commercial bank
designated by the redeeming shareholders. In connection with the redemption or
repurchase of shares of the Fund, the Sub-Custodian, upon receipt of Proper
Instructions, shall honor checks drawn on the Sub-Custodian by a shareholder,
when presented to the Sub-Custodian in accordance with such procedures and
controls as are mutually agreed upon from time to time among the Fund, the
Custodian and the Sub-Custodian.
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2.11 Variances. The Sub-Custodian may accept securities or cash
delivered in settlement of trades notwithstanding variances between the amount
of securities or cash so delivered and the amount specified in the instructions
furnished to it by the Custodian, provided that the variance in any particular
transaction does not exceed (i) $25 in the case of transactions of $1,000,000 or
less, and (ii) $50 in the case of transactions exceeding $1,000,000. The
Sub-Custodian shall maintain a record of any such variances and notify the
Custodian of such variances in periodic transaction reports submitted to the
Custodian. The Sub-Custodian will not advise any party with whom the Fund
effects securities transactions of the existence of these variance provisions
without the consent of the Fund and the Custodian.
2.12 Appointment of Agents. Without limiting its own responsibility for
its obligations assumed hereunder, the Sub-Custodian may at any time and from
time to time engage, at its own cost and expense, as an agent to act for the
Fund on the Sub-Custodian's behalf with respect to any such obligations any
bank or trust company which meets the requirements of the 1940 Act, and the
rules and regulations thereunder, to perform services delegated to the
Sub-Custodian hereunder, provided that the Fund shall have approved in writing
any such bank or trust company and the Sub-Custodian shall give prompt written
notice to the Custodian and the Fund of any such engagement. All agents of the
Sub-Custodian shall be subject to the instructions of the Sub-Custodian and not
the Custodian. The Sub-Custodian may, at any time in its discretion, and shall
at the Custodian's direction, remove any bank or trust company which has been
appointed as an agent, and shall in either case promptly notify the Custodian
and the Fund in writing of the completion of any such action.
The agents which the Fund has approved to date are set forth in
Schedule B hereto. Schedule B shall be amended from time to time as approved
agents are changed, added or deleted. The Custodian shall be responsible for
informing the Sub-Custodian sufficiently in advance of a proposed investment
which is to be held at a location not listed on Schedule B, in order that there
shall be sufficient time for the Fund to give the approval required by the
preceding paragraph and for the Sub-Custodian to complete the appropriate
contractual and technical arrangements with such agent. The engagement by the
Sub-Custodian of one or more agents to carry out such of the provisions of this
Section 2 shall not relieve the Sub-Custodian of its responsibilities or
liabilities hereunder.
2.13 Deposit of Fund Assets in Securities Systems. The Sub-Custodian
may deposit and/or maintain securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, which acts as a securities depository, or in
the book-entry system authorized by the U.S. Department of the Treasury
(collectively referred to herein as "Securities System") in accordance with
applicable Federal Reserve Board and
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Securities and Exchange Commission rules and regulations (including Rule 17f-4
of the 1940 Act), and subject to the following provisions:
1) The Sub-Custodian may keep securities of the Fund in a
Securities System provided that such securities are represented in an account
("Account") of the Sub-Custodian in the Securities System which shall not
include any assets other than assets held as a fiduciary, custodian or otherwise
for customers;
2) The records of the Sub-Custodian with respect to
securities of the Fund which are maintained in a Securities
System shall identify by book-entry those securities belonging to
the Fund;
3) The Sub-Custodian shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the Securities System that
such securities have been transferred to the Account, and (ii) the making of an
entry on the records of the Sub-Custodian to reflect such payment and transfer
for the account of the Fund. The Sub-Custodian shall transfer securities sold
for the account of the Fund upon (a) receipt of advice from the Securities
System that payment for such securities has been transferred to the Account, and
(b) the making of an entry on the records of the Sub-Custodian to reflect such
transfer and payment for the account of the Fund. Copies of all advices from the
Securities System of transfers of securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Sub-Custodian and be
provided to the Fund or the Custodian at the Custodian's request. The Sub-
Custodian shall furnish the Custodian confirmation of each transfer to or from
the account of the Fund in the form of a written advice or notice and shall
furnish to the Custodian copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of the Fund on the
next business day;
4) The Sub-Custodian shall provide the Custodian with
any report obtained by the Sub-Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Sub-Custodian shall have received the initial
or annual certificate, as the case may be, required by Section
2.10 hereof;
6) Anything to the contrary in this Agreement notwithstanding,
the Sub-Custodian shall be liable to the Fund and the Custodian for any loss or
damage to the Fund or the Custodian resulting from use of the Securities System
by reason of any negligence, misfeasance or misconduct of the Sub-Custodian or
any of its agents or of any of its or their employees or from failure of the
Sub-Custodian or any such agent to enforce effectively such rights as it may
have against the Securities
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System; at the election of the Custodian, it shall be entitled to be subrogated
to the rights of the Sub-Custodian with respect to any claim against the
Securities System or any other person which the Sub-Custodian may have as a
consequence of any such loss or damage if and to the extent that the Fund and
the Custodian have not been made whole for any such loss or damage.
