As Filed with the Securities and Exchange Commission on May 26, 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. 2 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 2 [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)
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 ROPES & GRAY
& FLOM & FLOM One International Place
333 West Wacker Drive One Beacon St. Boston, Massachusetts 02110-2624
</TABLE>
Chicago, Illinois 60606 Boston, Massachusetts 02108
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>
Shares of Beneficial
Interest 2,760,000 $25.00 $69,000,000 $23,793
</TABLE>
(1)Includes 360,000 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 Expenses Summary; Prospectus Summary
4. Financial Highlights Not Applicable
5. Plan of Distribution Cover Page; Outside Front Cover; Prospectus
Summary; Underwriting
6. Selling Shareholders Not Applicable
7. Use of Proceeds Outside Front Cover; Inside Front Cover;
Prospectus Summary; Use of Proceeds; Investment
Objectives and Policies
8. General Description of Registrant 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 C
9. Management Inside Front Cover; Prospectus Summary;
Investment Manager and Administrator; Trustees
and Officers; Investment Management Contract;
Administrative Services Contract; Portfolio
Transactions; Custodian, Transfer Agent,
Dividend Disbursing Agent, and Registrar;
Statement of Assets and Liabilities
10. Capital Stock, Long-Term Debt, and Other
Securities Prospectus Summary; Dividends and Distributions;
Dividend Reinvestment Plan; Description of
Shares; Taxation; Repurchase 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 Not Applicable
Additional Information
14. Cover Page. Not Applicable
15. Table of Contents Not Applicable
16. General Information and History Not Applicable
17. Investment Objective and Policies Outside Front Cover; Inside Front Cover;
Prospectus Summary; Investment Objectives and
Policies; Other Investment Practices; Special
Considerations and Risk Factors; Investment
Restrictions; 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
20. Investment Advisory and Other Services Prospectus Summary; Investment Manager and
Administrator; Trustees and Officers; Investment
Management Contract; Administrative Services
Contract; 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
23. Financial Statements Experts; Report of Independent Accountants;
Statement of Assets and Liabilities
</TABLE>
* 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, DATED MAY 26, 1995
PROSPECTUS
2,400,000 Shares
Putnam Convertible Opportunities and Income Trust
Beneficial Interest
Putnam Convertible Opportunities and Income Trust (the "Fund") seeks
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 common stock
prices and changes in interest rates and other economic and market 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
(Continued on page 2)
All or substantially all of the Fund's assets may be invested in
securities rated below investment grade and in nonrated securities of
comparable quality. Investments of this type are subject to greater risk of
loss of principal and nonpayment of interest than higher-rated investments
and are predominantly speculative. Due to the risks inherent in investing in
lower-grade securities and securities of small capitalization issuers, an
investment in the Fund should be considered speculative. See "Special
Considerations and Risk Factors."
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
without charge upon written or oral request.
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 Public Sales Load (1) (2) Proceeds to Fund (3)
<S> <C> <C> <C>
Per Share $ 25.00 $0.00 $25.00
Total (4) $60,000,000 $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 June , 1995, at the office of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013.
<TABLE>
<S> <C> <C>
Smith Barney Inc. A. G. Edwards & Sons, Inc. Advest, Inc.
Dain Bosworth Fahnestock & Co. Inc. First of Michigan Corporation
Incorporated Kemper Securities, Inc. Legg Mason Wood Walker
Gruntal & Co., Incorporated The Robinson-Humphrey Company, Inc. Incorporated
Raymond James & Associates, Inc. Sutro & Co. Incorporated
</TABLE>
The date of this Prospectus is June , 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)
Yield Securities. Based upon current market conditions, it is expected that
initially the Fund's assets will be invested approximately equally in each
asset category. Actual initial allocations will depend upon market conditions
at the time of commencement of the Fund's operations.
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.The Fund is not intended to be a complete investment program, and
there is no assurance it will achieve its objectives.
The Fund is a newly organized, closed-end, diversified management
investment company managed by Putnam Investment Management, Inc. The Fund's
address is One Post Office Square, Boston, Massachusetts 02109, and its
telephone number is (617) 292-1000. The Fund's Shares have been approved,
subject to notice of issuance, for listing on the New York Stock Exchange
under the symbol "PCV." The minimum investment in this offering is 100 Shares
($2,500).
(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
$150,000 to be paid to the Underwriters in partial reimbursement of their
expenses, will be deducted from net proceeds upon completion of this
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 360,000 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
$69,000,000, the total Sales Load will be $0.00 and the total Proceeds to
Fund will be $. See "Underwriting."
2
<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 expenses
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) 1.10%
Other Expenses .66%
Administrative Service Fees(b) .25%
Other Operating Expenses .41%
Total Annual Expenses 1.76%
</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 service 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 expenses 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>
<S> <C> <C> <C>
1 year 3 years 5 years 10 years
$18 $55 $95 $207
</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 fiscal 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 annual rate of return of the Fund. Actual expenses and annual rate of
return may be more or less than those allowed for purposes of the Example. In
addition, while the Example assumes reinvestment of all 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 above or below net asset value. See "Dividend Reinvestment
Plan."
3
<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 2,400,000 shares of beneficial
interest (the "Shares") through a group of
underwriters (the "Underwriters") led by Smith Barney
Inc., A. G. Edwards & Sons, Inc., Advest, Inc., Dain
Bosworth Incorporated, Fahnestock & Co. Inc., First
of Michigan Corporation, Gruntal & Co., Incorporated,
Kemper Securities, Inc., Legg Mason Wood Walker,
Incorporated, Raymond James & Associates, Inc., The
Robinson-Humphrey Company, Inc. and Sutro & Co.
Incorporated. The Underwriters have been granted an
option to purchase up to 360,000 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 $25.00 per Share. The minimum
investment in this offering is 100 Shares ($2,500).
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
and Policies The Fund's investment objectives are capital
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 ("Standard & Poor's")
or in nonrated Convertible Securities and
4
<PAGE>
Nonconvertible High Yield Securities of comparable
quality as determined by Putnam. Based upon current
market conditions, Putnam 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 price of the
underlying security than do Convertible Securities
with conversion values that are less than their
investment values, but also entail greater risk of
capital loss in the event of a decline in the price
of the underlying security.
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
common stock prices and changes in interest rates and
other economic and market 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 the Fund's
assets will be invested approximately equally 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. Actual initial allocations
will depend upon market conditions at the time of
commencement of the Fund's investment operations. The
Fund may also invest a portion of its assets in cash
and money market instruments and in common stocks and
other securities with equity features.