2.14 Ownership Certificates for Tax Purposes. The Sub-Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to securities held by it hereunder and in connection with transfers of
securities.
2.15 Proxies. The Sub-Custodian shall, with respect to the securities
held hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of a
Fund, all proxies, without indication of the manner in which such proxies are to
be voted, and shall promptly deliver to the Custodian such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.16 Communications Relating to Fund Portfolio Securities. The
Sub-Custodian shall transmit promptly to the Custodian all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith) received by the Sub-Custodian
from issuers of the securities being held for the account of the Fund. With
respect to tender or exchange offers, the Sub-Custodian shall transmit promptly
to the Custodian all written information received by the Sub-Custodian from
issuers of the securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Fund desires to take
action with respect to any tender offer, exchange offer or any other similar
transactions, the Custodian shall notify the Sub-Custodian of the action the
Fund desires the Sub-Custodian to take; provided, however, that the
Sub-Custodian shall not be liable to the Fund or the Custodian for the failure
to take any such action unless such instructions are received by the
Sub-Custodian at least two business days prior to the date on which the
Sub-Custodian is to take such action.
2.17 Proper Instructions. Proper Instructions as used throughout this
Agreement means a writing signed or initialed by one or more persons who are
authorized by the Trustees of the Fund and by vote of the Board of Directors of
the Custodian. Each such writing shall set forth the specific transaction or
type of transaction involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be considered Proper
Instructions if the Sub-Custodian reasonably believes them to have been given
by a person authorized to give such instructions with respect to the transaction
involved. The Custodian shall cause all oral instructions to be confirmed in
writing. Upon receipt of a
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certificate of the Clerk or an Assistant Clerk as to the authorization by the
Trustees of the Funds accompanied by a detailed description of procedures
approved by the Trustees, Proper Instructions may include communications
effected directly between electro-mechanical or electronic devices, provided
that the Trustees, the Custodian and the Sub-Custodian are satisfied that such
procedures afford adequate safeguards for the Fund's assets. Notwithstanding the
foregoing, no Trustee, officer, employee or agent of the Fund shall be permitted
access to any securities or similar investments of the Fund deposited with the
Sub-Custodian or any agent for any reason except in accordance with the
provisions of Rule 17f-2 under the 1940 Act.
2.18 Actions Permitted without Express Authority. The
Sub-Custodian may in its discretion, without express authority
from the Custodian:
1) make payments to itself or others for minor
expenses of handling securities or other similar items relating
to its duties under this Agreement, provided that all such
payments shall be accounted for to the Fund and the Custodian;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Fund held by the Sub-Custodian
hereunder except as otherwise directed by the Custodian or the Trustees of the
Fund.
2.19 Evidence of Authority. The Sub-Custodian shall be protected in
acting upon any instruction, notice, request, consent, certificate or other
instrument or paper reasonably believed by it to be genuine and to have been
properly executed by or on behalf of the Fund or the Custodian as custodian of
the Fund. The Sub-Custodian may receive and accept a certified copy of a vote of
the Trustees of the Fund or the Board of Directors of the Custodian, as
conclusive evidence (a) of the authority of any person to act in accordance with
such vote or (b) of any determination or of any action by the Trustees pursuant
to the Declaration of Trust and By-Laws and the Board of Directors of the
Custodian, as the case may be as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Sub-Custodian of
written notice to the contrary.
3. Performance Standards; Protection of the Fund. The
Sub-Custodian shall use its best efforts to perform its duties
hereunder in accordance with the standards set forth in Schedule
C hereto. Schedule C may be amended from time to time as agreed
to by the Custodian and the Trustees of the Fund.