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
nonpayment of interest than higher-rated investments
and are predominantly speculative. Due to the risks
inherent in investing in lower-grade securities and
securities of small capitalization issuers, an
investment in the Fund should be considered
speculative. The Fund is designed
5
<PAGE>
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 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," "Appendix A - Fixed Income Security
Ratings," "Appendix B - Options and Futures Portfolio
Strategies" and "Appendix C - Foreign Currency
Transactions."
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.
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 to participate
in a portion of the capital appreciation of the
underlying equity security if the market price of
such security 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 fixed
income 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
fixed income 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
6
<PAGE>
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 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 price of the
underlying security than do Convertible Securities
with conversion values that are less than their
investment values, but also entail greater volatility
and risk of capital loss in the event of a decline in
the price of the underlying security.
See "Investment Objectives and Policies" and "Special
Considerations and Risk Factors."
Nonconvertible High
Yield Securities Nonconvertible High Yield Securities include bonds,
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
Considerations Putnam believes that a diversified portfolio of
Convertible Securities and Nonconvertible High Yield
Securities offers investors attractive opportunities
for capital appreciation and current income. In
Putnam's view, Convertible Securities, under current
market conditions, are attractively valued. See
Appendix D for certain statistical information which
Putnam believes supports this view. Convertible
Securities offer a portion of the capital
appreciation potential of the underlying common
stocks while providing some protection from declines
in stock prices and potentially lower volatility than
common stocks of comparable issuers. This protection
comes from the relatively higher income typically
available from Convertible Securities as compared
with the underlying common stocks and the relatively
senior position of Convertible Securities in the
capital structure of a company compared to common
stocks, although Convertible Securities are typically
subordinated to nonconvertible fixed income
securities of the same issuer. Based upon current
market conditions, Putnam believes that Convertible
Securities of small capitalization issuers may offer,
in general, greater opportunities for capital
appreciation than those of larger capitalization
issuers. This view is based in part on Putnam's
belief that the market for Convertible Securities of
small capitalization
7
<PAGE>
issuers is relatively inefficient, requiring detailed
investment analysis but, in Putnam's view, currently
offering opportunities for potentially greater
capital appreciation over the longer term. The
potentially greater long-term capital appreciation
opportunities offered by common stocks and
Convertible Securities of small capitalization
issuers are generally accompanied by higher risks. In
Putnam's view, Convertible Securities provide an
attractive means of investing in this sector of the
equity market with the opportunity for a portion of
the capital appreciation potential of an investment
in common stock, with potentially less volatility
over the longer term. Putnam believes that
Nonconvertible High Yield Securities provide
attractive income potential and the potential for
lower volatility over the longer term compared to
common stocks, although they generally have less
potential for capital appreciation. Nonconvertible
High Yield Securities are also subject to greater
risks, including greater volatility, than
higher-rated securities of comparable maturity.
The foregoing views as to the securities in which the
Fund will invest and market and economic conditions
are those of Putnam. There can be no assurance that
Putnam's analysis is or will be correct or that
market conditions will not be different from those
discussed in this section. See "Basic Investment
Strategy - Investment Considerations" and "Appendix D
- Performance Data and Other Statistical
Information." For a discussion of the risk associated
with investing in the Fund, see "Basic Investment
Strategy - Special Considerations and Risk Factors."
Investment Manager
and Administrator Putnam will serve as the investment manager and
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 $74 billion in assets in
over three million shareholder accounts as of April
30, 1995, including $5 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 $104 billion in
assets as of April 30, 1995, including approximately
$2 billion invested in convertible securities and
nearly $9 billion invested in high yield securities.
See "Investment Manager and Administrator."
8
<PAGE>
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 1.10%. The
combined investment management and administrative
service fees are higher than those paid by most other
investment companies. See "Investment Management
Contract."
Administrative Service
Fees The Fund will pay Putnam a quarterly administrative
service fee based on the average weekly net asset
value of the Fund at the annual rate of .25%. The
combined investment management and administrative
service fees are higher than those paid by most other
investment companies. See "Administrative Services
Contract."
Listing and Symbol The Shares have been approved, subject to notice of
issuance, for listing on the New York Stock Exchange
under the symbol "PCV." See "Underwriting."
Dividends and
Distributions The Fund intends to pay monthly distributions from
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.
See "Dividends and Distributions," "Taxation" and
"Dividend Reinvestment Plan."
Dividend Reinvestment
Plan The Fund has established a dividend reinvestment 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;
Conversion to Open-end
Status The Fund may from time to time repurchase Shares in
the open market or make tender offers for its Shares.
This may have the effect of reducing any market
discount. In the event that the Shares trade at a
significant discount to their net asset value for an
extended period
9
<PAGE>
of time Putnam will consider recommending a share
repurchase program to the Trustees. A decision on
whether to recommend a share repurchase program will
depend on prevailing market conditions and other
factors. Accordingly, there can be no assurance that
Putnam will recommend a share repurchase program. 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."
Custodian, Transfer
Agent, Dividend
Disbursing Agent and
Registrar Putnam Fiduciary Trust Company serves as the Fund's
custodian, and Putnam Investor Services, a division
of Putnam Fiduciary Trust Company, serves as the
transfer agent, dividend disbursing agent and
registrar for the Shares. See "Custodian, Transfer
Agent, Dividend Disbursing Agent and Registrar."
No Preferred Shares;
Borrowings The Fund does not intend to leverage through the
issuance of preferred shares or the borrowing of
money for the purpose of enhancing the Fund's
investment performance. The Fund may, however, borrow
money for temporary, extraordinary or emergency
purposes. See "Investment Restrictions."
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 creditworthiness of issuers of those
securities, (ii) interest rates, and (iii) other
factors. A decrease in market rates of interest 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.
10
<PAGE>
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 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. 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 Federal
securities laws. 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. 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
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. For more information about the rating
services' descriptions of lower-grade securities, see
"Appendix A - Fixed Income Security Ratings."
11
<PAGE>
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.
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.
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
adversely affect the values of lower-grade
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
12
<PAGE>
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 certain Convertible Securities. Putnam
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 price of the underlying security than do
Convertible Securities with conversion values that
are less than their investment values, but also
entail greater volatility and risk of capital loss
than Convertible Securities with conversion values
that are less than their investment values.
The Fund's investments in Convertible Securities may
at times include securities that have a mandatory
conversion feature, pursuant to which the securities
convert automatically into common stock at a
specified date and a specified conversion ratio, or
that are convertible at the option of the issuer.
Because conversion of the security is not at the
option of the holder, the Fund may be required to
convert the security into the underlying common stock
even at times when the value of the underlying common
stock has declined substantially.
Investments in securities of small capitalization
companies. Based upon current market conditions,
Putnam expects 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. 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 those of 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.
13
<PAGE>
Zero-coupon and Payment-in-Kind securities. The Fund
may invest in zero-coupon securities of governmental
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 values are
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 by contract or 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 generally 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, which could result in
losses to the Fund. If securities purchased by the
Fund at a premium are called or sold prior to
maturity, the Fund will
14
<PAGE>
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. The Fund
may invest up to 15% of its total assets in
securities principally traded in foreign markets,
including securities denominated in foreign
currencies. 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
invests in lesser developed and developing nations,
which are sometimes referred to as "emerging
markets."
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.
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
15
<PAGE>
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 "Special Considerations and Risk Factors," "Use
of Proceeds," "Description of Shares - Certain
Provisions in the Agreement and Declaration of
Trust," "Determination of Net Asset Value" and
"Repurchase of Shares; Conversion to Open-end
Status."
16
<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 manager 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 $74
billion in assets in over three million shareholder accounts as of April 30,
1995, including $5 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 $104 billion in assets as of April 30, 1995.
As of April 30, 1995, Putnam's 13-member Basic Value Equities Group
managed over $2 billion in convertible securities and its High Yield Group,
which boasts a team of 16 investment professionals with an average of 11
years experience analyzing and selecting high yield securities, managed
nearly $9 billion in high yield assets. Putnam views the convertible
securities market as comprised of three distinct segments--small
capitalization, large capitalization and high yield. Putnam believes this
view is the key to efficient research and effective asset allocation.
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 Fund. The Fund will not
pay any underwriting fees out of the net proceeds of this 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."
17
<PAGE>
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 ("Standard & Poor's") or in nonrated Convertible
Securities and Nonconvertible High Yield Securities of comparable quality as
determined by Putnam. In Putnam's opinion a combination of these two asset
classes may provide attractive opportunities for capital appreciation and
current income with potentially less volatility over the longer term than a
portfolio of common stocks of comparable issuers. See "Investment
Considerations" below. There can be no assurance that these potential
benefits will be realized by the Fund, and the Fund will 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 common stock prices and changes
in interest rates and other economic and market 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 the
Fund's assets will be invested approximately equally 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. Actual initial allocations will depend
upon market conditions at the time of commencement of the Fund's investment
operations. See "Special Considerations and Risk Factors" below. The Fund may
also invest a portion of its assets in cash and money market instruments and
in common stocks and other securities with equity features.
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. 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.
18
<PAGE>
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 fixed income 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 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
price of the underlying security than do Convertible Securities with
conversion values that are less than their investment values, but also entail
greater volatility and risk of capital loss in the event of a decline in the
price of the underlying security.
Nonconvertible High Yield Securities. Nonconvertible High Yield Securities
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 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
issuer's 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
The views expressed in this "Investment Considerations" section as to the
securities in which the Fund will invest and market and economic conditions
are those of Putnam. There can be no assurance that Putnam's analysis is or
will be correct or that market conditions will not be different from those
discussed in this section. The statistical information included in this
section, and similar information included in Appendix D, is provided for
illustrative purposes only and is not intended to predict the performance of
the Fund's portfolio or anticipated return to the Fund's shareholders. For a
discussion of the risks associated with investing in the Fund, see "Special
Considerations and Risk Factors" below.
General. Putnam believes that a diversified portfolio of Convertible
Securities and Nonconvertible High Yield Securities offers investors
attractive opportunities for capital appreciation and current income. In
Putnam's view, Convertible Securities, under current market conditions, are
attractively valued. See Appendix D for certain statistical information which
Putnam believes supports this view. Convertible Securities offer a portion of
the
19
<PAGE>
capital appreciation potential of the underlying common stocks while
providing some protection from declines in stock prices and potentially lower
volatility than common stocks of comparable issuers. This protection comes
from the relatively higher income typically available from Convertible
Securities as compared with the underlying common stocks and the relatively
senior position of Convertible Securities in the capital structure of a
company compared to common stocks, although Convertible Securities are
typically subordinated to nonconvertible fixed income securities of the same
issuer. Putnam believes that Nonconvertible High Yield Securities provide
attractive income potential and the potential for lower volatility over the
longer term compared to common stocks, although they generally have less
potential for capital appreciation. Nonconvertible High Yield Securities are
also subject to greater risks, including greater volatility, than
higher-rated securities of comparable maturity. The portion of the Fund's
assets invested in Convertible Securities and Nonconvertible High Yield
Securities will vary from time to time in light of the Fund's investment
objectives, changes in common stock prices and changes in interest rates and
other economic and market factors. Based upon current market conditions,
Putnam expects that initially the Fund's assets will be invested
approximately equally in each asset category. Actual initial allocations will
depend on market conditions at the time of commencement of the Fund's
investment operations.
Convertible Securities. Convertible Securities offer a portion of the
capital appreciation potential of the underlying common stocks while
providing some protection from declines in stock prices and potentially lower
volatility than common stocks of comparable issuers. From December 31, 1987
(the inception date of the Merrill Lynch All Convertible Bonds & Preferreds
Index (the "Merrill Lynch Convertible Index") to April 30, 1995, the Merrill
Lynch Convertible Index provided 85.1% of the total return of the S&P 500
Composite Stock Price Index (the "S&P 500") with 72.3% of the volatility, and
89.0% of the total return of the Russell 2000 Index with 56.8% of the
volatility (in each case volatility is measured by standard deviations of
monthly investment results). The performance and volatility of each of the
market indices varied substantially during the period shown. Presentation of
similar information for different periods would show different results. For
additional information concerning the indices, see "Historical index
performance" below and Appendix D, which also includes quarterly performance
results. Of course, past performance is not necessarily indicative of future
performance and there can be no assurance that the markets for Convertible
Securities will perform as they have in the past or that the Fund will
achieve any particular level of return or volatility. Under current market
conditions, Putnam expects that the Fund's investments in Convertible
Securities will emphasize lower-grade Convertible Securities, Convertible
Securities issued by small capitalization issuers and Convertible Securities
whose conversion values exceed their investment values. The total return of
these types of Convertible Securities may experience greater volatility than
the total return of the Merrill Lynch Convertible Index. See Appendix D for
additional information concerning Convertible Securities.
In Putnam's view, Convertible Securities are attractive because (1) they
typically offer higher yields than the underlying common stocks (which may
cause such securities to be more sensitive to fluctuations in interest rates
than the underlying common stocks); (2) the higher yield provides a defensive
characteristic if the price of the underlying common stock declines; (3) the
conversion feature allows for capital appreciation potential if the price of
the underlying common stock increases; and (4) Convertible Securities
historically have been less volatile on a long-term basis than common stocks.