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<PAGE>
4. Records. The Sub-Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Trustees of the Fund to
keep the books of account of the Funds or, if directed in writing to do so by
the Custodian, shall itself keep such books of account. The Sub-Custodian shall
create and maintain all records relating to its activities and obligations under
this Agreement in such manner as will meet the obligations of the Custodian
under its Custodian Agreement with the Fund under the 1940 Act, with particular
attention to Sections 17(f) and 31 thereof and Rules 17f-2, 31a-1 and 31a-2
thereunder, applicable federal and state tax laws, and any other law or
administrative rules or procedures which may be applicable to the Fund or the
Custodian. All such records shall be the property of the Fund and shall at all
times during the regular business hours of the Sub-Custodian be open for
inspection by duly authorized officers, employees or agents of the Custodian and
the Fund and employees and agents of the Securities and Exchange Commission. The
Sub-Custodian shall, at the Custodian's request, supply the Custodian with a
tabulation of securities owned by the Fund and held under this Agreement and
shall, when requested to do so by the Custodian and for such compensation as
shall be agreed upon between the Custodian and Sub-Custodian, include
certificate numbers in such tabulations.
5. Opinion and Reports of the Fund's Independent Accountants. The
Sub-Custodian shall take all reasonable actions, as the Custodian may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent public accountants with respect to its activities hereunder in
connection with the preparation of the Fund's registration statements and
amendments thereto, the Fund's reports to the Securities and Exchange Commission
and with respect to any other requirements of such Commission.
6. Reports of Sub-Custodian's Independent Accountants. The
Sub-Custodian shall provide the Custodian, at such times as the Custodian may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Sub-Custodian under this
Agreement; such reports, which shall be of sufficient scope and in sufficient
detail as may reasonably be required by the Custodian, shall provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, shall so state.
7. Compensation. The Sub-Custodian shall be entitled to
reasonable compensation for its services and expenses as Sub-
Custodian, as agreed upon from time to time between the Custodian
and the Sub-Custodian.
8. Responsibility of Sub-Custodian. The Sub-Custodian
shall exercise reasonable care and diligence in carrying out the
provisions of this Agreement and shall not be liable to the Fund
33
<PAGE>
or the Custodian for any action taken or omitted by it in good faith without
negligence. So long as and to the extent that it is in the exercise of
reasonable care, the Sub-Custodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto received by
it or delivered by it pursuant to this Agreement and shall be held harmless in
acting upon any notice, request, consent, certificate or other instrument
reasonably believed by it to be genuine and to be signed by the proper party or
parties. It shall be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Fund) on all matters, and shall be without liability for
any action reasonably taken or omitted pursuant to such advice. Notwithstanding
the foregoing, the responsibility of the Sub-Custodian with respect to
redemptions effected by check shall be in accordance with a separate agreement
entered into between the Custodian and the Sub-Custodian.
The Sub-Custodian shall protect the Fund and the Custodian from direct
losses to the Fund resulting from any act or failure to act of the Sub-Custodian
in violation of its duties hereunder or of law and shall maintain customary
errors and omissions and fidelity insurance policies in an amount not less than
$25 million to cover losses to the Fund resulting from any such act or failure
to act.
If the Custodian requires the Sub-Custodian to take any action with
respect to securities, which action involves the payment of money or which
action may, in the opinion of the Sub-Custodian, result in the Sub-Custodian's
being liable for the payment of money or incurring liability of some other form,
the Custodian, as a prerequisite to requiring the Sub-Custodian to take such
action, shall provide indemnity to the Sub-Custodian in an amount and form
satisfactory to it.
The Custodian agrees to indemnify and hold harmless the Sub-Custodian
from and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) incurred or assessed against it or its
nominee in connection with the performance of this Agreement, except such as may
arise from its own negligent action, negligent failure to act or willful
misconduct. To secure any such authorized charges and any advances of cash or
securities made by the Sub-Custodian to or for the benefit of the Fund for any
purpose which results in the Fund's incurring an overdraft at the end of any
business day or for extraordinary or emergency purposes during any business day,
the Custodian on behalf of the Fund, unless prohibited from doing so by one or
more of the Fund's fundamental investment restrictions, hereby represents that
it has obtained from the Fund authorization to apply available cash in any
account maintained by the Sub-Custodian on behalf of the Fund and a security
interest in and pledge to it of securities held for the Fund by the
Sub-Custodian, in an amount not to exceed the amount not prohibited by such
restrictions, for the purposes of securing payment of any such advances, and
that the Fund has agreed, from time to time, to designate in writing, or to
cause its investment
34
<PAGE>
adviser to designate in writing, the specific securities subject to such
security interest and pledge. The Custodian hereby assigns the benefits of such
security interest and pledge to the Sub-Custodian, and agrees that, should the
Fund or the Custodian fail to repay promptly any advances of cash or securities,
the Sub-Custodian shall be entitled to use such available cash and to dispose of
such pledged securities as is necessary to repay any such advances.
9. Successor Sub-Custodian. If a successor Sub-Custodian shall be
appointed by the Custodian, the Sub-Custodian shall, upon termination, cause to
be delivered to such successor Sub-Custodian, duly endorsed and in the form for
transfer, all securities then held by it, shall cause the transfer to an account
of the successor Sub-Custodian all of the Fund's securities held in a Securities
System and shall cause to be delivered to such successor Sub-Custodian all funds
and other property held by it or any of its agents.
If no such successor Sub-Custodian shall be appointed, the
Sub-Custodian shall, in like manner, upon receipt of a certified copy of a vote
of the Trustees of the Fund, cause to be delivered at the office of the
Sub-Custodian and transfer such securities, funds and other properties in
accordance with such vote.
In the event that no written order designating a successor
Sub-Custodian or certified copy of a vote of the Trustees shall have been
delivered to the Sub-Custodian on or before the date when such termination shall
become effective, then the Sub-Custodian shall have the right to deliver to a
bank or trust company, which is a "bank" as defined in the 1940 Act, doing
business in Boston, Massachusetts, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other properties held by
the Sub-Custodian and its agents and all instruments held by the Sub-Custodian
and its agents relative thereto and all other property held by it and its agents
under this Agreement and to cause to be transferred to an account of such
successor Sub-Custodian all of the Fund's securities held in any Securities
System. Thereafter, such bank or trust company shall be the successor of the
Sub-Custodian under this Agreement.
In the event that securities, funds and other properties remain in the
possession of the Sub-Custodian after the date of termination hereof owing to
failure of the Custodian to obtain the certified copy of vote referred to or of
the Trustees to appoint a successor Sub-Custodian, the Sub-Custodian shall be
entitled to fair compensation for its services during such period as the
Sub-Custodian retains possession of such securities, funds and other properties
and the provisions of this Agreement relating to the duties and obligations of
the Sub-Custodian shall remain in full force and effect.
35
<PAGE>
Upon termination, the Sub-Custodian shall, upon receipt of a certified
copy of a vote of the Trustees of the Fund, cause to be delivered to any other
Sub-Custodian designated in such vote such assets, securities and other property
of the Fund as are designated in such vote, or pursuant to Proper Instructions,
cause such assets, securities and other property of the Fund as are designated
by the Custodian to be delivered to one or more of the sub-custodians designated
on Schedule D hereto, as from time to time amended.
10. Effective Period; Termination and Amendment. This Agreement shall
become effective as of its execution, shall continue in full force and effect
until terminated as hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid, to the other party,
such termination to take effect not sooner than thirty (30) days after the date
of mailing; provided, however, that the Sub-Custodian shall not act under
Section 2.13 hereof in the absence of receipt of an initial certificate of the
Clerk or an Assistant Clerk that the Trustees of the Fund have approved the
initial use of a particular Securities System and the receipt of an annual
certificate of the Clerk or an Assistant Clerk that the Trustees have reviewed
the use by the Fund of such Securities System, as required in each case by Rule
17f-4 under the Investment Company Act of 1940; and provided, further, however,
that the Custodian shall not amend or terminate this Agreement in contravention
of any applicable federal or state regulations or any provision of the
Declarations of Trust or By-Laws of the Fund; and provided, further, that the
Custodian may at any time, by action of its Board of Directors, or the Trustees
of the Fund, as the case may be, immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for the Sub-Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of this Agreement, the Custodian shall pay to the
Sub-Custodian such compensation as may be due as of the date of such termination
and shall likewise reimburse the Sub-Custodian for its reimbursable costs,
expenses and disbursements.
11. Amendment and Interpretation. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof. No provision of this Agreement may be amended or terminated
except by a statement in writing signed by the party against which enforcement
of the amendment or termination is sought.
In connection with the operation of this Agreement, the Sub-Custodian
and the Custodian may from time to time agree in writing on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. No
interpretive or additional provisions made as provided in the
36
<PAGE>
preceding sentence shall be deemed to be an amendment of this
Agreement.
12. Governing Law. This Agreement is executed and
delivered in The Commonwealth of Massachusetts and shall be
governed by and construed according to the laws of said
Commonwealth.
13. Notices. Notices and other writings delivered or
mailed postage prepaid to the Custodian addressed to the
Custodian attention: , or to such other person or
address as the Custodian may have designated to the Sub-Custodian
in writing, or to the Sub-Custodian at , or to such
other address as the Sub-Custodian may have designated to the
Custodian in writing, shall be deemed to have been properly
delivered or given hereunder to the respective addressee.
14. Binding Obligation. This Agreement shall be binding on and shall
inure to the benefit of the Custodian and the Sub-Custodian and their
respective successors and assigns, provided that neither party hereto may assign
this Agreement or any of its rights or obligations hereunder without the prior
written consent of the other party.
15. Prior Agreements. This Agreement supersedes and
terminates, as of the date hereof, all prior contracts between
the Fund or the Custodian and the Sub-Custodian relating to the
custody of the Fund's assets.