However, in the event of a significant deterioration in the financial
condition of an issuer of Convertible Securities, such securities may no
longer continue to offer some or all of these positive characteristics. Due
to the conversion feature, Convertible Securities do, generally, yield less
than nonconvertible fixed income securities of similar credit quality and
maturity.
20
<PAGE>
Based upon current market conditions, Putnam believes that Convertible
Securities of small capitalization issuers may offer, in general, greater
opportunities for capital appreciation than those of larger capitalization
issuers. This view is based in part on Putnam's belief that the market for
Convertible Securities of small capitalization issuers is relatively
inefficient, requiring detailed investment analysis but, in Putnam's view,
currently offering opportunities for potentially greater capital appreciation
over the longer term. The potentially greater long-term capital appreciation
opportunities offered by common stocks and Convertible Securities of small
capitalization issuers are generally accompanied by higher risks. In Putnam's
view, Convertible Securities provide an attractive means of investing in this
sector of the equity market with the opportunity for a portion of the capital
appreciation potential of an investment in common stock, with potentially
less volatility over the longer term.
Nonconvertible High Yield Securities. Yields of Nonconvertible High Yield
Securities are generally higher than those of Convertible Securities of
comparable credit quality and maturity. The Fund will seek to provide
additional current income by investing in Nonconvertible High Yield
Securities. These securities will include debt securities and preferred
stocks and will generally be unsecured. According to CS First Boston
Corporation, the market for high yield securities has increased from $123.3
billion on December 31, 1986 to $294 billion on March 31, 1995. Putnam
believes that these securities provide attractive income and the potential
for lower volatility over the longer term compared to common stocks, although
they generally have less capital appreciation potential. Nonconvertible High
Yield Securities are also subject to greater risks, including greater
volatility, than higher-rated securities of comparable maturity.
From December 31, 1987 to April 30, 1995, Nonconvertible High Yield
Securities, as measured by the CS First Boston High Yield Index, provided
83.5% of the total return of the S&P 500 with 61.0% of the volatility, and
87.3% of the total return of the Russell 2000 Index with 47.9% of the
volatility (in each case volatility is measured by standard deviations of
monthly investment results). The performance and volatility of each of the
market indices varied substantially during the period shown. Presentation of
similar information for different periods would show different results. For
additional information concerning the indices, see "Historical index
performance" below and Appendix D, which also includes quarterly performance
results. Of course, past performance is not necessarily indicative of future
performance and there can be no assurance that the markets for Nonconvertible
High Yield Securities will perform as they have in the past or that the Fund
will achieve any particular level of return or volatility. The total return
of the Nonconvertible High Yield Securities in which the Fund will invest may
experience greater volatility than the total return of the CS First Boston
High Yield Index. See Appendix D for additional information concerning
Nonconvertible High Yield Securities.
Combination of asset classes. In Putnam's opinion a combination of these
two asset classes may provide attractive opportunities for capital
appreciation and current income with potentially less volatility over the
longer term than a portfolio of common stocks of comparable issuers. From
December 31, 1987 to April 30, 1995, the 50/50 Convertible and High Yield
Index provided 84.7% of the total return of the S&P 500 with 61.2% of the
volatility, and 88.6% of the total return of the Russell 2000 Index with
48.1% of the volatility (in each case volatility is measured by standard
deviations of monthly investment results). The 50/50 Convertible and High
Yield Index is an index prepared by Putnam, 50% of the value of which is
represented by the Merrill Lynch Convertible Index and 50% of the value of
which is represented by the CS First Boston High Yield Index, with such
weightings being reset monthly. The performance and volatility of each of the
indices varied
21
<PAGE>
substantially during the period shown. Presentation of similar information
for different periods would show different results. For additional
information concerning the indices, see "Historical index performance" below
and Appendix D, which also includes quarterly performance results. Of course,
past performance is not necessarily indicative of future results and there
can be no assurance that the markets for Convertible Securities or
Nonconvertible High Yield Securities will perform as they have in the past or
that the Fund will achieve any particular level of return or volatility.
Historical index performance. The following table shows the historical
performance and standard deviation of certain market indices for certain
selected periods. These indices are unmanaged and market- weighted and are
not adjusted for fees, commissions or other costs. The securities the Fund
owns will not match and are not intended to be representative of those in any
of the indices. This table is not intended to predict the Fund's performance.
AVERAGE ANNUAL TOTAL RETURN AND STANDARD DEVIATION(1)
(PERIODS ENDED APRIL 30, 1995)
<TABLE>
<CAPTION>
Since
Dec. 31 Since
1 3 3 5 5 7 7 1987 Dec. 31, 10 10
Year Years Years Years Years Years Years Ann. 1987 Years Years
Ann. Ann. Std. Ann. Std. Ann. Std. Ret. Std. Ann. Std.
Market indices Ret. Ret. Dev. Ret. Dev. Ret. Dev. (2) Dev. (2) Ret. Dev.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch
Convertible
Index 6.33% 10.63% 6.73% 13.20% 9.33% 11.23% 8.72% 11.97% 8.63% n/a n/a
CS First
Boston High
Yield Index 8.58 10.73 3.95 15.13 7.77 11.34 7.33 11.74 7.28 n/a n/a
50/50
Convertible
and High
Yield Index 7.47 10.71 5.01 14.23 7.86 11.34 7.36 11.91 7.31 n/a n/a
S&P 500 17.48 10.57 8.04 12.63 11.98 13.69 11.99 14.06 11.94 14.70% 15.18%
Russell 2000
Index 7.21 12.53 10.62 12.93 15.93 10.97 15.14 13.45 15.19 10.98 18.34
</TABLE>
(1) Standard deviation is an annualized statistical measure of the range of
performance within which an index's monthly total return has fallen. A
high standard deviation indicates that the range of performance has been
very wide, meaning that there has been historically greater volatility.
Standard deviations of monthly returns for a one-year period are not
considered statistically meaningful and are therefore not presented.
(2) The date of inception of the Merrill Lynch Convertible Index.
The Merrill Lynch Convertible Index and the CS First Boston High Yield
Index are commonly accepted indices for the public markets for Convertible
Securities and Nonconvertible High Yield Securities, respectively. The 50/50
Convertible and High Yield Index is an index prepared by Putnam that combines
the Merrill Lynch Convertible Index and the CS First Boston High Yield Index.