16. Declaration of Trust. A copy of the Agreement and Declaration of
Trust of the Fund is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that the obligations of or arising out
of this instrument are not binding upon any of the Trustees or beneficiaries
individually but binding only upon the assets and property of the Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the day of , 199 .
PUTNAM FIDUCIARY TRUST COMPANY
By ---------------------------
(SUB-CUSTODIAN)
By ---------------------------
37
CLOSED-END FUND
INVESTOR SERVICING AGREEMENT
AGREEMENT made as of the 1st day of July, 1991, between each of the
closed-end Putnam Funds listed in Appendix A hereto (as the same may from time
to time be amended to add one or more additional closed-end Putnam Funds or to
delete one or more of such Funds), each of such Funds acting severally on its
own behalf and not jointly with any of such other Funds (each of such Funds
being hereinafter referred to as the "Fund"), and The Putnam Management Company,
Inc. (the "Manager"), a Delaware corporation, and Putnam Fiduciary Trust Company
(the "Agent"), a Massachusetts trust company.
W I T N E S S E T H:
WHEREAS, the Fund is a closed-end investment company
registered under the Investment Company Act of 1940; and
WHEREAS, the Fund desires to engage the Manager and the Agent to
provide all services required by the Fund in connection with the establishment,
maintenance and recording of shareholder accounts, including without limitation
all related tax and other reporting requirements, and the administration of any
dividend reinvestment and/or cash purchase plans from time to time offered in
connection with the Fund's shares; and
WHEREAS, the Agent, an affiliate of the Manager, provides similar
services for the open-end investment companies in the Putnam family of funds and
is willing to provide such services to the Funds on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties hereto agree as follows:
1. APPOINTMENT.
The Fund hereby appoints the Agent as its "Investor Servicing Agent" on
the terms and conditions set forth herein. In such capacity the Agent shall act
as transfer agent, registrar and distribution disbursing agent for the Fund and
shall act as agent for the Fund in connection with the administration of any
dividend reinvestment and/or cash share purchase plans from time to time made
available to shareholders. The Agent hereby accepts such appointment and agrees
to perform the respective duties and functions of such offices in accordance
with the terms of this Agreement and in a manner generally consistent with the
practices and standards customarily followed by other high quality investor
servicing agents for registered investment companies.
Notwithstanding such appointment, however, the parties agree that the
Manager may, upon thirty (30) days prior written notice to the Fund, assume such
appointment and perform such duties and functions itself. Pending any such
assumption, however, the
1
<PAGE>
Manager hereby guarantees the performance of the Agent hereunder and shall be
fully responsible to the Fund, financially and otherwise, for the performance by
the Agent of its agreements contained herein.
2. GENERAL AUTHORITY AND DUTIES.
By its acceptance of the foregoing appointment, the Agent shall be
responsible for performing all functions and duties which, in the reasonable
judgment of the Fund, are necessary or desirable in connection with the
establishment, maintenance and recording of the Fund's shareholder accounts and
the conduct of its relations with shareholders with respect to their accounts.
Without limiting the generality of the foregoing, the Agent shall be
responsible:
(a) as transfer agent, for performing all functions customarily
performed by transfer agents for closed-end registered investment
companies, including without limitation all functions necessary or
desirable to establish and maintain accounts evidencing the ownership
of securities issued by the Fund and, to the extent applicable, the
issuance of certificates representing such securities, the recording of
all transactions pertaining to such accounts, and effecting the
issuance and redemption of securities is sued by the Fund;
(b) as registrar, for performing all functions customarily
performed by registrars for closed-end registered investment
companies;
(c) as distribution disbursing agent, for performing all functions
customarily performed by distribution disbursing agents for closed-end
registered investment companies, including without limitation all
functions necessary or desirable to effect the payment to shareholders
of distributions declared from time to time by the Trustees of the
Fund;
(d) as agent for the Fund, performing all administrative and
bookkeeping functions necessary or desirable to maintain any dividend
reinvestment and/or cash share purchase plans from time to time made
available to shareholders to facilitate the purchase of shares of the
Fund, including without limitation the supervision of any independent
bank or brokerage firm engaged by the Fund to act as agent for the
shareholders of the Fund in connection with such plans, if and to the
extent required by the federal securities laws.
In performing its duties hereunder, in addition to the
provisions set forth herein, the Agent shall comply with the terms of
the Declaration of Trust, the Bylaws, the Registration Statement filed
with the Securities and Exchange Commission, and with the terms of
votes adopted from time to time by the Trustees and shareholders of the
Fund, relating to the subject matters of this Agreement, all as the
same may be amended from time to time.
2
<PAGE>
3. STANDARD OF SERVICE; COMPLIANCE WITH LAWS.
The Agent will use its best efforts to provide high quality
services to the Fund's shareholders and in so doing will seek to take
advantage of such innovations and technological improvements as may be
appropriate or desirable with a view to improving the quality and,
where possible, reducing the cost of its services to the Fund. In
performing its duties hereunder, the Agent shall comply with the
provisions of all applicable laws and regulations and shall comply with
the requirements of any governmental authority having jurisdiction over
the Agent or the Fund with respect to the duties of the Agent hereunder
and the requirements of any national securities exchange on which
shares of the Fund are listed for trading.
4. COMPENSATION.
The Fund shall pay to the Agent, for its services rendered and
its costs incurred in connection with the performance of its duties
hereunder, such compensation and reimbursements as may from time to
time be approved by vote of the Trustees of the Fund.
5. DUTY OF CARE; INDEMNIFICATION.
The Agent will at all times act in good faith and exercise
reasonable care in performing its duties hereunder. The Agent will not
be liable or responsible for delays or errors resulting from
circumstances beyond its control, including acts of civil or military
authorities, national emergencies, labor difficulties, fire, mechanical
breakdown beyond its control, flood or catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of
transportation, communication or power supply.
The Agent may rely on certifications of the Clerk, the
President, the Vice Chairman, the Executive Vice President, the Senior
Vice President or the Treasurer of the Fund as to any action taken by
the shareholders or trustees of the Fund, and upon instructions not
inconsistent with this Agreement received from the President, Vice
Chairman, the Executive Vice President, the Senior Vice President or
the Treasurer of the Fund. If any officer of the Fund shall no longer
be vested with authority to sign for the Fund, written notice thereof
shall forthwith be given to the Agent by the Fund and, until receipt of
such notice by it, the Agent shall be entitled to recognize and act in
good faith upon certificates or other instruments bearing the
signatures or facsimile signatures of such officers. The Agent may
request advice of counsel for the Fund, at the expense of the Fund,
with respect to the performance of its duties hereunder.
The Fund will indemnify and hold the Agent harmless from any
and all losses, claims, damages, liabilities and expenses (including
reasonable fees and expenses of counsel) arising out of (i) any action
taken by the Agent in good faith consistent with the exercise of
reasonable care in accordance with such certifications, instructions or
advice, (ii) any action taken by
3
<PAGE>
the Agent in good faith consistent with the exercise of reasonable care
in reliance upon any instrument or certificate for securities believed
by it (a) to be genuine, and (b) to be executed by any person or
persons authorized to execute the same; provided, however, that the
Agent shall not be so indemnified in the event of its failure to obtain
a proper signature guarantee to the extent the same is required by the
Declaration of Trust, Bylaws, or Registration Statement of the Fund or
a vote of the Trustees of the Fund, and such requirement has not been
waived by vote of the Trustees of the Fund, or (iii) any other action
taken by the Agent in good faith consistent with the exercise of
reasonable care in connection with the performance of its duties
hereunder.
In the event that the Agent proposes to assert the right to be
indemnified under this Section 5 in connection with any action, suit or
proceeding against it, the Agent shall promptly after receipt of notice
of commencement of such action, suit or proceeding notify the Fund of
the same, enclosing a copy of all papers served. In such event, the
Fund shall be entitled to participate in such action, suit or
proceeding, and, to the extent that it shall wish, to assume the
defense thereof, and after notice from the Fund to the Agent of its
election so to assume the defense thereof the Fund shall not be liable
to the Agent for any legal or other expenses. The parties shall
cooperate with each other in the defense of any such action, suit or
proceeding. In no event shall the Fund be liable for any settlement of
any action or claim effected without its consent.
6. MAINTENANCE OF RECORDS.
The Agent will maintain and preserve all records relating to
its duties under this Agreement in compliance with the requirements of
applicable statutes, rules and regulations, including without
limitation Rule 31a-1 under the Investment Company Act of 1940, and
with the requirements of any national securities exchange on which
shares of the Fund are listed for trading. Such records shall be the
property of the Fund and shall at all times be available for inspection
and use by the officers and agents of the Fund. The Agent shall furnish
to the Fund such information pertaining to the shareholder accounts of
the Fund and the performance of its duties hereunder as the Fund may
from time to time request. The Agent shall notify the Fund promptly of
any request or demand by any third party to inspect the records of the
Fund maintained by it and will act upon the instructions of the Fund in
permitting or refusing such inspection.
7. FUND ACCOUNTS.
All moneys of the Fund from time to time made available for
the payment of distributions to shareholders, or otherwise coming into
the possession or control of the Agent or its officers, shall be
deposited and held in one or more accounts maintained by the Agent
solely for the benefit of the Funds.