The S&P 500 is a commonly accepted index for the U.S. stock market and the
Russell 2000 Index is a commonly accepted index for small capitalization
stocks. Additional information regarding each of these indices, including
information concerning recent changes in the composition of the Merrill Lynch
Convertible Index, is included in Appendix D.
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<PAGE>
Appendix D also provides a summary of the investment performance of
various investment companies managed by Putnam that invest primarily in
Convertible Securities, Nonconvertible High Yield Securities or a combination
of both.
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 length of time the Fund has held a particular security is not
generally a consideration in investment decisions. A change in the securities
held by the Fund is known as "portfolio turnover." As a result of the Fund's
investment policies, under certain market conditions the Fund's portfolio
turnover rate may be higher than that of other 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 15%
of its total assets in securities principally traded in foreign markets,
including securities denominated in foreign currencies. The 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 S&P 500. 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 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 Fund. 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.
23
<PAGE>
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 related 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 and the
special risks associated with them.
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-dealers pursuant to agreements requiring that the 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
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
24
<PAGE>
with the intention of acquiring portfolio securities, 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 delays 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
creditworthiness of issuers of those securities, (ii) interest rates, and
(iii) other factors. A decrease in market rates of interest 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, it is
likely that 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 in
market value in response to changes in interest rates than debt obligations
of comparable maturities that were not issued at a deep discount. 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
25
<PAGE>
securities. 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 Federal securities laws. 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. 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. See "Taxation."
Certain risks associated with investments in lower-grade securities. The
Fund may invest all or 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 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 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 values 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 adversely
affect 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.
26
<PAGE>
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-grade securities, see Appendix A to this Prospectus.
Investments in certain Convertible Securities. Putnam 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
price of the underlying security than do Convertible Securities with
conversion values that are less than their investment values, but also entail
greater volatility and risk of capital loss than Convertible Securities with
conversion values that are less than their investment values.
The Fund's investments in Convertible Securities may at times include
securities that have a mandatory conversion feature, pursuant to which the
securities convert automatically into common stock at a specified date and a
specified conversion ratio, or that are convertible at the option of the
issuer. Because conversion of the security is not at the option of the
holder, the Fund may be required to convert the security into the underlying
common stock even at times when the value of the underlying common stock has
declined substantially.
Investments in securities of small capitalization companies. Based upon
current market conditions, Putnam expects 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.
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.
27
<PAGE>
Zero-coupon and Payment-in-Kind securities. The Fund may invest in
zero-coupon securities of governmental or private issuers, including Brady
Bonds (which are 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 values are 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. Zero-coupon and payment-in-kind
securities 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 by contract or 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 generally 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, which could result
in losses to the Fund. The Fund may also invest at times in securities with
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. The Fund may invest up to 15%
of its total assets in securities principally traded in foreign markets,
including securities denominated in foreign currencies. The Fund may also
purchase Eurodollar certificates of deposit without regard to this limit.
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
28
<PAGE>
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.
Although the Fund can engage in a variety of foreign currency exchange
transactions in connection with its foreign investments, there can be no
assurance that Putnam will utilize such strategies at any given time or with
respect to any particular investment. See Appendix C for additional
information about these transactions.
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 be smaller and
have substantially less volume than U.S. markets, 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. See "Taxation."
The risks described above are typically increased to the extent that the
Fund invests in issuers located in lesser developed and developing nations,
which are sometimes referred to as "emerging markets." 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
29
<PAGE>
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 securities issued by
foreign governmental issuers through the exchange of existing commercial bank
loans to such countries for new bonds in connection with debt restructurings,
including Brady Bonds, which are issued under a debt restructuring plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady. These
securities may have no (or only limited) collateralization, and the payment
of interest and principal may be dependent on the willingness and the ability
of the foreign governmental issuer to make payment in accordance with the
terms of the security.
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 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."
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 futures
contracts, 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
30
<PAGE>
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 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 issued or guaranteed as to principal or interest by 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 issued or guaranteed as to principal
or interest by the U.S. Government or its agencies or instrumentalities, and
securities backed by the credit of a governmental entity are not considered
to represent industries.)
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
Jameson Adkins Baxter. Ms. Baxter, age 51, is the President of Baxter
Associates, Inc., a management and financial consulting firm which she
founded in 1986. During that time, she was also a Vice President and
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Principal of the Regency Group, Inc., and a Consultant to First Boston
Corporation, both of which are investment banking firms. From 1965 to 1986,
Ms. Baxter held various positions in investment banking and corporate finance
at First Boston. Ms. Baxter currently also serves as a Director of Banta
Corporation, a Fortune 500 printing company, Avondale Federal Savings Bank, a
savings and loan company, and ASHTA Chemicals, Inc., a basic chemicals
producer. She is also the Chairman Emeritus of the Board of Trustees of Mount
Holyoke College, having previously served as Chairman for five years and as a
Board member for thirteen years; an Honorary Trustee and past President of
the Board of Trustees of the Emma Willard School; and a member of the Board
of Governors of Good Shepherd Hospital. She is also active in various
professional and civic organizations, including the Financial Women's
Association of New York. Ms. Baxter is a graduate of Mount Holyoke College.
Hans H. Estin. Mr. Estin, age 66, is the Vice Chairman of North American
Management Corp., a registered investment adviser serving individual clients
and their families. Mr. Estin currently also serves as a Director of The
Boston Company, Inc., a registered investment adviser which provides
administrative and investment management services to mutual funds and other
institutional investors, and Boston Safe Deposit and Trust Company; a
Corporation Member of Massachusetts General Hospital; and a Trustee of New
England Aquarium. He previously served as the Chairman of the Board of
Trustees of Boston University and is currently active in various other civic
associations, including the Boys & Girls Clubs of Boston, Inc. Mr. Estin is a
graduate of Harvard College and holds honorary doctorates from Merrimack
College and Boston University. He is a Chartered Financial Analyst.
John A. Hill. Mr. Hill, age 53, is the Chairman and Managing Director of
First Reserve Corporation, a registered investment adviser investing in
companies in the worldwide energy industry on behalf of institutional
investors. Prior to acquiring First Reserve in 1983, Mr. Hill held executive
positions with several investment advisory firms and held various positions
with the Federal government, including Associate Director of the Office of
Management and Budget and Deputy Administrator of the Federal Energy
Administration. Mr. Hill currently also serves as a Director of Snyder Oil
Corporation, an exploration and production company which he founded, Maverick
Tube Corporation, a manufacturer of structural steel, pipe and well casings,
PetroCorp Incorporated, an exploration and production company, Enterra
Corporation, an oil field service company, various private companies
controlled by First Reserve Corporation and various First Reserve Funds. He
is currently active in various business associations, including the Economic
Club of New York, and lectures on energy issues in the United States and
Europe. Mr. Hill is a graduate of Southern Methodist University.