4
<PAGE>
8. INSURANCE.
The Agent will at all times maintain in effect insurance
coverage, including without limitation Errors and Omissions, Fidelity
Bond and Electronic Data Processing coverages, at levels of coverage
consistent with those customarily maintained by other high quality
investor servicing agents for registered investment companies and with
such guidelines as the Trustees of the Fund may from time to time
adopt.
9. EMPLOYEES.
The Agent shall be responsible for the employment, control and
conduct of its agents and employees and for injury to such agents or
employees or to others caused by such agents or employees. The Agent
shall assume full responsibility for its agents and employees under
applicable statutes and agrees to pay all applicable employer taxes
thereunder with respect to such agents and employees, and such agents
and employees shall in no event be considered to be agents or employees
of the Fund.
10. EFFECTIVE DATE; TERMINATION.
This Agreement shall take effect on July 1, 1991 and shall
continue indefinitely thereafter until terminated by not less than
ninety (90) days prior written notice given by the Fund to the Agent,
or by not less than six months prior written notice given by the Agent
to the Fund.
In the event that in connection with any such termination a
successor to any of the Agent's duties or responsibilities hereunder is
designated by the Fund by written notice to the Agent, the Agent will
cooperate fully in the transfer of such duties and responsibilities,
including provision for assistance by the Agent's personnel in the
establishment of books, records and other data by such successor. The
Fund will reimburse the Agent for all expenses incurred by the Agent in
connection with such transfer.
11. MISCELLANEOUS.
This Agreement shall be construed and enforced in accordance
with and governed by the laws of The Commonwealth of Massachusetts.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions of
this Agreement or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
A copy of the Declaration of Trust (including any amendments
thereto) of the Fund is on file with the Secretary of The Commonwealth
of Massachusetts, and notice is hereby given that this instrument is
executed on behalf of the Trustees of the Fund
5
<PAGE>
as Trustees and not individually and that the obligations of or arising
out of this instrument are not binding upon any of the Trustees or
officers or shareholders individually, but binding only upon the assets
and property of the Fund.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized officers as of the date and year
first above written.
THE PUTNAM FUNDS, listed
on Appendix A
Charles E. Porter
By --------------------------
Charles E. Porter
Executive Vice President
PUTNAM FIDUCIARY TRUST COMPANY
John R. Verani
By ---------------------------
John R. Verani
President
THE PUTNAM MANAGEMENT COMPANY, INC.
Gordon H. Silver
By ------------------------
Gordon H. Silver
Senior Managing Director
6
<PAGE>
Appendix A
List of Closed-End Putnam
Funds Executing Investor
Servicing Agreement dated
as of April , 1995
Putnam High Income Convertible and Bond Fund
Putnam Master Income Trust
Putnam Premier Income Trust
Putnam Master Intermediate Income Trust
Putnam Intermediate Government Income Trust
Putnam Managed Municipal Income Trust
Putnam High Yield Municipal Trust
Putnam Dividend Income Fund
Putnam Investment Grade Municipal Trust
Putnam Tax-Free Health Care Fund
Putnam Investment Grade Municipal Trust II
Putnam California Investment Grade Municipal Trust
Putnam New York Investment Grade Municipal Trust
Putnam Managed High Yield Trust
Putnam Municipal Opportunities Trust
Putnam Investment Grade Intermediate Municipal Trust
Putnam Investment Grade Municipal Trust III
Putnam Convertible Opportunities and Income Trust
NF-72
7
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
ADMINISTRATIVE SERVICES CONTRACT
Administrative Services Contract dated as of __________, 1995 between
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST, a Massachusetts business
trust (the "Fund"), and PUTNAM INVESTMENT MANAGEMENT, INC., a Massachusetts
corporation (the "Administrator")
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY ADMINISTRATOR TO FUND.
(a) The Administrator, at its expense, subject always to the control of
the Trustees of the Fund and except for the functions carried out by the
officers and personnel referred to in Section 1(c), will manage, supervise and
conduct the non-investment related affairs and business of the Fund and matters
incidental thereto. In the performance of its duties, the Administrator will
comply with the provisions of the Agreement and Declaration of Trust and Bylaws
of the Fund, and will use its best efforts to safeguard and promote the welfare
of the Fund and to comply with such policies as the Trustees may from time to
time determine and shall exercise the same care and diligence expected of the
Trustees.