Elizabeth T. Kennan. Ms. Kennan, age 57, has been the President of Mount
Holyoke College since 1978. From 1966 to 1978, she was on the faculty of
Catholic University, where she taught history and published numerous
articles. Ms. Kennan currently also serves as a Director of NYNEX
Corporation, a telecommunications company, Northeast Utilities, the Kentucky
Home Life Insurance Companies and Talbots, a women's clothing retailer. She
also serves as a Member of The Folger Shakespeare Library Committee. She is
currently active in various educational and civic associations, including the
Committee on Economic Development and the Council on Foreign Relations. Ms.
Kennan is a graduate of Mount Holyoke College, the University of Washington
and St. Hilda College at Oxford University and holds several honorary
doctorates.
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<PAGE>
*Lawrence J. Lasser. Mr. Lasser, age 52, is a Vice President of the Fund
and the other Putnam funds. He has been the President, Chief Executive
Officer and a Director of Putnam Investments, Inc. and Putnam since 1985,
having begun his career there in 1969. Mr. Lasser currently also serves as a
Director of Marsh & McLennan Companies, Inc., the parent company of Putnam,
and INROADS/Central New England, Inc., a job market internship program for
minority high school and college students. He is a Member of the Board of
Overseers of the Museum of Science, the Museum of Fine Arts and the Isabella
Stewart Gardner Museum in Boston. He is also a Trustee of the Beth Israel
Hospital and Buckingham, Browne and Nichols School. Mr. Lasser is a graduate
of Antioch College and Harvard Business School.
Robert E. Patterson. Mr. Patterson, age 50, is the Executive Vice
President and Director of Acquisitions of Cabot Partners Limited Partnership,
a registered investment adviser which manages real estate investments for
institutional investors. Prior to 1990, he was the Executive Vice President
of Cabot, Cabot & Forbes Realty Advisors, Inc., the predecessor company of
Cabot Partners. Prior to that, he was a Senior Vice President of the Beal
Companies, a real estate management, investment and development company. He
has also worked as an attorney and held various positions in state
government, including the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson currently also serves as Chairman of
the Joslin Diabetes Center and as a Director of Brandywine Trust Company. Mr.
Patterson is a graduate of Harvard College and Harvard Law School.
*Donald S. Perkins. Mr. Perkins, age 67, is the retired Chairman of the
Board of Jewel Companies, Inc., a diversified retailer, where among other
roles he served as President, Chief Executive Officer and Chairman of the
Board from 1965 to 1980. He currently also serves as a Director of various
other public corporations, including American Telephone & Telegraph Company,
AON Corp., an insurance company, Cummins Engine Company, Inc., an engine and
power generator equipment manufacturer and assembler, Illinova and Illinois
Power Co., Inland Steel Industries, Inc., Kmart Corporation, a department
store company where he also serves as Chairman of the Board, LaSalle Street
Fund, Inc., a real estate investment trust, and Time Warner, Inc., the
nation's largest media conglomerate. He previously served as a director of
several other major public corporations, including Corning Glass Works,
Eastman Kodak Company and Firestone Tire & Rubber Company. Mr. Perkins
currently also serves as a Trustee and Vice Chairman of Northwestern
University and as a Trustee of the Hospital Research and Education Trust. He
is currently active in various civic and business associations, including the
Business Council and the Civic Committee of the Commercial Club of Chicago,
of which he is the founding Chairman. Mr. Perkins is a graduate of Yale
University and Harvard Business School and holds an honorary Doctorate from
Loyola University of Chicago.
William F. Pounds. Dr. Pounds, age 66, is the Vice Chairman of the Fund
and of the other Putnam funds. He has been a Professor of Management at the
Alfred P. Sloan School of Management at the Massachusetts Institute of
Technology since 1961 and served as Dean of that School from 1966 to 1980. He
previously served as Senior Advisor to Rockefeller & Co., Inc., a registered
investment adviser which manages Rockefeller family assets, and Rockefeller
Trust Company. Dr. Pounds currently also serves as a Director of IDEXX
Laboratories, Inc., M/A-COM, Inc., EG&G, Inc., Perseptive Biosystems, Inc.,
Management Sciences For Health, Inc. and Sun Company, Inc. He is also a
Trustee of the Museum of Fine Arts in Boston, an Overseer of WGBH Educational
Foundation and a Member of The American Academy of Arts and Sciences. He
previously served as a director of Fisher-Price, Inc., a major toy
manufacturer, and General Mills, Inc., a major manufacturer and distributor
of food products. Dr. Pounds is a graduate of Carnegie Mellon University.
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<PAGE>
*George Putnam. Mr. Putnam, age 68, is the Chairman and President of the
Fund and of the other Putnam funds. He is the Chairman and a Director of
Putnam and Putnam Mutual Funds Corp. and a director of Marsh & McLennan
Companies, Inc., their parent company. Mr. Putnam is the son of the founder
of the Putnam funds and Putnam and has been employed in various capacities by
Putnam since 1951, including Chief Executive Officer from 1961 to 1973. He is
a former Overseer and Treasurer of Harvard University; a past Chairman of the
Harvard Management Company; and a Trustee Emeritus of Wellesley College and
Bradford College. Mr. Putnam currently also serves as a Director of The
Boston Company, Inc., Boston Safe Deposit and Trust Company,
Freeport-McMoRan, Inc., a mining and natural resources company, General
Mills, Inc., a major manufacturer of food products, Houghton Mifflin Company,
a major publishing company, and Rockefeller Group, Inc., a real estate
manager. He is also a Trustee of Massachusetts General Hospital, McLean
Hospital, Vincent Memorial Hospital, WGBH Educational Foundation and the
Museum of Fine Arts in Boston; an Overseer of Northeastern University; and a
Member of The American Academy of Arts and Sciences. Mr. Putnam is a graduate
of Harvard College and Harvard Business School and holds honorary doctorates
from Bates College and Harvard University.
*George Putnam, III. Mr. Putnam, age 43, is the President of New
Generation Research, Inc., a publisher of financial advisory and other
research services relating to bankrupt and distressed companies, and New
Generation Advisers, Inc., a registered investment adviser which provides
advice to private funds specializing in investments in such companies. Prior
to founding New Generation in 1985, Mr. Putnam was an attorney with the
Philadelphia law firm of Dechert Price & Rhodes. Mr. Putnam currently also
serves as a Director of The World Environment Center and the Massachusetts
Audubon Society. He is also a Trustee of the Sea Education Association and
St. Mark's School and an Overseer of the New England Medical Center. Mr.
Putnam is a graduate of Harvard College, Harvard Business School and Harvard
Law School.
Eli Shapiro. Dr. Shapiro, age 78, is the Alfred P. Sloan Professor of
Management, Emeritus at the Alfred P. Sloan School of Management at the
Massachusetts Institute of Technology, having served on the faculty of the
Sloan School for eighteen years. He previously was also on the faculty of
Harvard Business School, The University of Chicago School of Business and
Brooklyn College. During his academic career, Dr. Shapiro authored numerous
publications concerning finance and related topics. Dr. Shapiro previously
served as the President and Chief Executive of the National Bureau of
Economic Research and also previously provided economic and financial
consulting services to various clients. Dr. Shapiro currently serves as a
Director of Nomura Dividend Income Fund, Inc., a privately-held registered
investment company managed by Putnam. He is also a past Director of many
companies, including Reece Corporation, a sewing machine manufacturer,
Commonwealth Mortgage, Dexter Corporation, a manufacturer of plastics and
related products, Avis Corporation, a car rental company, Connecticut Bank
and Trust Company, Connecticut National Gas Corporation, the Federal Home
Loan Bank of Boston, where he served as Chairman from 1977-1989, Travelers'
Corporation, an insurance company, and Norlin Corporation, a musical
instrument manufacturer. Dr. Shapiro is also a past Trustee of Mount Holyoke
College and the Putnam funds (from 1984-1990). Dr. Shapiro is a Fellow of The
American Academy of Arts and Sciences and is active in various professional
and civic associations, including the American Economic Association, the
American Finance Association and the Council on Foreign Relations. Dr.
Shapiro is a graduate of Brooklyn College and Columbia University.
*A.J.C. Smith. Mr. Smith, age 60, is the Chairman and Chief Executive
Officer of Marsh & McLennan Companies, Inc. He has been employed by Marsh &
McLennan and related companies in various capacities since 1961. Mr. Smith is
a Director of the Trident Corp., and also serves as a Trustee of the Carnegie
Hall
34
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Society, the Central Park Conservancy and The American Institute for
Chartered Property Underwriters and is a Founder of the Museum of Scotland
Society. He was educated in Scotland and is Fellow of the Faculty of
Actuaries in Edinburgh, a Fellow of the Canadian Institute of Actuaries, a
Fellow of the Conference of Actuaries in Public Practice, an Associate of the
Society of Actuaries, and a Member of the American Academy of Actuaries, the
International Actuarial Association and the International Association of
Consulting Actuaries.
W. Nicholas Thorndike. Mr. Thorndike, age 62, serves as a Director of
various corporations and charitable organizations, including Data General
Corporation, a computer and high technology company, Bradley Real Estate,
Inc., a real estate investment trust, Providence Journal Co., a newspaper
publisher, and Courier Corporation, a book binding and printing company. He
is also a Trustee of Eastern Utilities Associates, Massachusetts General
Hospital, where he previously served as chairman, and Northeastern
University. Prior to December 1988, he was the Chairman of the Board and
Managing Partner of Wellington Management Company/Thorndike, Doran, Paine &
Lewis, a registered investment adviser which manages mutual funds and
institutional assets. He also previously served as a Trustee of the
Wellington Group of Funds (now The Vanguard Group) and was the Chairman and a
Director of Ivest Fund, Inc. Mr. Thorndike is a graduate of Harvard College.
* Trustees who are or may be deemed to be "interested persons" (as defined
in the 1940 Act) of the Fund and Putnam. Mr. Putnam is the father of Mr.
George Putnam, III. Mr. Perkins may be deemed to be an "interested person" of
the Fund because of his service as a director of certain publicly-held
companies which include registered broker-dealer firms among their
subsidiaries. Neither the Fund nor any of the other Putnam funds currently
engages in any transactions with such firms except that certain of such firms
act as dealers in the retail sale of shares of certain Putnam funds in the
ordinary course of their business.
Messrs. Hill, Patterson, Putnam, Pounds and Thorndike and Ms. Baxter are
members of the Executive Committee of the Trustees. The Executive Committee
meets between regular meetings of the Trustees as may be required to review
investment matters and other affairs of the Fund and may exercise all of the
powers of the Trustees.
The Fund's Board of Trustees will initially consist of 13 members and be
divided into three staggered-term classes, with the term of one class
expiring each year commencing with the Fund's 1996 annual meeting of
shareholders. The terms of Messrs. Pounds, Estin and Lasser and Ms. Baxter
expire at the Fund's 1996 annual meeting of shareholders, the terms of
Messrs. Hill, Patterson and Putnam, III and Ms. Kennan expire at the Fund's
1997 annual meeting of shareholders, and the terms of Messrs. Putnam,
Perkins, Shapiro, Smith and Thorndike expire at the Fund's 1998 annual
meeting of shareholders. Upon the completion of a class's initial term, the
Trustees of such class will stand for election every three years. Such
classification may prevent replacement of a majority of the Trustees for up
to two years. See "Description of Shares - Certain Provisions in the
Agreement and Declaration of Trust."
Officers
Charles E. Porter, Executive Vice President. Managing Director of Putnam
and Putnam Investments, Inc. Executive Vice President of the Putnam funds.
Patricia C. Flaherty, Senior Vice President. Senior Vice President of the
Putnam funds.
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<PAGE>
Gordon H. Silver, Vice President. Director and Senior Managing Director of
Putnam 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 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 and
Putnam Investments, Inc. Vice President of certain of the Putnam funds.
Thomas V. Reilly, Vice President. Managing Director of Putnam and Putnam
Investments, Inc. Vice President of certain of the Putnam funds.
Edward H. D'Alelio, Vice President. Managing Director of Putnam and Putnam
Investments, Inc. Vice President of certain of the Putnam funds.
Paul M. O'Neil, Vice President. Vice President of Putnam and Putnam
Investments, Inc. Vice President of the Putnam funds.
Jennifer E. Leichter, Vice President. Senior Vice President of Putnam and
Putnam Investments, Inc. Vice President of certain of the Putnam funds.
Hugh H. Mullin, Vice President. Senior Vice President of Putnam and Putnam
Investments, 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 Fund's officers
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.
Ms. Leichter and Mr. Mullin are primarily responsible for the day-to-day
management of the Fund's portfolio. Ms. Leichter has been employed by Putnam
since 1987 and Mr. Mullin has been employed by Putnam since 1986.