(b) The Administrator, at its expense, except as such expense is paid
by the Fund as provided in Section 1(c), will furnish (1) suitable office space
for the Fund and (2) all necessary administrative facilities, including
bookkeeping, clerical personnel and equipment necessary for the efficient
conduct of the affairs of the Fund, including determination of the Fund's net
asset value, but excluding shareholder accounting services. Except as otherwise
provided in Section 1(c), the Administrator will pay the compensation, if any,
of certain officers of the Fund carrying out the administrative duties provided
for by this Contract.
(c) The Fund will pay or reimburse the Administrator for the
compensation in whole or in part of such officers of the Fund and persons
assisting them as may be determined from time to time by the Trustees of the
Fund. The Fund will also pay or reimburse the Administrator for all or part of
the cost of suitable office space, utilities, support services
3038387.03
<PAGE>
and equipment attributable to such officers and persons, as may be determined in
each case by the Trustees of the Fund. The Fund will pay the fees, if any, of
the Trustees of the Fund.
(d) The Administrator shall not be obligated to pay any expenses of or
for the Fund not expressly assumed by the Administrator pursuant to this Section
1 other than as provided in Section 3.
(e) Notwithstanding any provision of this Contract, the Administrator
will not pursuant to this Contract at any time provide, or be required to
provide, to the Fund or to any person with respect to the Fund investment
research, advice, or supervision, or in any way advise the Fund or any person
acting on behalf of the Fund as to the value of securities or other investments
or as to the advisability of investing in, purchasing, or selling securities or
other investments.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers, and
employees of the Fund may be a shareholder, director, officer or employee of, or
be otherwise interested in, the Administrator, and in any person controlled by
or under common control with the Administrator, and that the Administrator and
any person controlled by or under common control with the Administrator may have
an interest in the Fund. It is also understood that the Administrator and any
person controlled by or under common control with the Administrator have and may
have advisory, management, service or other contracts with other organizations
and persons, and may have other interests and business.
3. COMPENSATION TO BE PAID BY THE FUND TO THE ADMINISTRATOR.
The Fund will pay to the Administrator as compensation for the
Administrator's services rendered, for the facilities furnished and for the
expenses borne by the Administrator pursuant to paragraphs (a) and (b) of
Section 1, a fee, computed and paid quarterly at the annual rate of [ ]% of the
average net asset value of the Fund. Such average net asset value shall be
determined by taking average of all of the determinations of such net asset
value during such quarter at the close of business on the last business day of
each week, for each week which ends during such quarter. Such fees shall be
payable for each fiscal quarter within 30 days after the close of such quarter.
In the event that expenses of the Fund for any fiscal year (taking into
account any reduction made by the Administrator in the management fee payable to
the
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Administrator under the Management Contract dated as of ____________, 1995
between the Fund and the Administrator) should exceed the expense limitation 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 compensation due the Administrator for such fiscal year shall be reduced by
the amount of such excess by a reduction or refund thereof. In the event that
the expenses of the Fund exceed any expense limitation which the Administrator
may, by written notice to the Fund, voluntarily declare to be effective subject
to such terms and conditions as the Administrator may prescribe in such notice,
the compensation due the Administrator shall be reduced, and, if necessary, the
Administrator shall assume expenses of the Fund, to the extent required by such
expense limitation.
If the Administrator shall serve for less than the whole of a quarter,
the foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment be approved at a meeting by the affirmative vote of a
majority of the Trustees of the Fund and of a majority of the Trustees of the
Fund who are not interested persons of the Fund or of the Administrator.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this Contract by not
more than sixty days' nor less than thirty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Trustees of the Fund and (ii) a majority of the Trustees
of the Fund who are not interested persons of the Fund or of the Administrator
do not specifically approve at least annually the continuance of this Contract,
then this Contract shall automatically terminate at the close of business on
January 31, 1997 or the expiration of one year from the effective date of the
last such continuance, whichever is later.
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Action by the Fund under (a) above may be taken either (i) by vote of a
majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 will be without
the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the terms "affiliated person,"
"control," "interested person," and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940 and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act; and the term
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the Rules and Regulations
thereunder.
7. NON-LIABILITY OF ADMINISTRATOR.
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Administrator, or reckless disregard of its obligations and
duties hereunder, the Administrator 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 hereunder.
8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the 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 Trustees of the
Fund as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees, officers or shareholders of
the Fund but are binding only upon the assets and property of the Fund.
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<PAGE>
IN WITNESS WHEREOF, PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
and PUTNAM INVESTMENT MANAGEMENT, INC. have each caused this instrument to be
signed in duplicate in its behalf by its President or Vice President thereunto
duly authorized, all as of the day and year first above written.
PUTNAM CONVERTIBLE OPPORTUNITIES AND
INCOME TRUST
By:____________________________
PUTNAM INVESTMENT MANAGEMENT, INC.
By:____________________________
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