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
36
<PAGE>
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.
Trustee Compensation Table
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 estimated fees to be
paid to each Trustee by the Fund for the Fund's first fiscal year and the
fees paid to each Trustee by all of the Putnam funds during 1994 are shown
below:
<TABLE>
<CAPTION>
Retirement
Year first Estimated benefits Total
elected as aggregate 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> <C>
Jameson A. Baxter 1994 $1,000 $0 $135,850
Hans H. Estin 1972 1,000 0 141,850
John A. Hill 1985 1,000 0 143,850
Elizabeth T. Kennan 1992 1,000 0 141,850
Lawrence J. Lasser 1992 1,000 0 141,850
Robert E. Patterson 1984 1,000 0 144,850
Donald S. Perkins 1982 1,000 0 139,850
William F. Pounds 1971 1,000 0 143,850
George Putnam 1957 1,000 0 141,850
George Putnam, III 1984 1,000 0 141,850
Eli Shapiro*** 1995 1,000 0 n/a
A.J.C. Smith 1986 1,000 0 137,850
W. Nicholas Thorndike 1992 1,000 0 144,850
</TABLE>
* Reflects estimated amounts to be paid by the Fund for its first fiscal
year, assuming a 12-month period. Includes an annual retainer and an
attendance fee for each meeting attended.
** Reflects total payments received from all Putnam funds in the most recent
calendar year. As of December 31, 1994, there were 86 funds in the Putnam
family.
*** Elected as Trustee of the Putnam funds in April 1995. For the calendar
year ended December 31, 1994, Dr. Shapiro received $38,577 in retirement
benefits from the Putnam funds in respect of his prior service as a
Trustee from 1984 to 1990, which benefits terminated at the end of 1994.
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
37
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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.
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 1.10%. Average net asset value is to be determined by taking
the average of the weekly determinations 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
service fees are higher than those paid by most other investment companies.
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."
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<PAGE>
Putnam expects to enter into an agreement with Smith Barney Inc. 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 Smith Barney Inc. in connection with
such services will accrue to or for the account of any of the other
Underwriters. Smith Barney Inc. 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 .25% 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
determinations 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 service 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 to 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.
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.
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<PAGE>
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 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.
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<PAGE>
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 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.
41
<PAGE>
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 in an
amount equal to the dividend or distribution at a price per Share 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 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 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
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<PAGE>
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.
The Fund or the Plan Agent may terminate the Plan as applied to any
distribution paid subsequent to written notice sent to the participants in
the Plan at least 30 days before the record date for such distribution. The
Plan may also be amended by the Fund or the Plan Agent 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.
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
43
<PAGE>
losses (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 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 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
excess, if any, of capital gains over capital losses ("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.
In determining the Fund's taxable income for federal income and excise tax
purposes, the Fund will deduct its fees and other operating expenses. In the
possible event that any of such deductions were to be disallowed for tax
purposes, the Fund would be required either to distribute amounts of taxable
income that exceed the Fund's net investment income as determined for
financial reporting purposes (in which case the Fund would incur interest and
penalties for past periods) or to pay federal income and excise taxes (and
interest for past periods) with respect to any such excess taxable income not
distributed.
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 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 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
44
<PAGE>
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 and to avoid any Fund-level income tax.
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 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. The
terms of any such offer may permit 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 or 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.
45
<PAGE>
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 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
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<PAGE>
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 voting 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., a
Massachusetts corporation with offices located at One Post Office Square,
Boston, Massachusetts 02109, 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.
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. In the event that the Shares trade at a significant discount
to their net asset value for an extended period of time Putnam will consider
recommending a share repurchase program to the Trustees. A decision on
whether to recommend a share repurchase program will depend on prevailing
market conditions and other factors. Accordingly, there can be no assurance
that Putnam will recommend a share repurchase program. 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
47
<PAGE>
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 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
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<PAGE>
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 Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013, A. G. Edwards & Sons, Inc., One North
Jefferson, St. Louis, Missouri 63103, Advest, Inc., 280 Trumbull Street,
Hartford, Connecticut 06103, Dain Bosworth Incorporated, 60 South 6th Street,
Minneapolis, Minnesota 55402, Fahnestock & Co. Inc., 110 Wall Street, New
York, New York 10005, First of Michigan Corporation, 100 Wall Street, New
York, New York 10005, Gruntal & Co., Incorporated, 14 Wall Street, New York,
New York 10005, Kemper Securities, Inc., 77 West Wacker Drive, Chicago,
Illinois 60601, Legg Mason Wood Walker, Incorporated, Legg Mason Tower, 111
South Calvert Street, Baltimore, Maryland 21202, Raymond James & Associates,
Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716, The Robinson-
Humphrey Company, Inc., 3333 Peachtree Road, N.E., Atlanta, Georgia 30326,
and Sutro & Co. Incorporated, 201 California Street, San Francisco,
California 94111, 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>
Smith Barney Inc.
A. G. Edwards & Sons, Inc.
Advest, Inc.
Dain Bosworth Incorporated
Fahnestock & Co. Inc.
First of Michigan Corporation
Gruntal & Co., Incorporated
Kemper Securities, Inc.
Legg Mason Wood Walker, Incorporated
Raymond James & Associates, Inc.
The Robinson-Humphrey Company, Inc.
Sutro & Co. Incorporated
Total 2,400,000
</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.
49
<PAGE>
Investors must pay for the Shares on the fourth business day following the
date of the final Prospectus. Investors should consult their broker
concerning the manner and method of payment.
The Fund has granted to the Underwriters an option, exercisable for 60
days from the date of this Prospectus, to purchase up to 360,000 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 2,400,000.
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 Fund has agreed
to pay up to $150,000 to the Underwriters in partial reimbursement of their
expenses in connection with this offering.
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 connection with the requirements for listing of the Fund's Shares on
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 ($2,500).
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
Shares have been approved, subject to notice of issuance, for listing on the
New York Stock Exchange under the symbol "PCV."
The Underwriting Agreement provides that it may be terminated in the
absolute discretion of the Representatives, 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 over-allotment option, as the case may be, (1) 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 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 the Representatives 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
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<PAGE>
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.
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
Smith Barney Inc. See "Investment Management Contract." Smith Barney Inc.
currently anticipates that it may from time to time effect OTC market-making
transactions in the Shares after completion of the initial public offering.
Smith Barney Inc. is not obligated to conduct any such market-making
activities and may discontinue such activities at any time without notice, at
its sole discretion. No assurance can be given as to the liquidity of or the
trading market for the Shares as a result of any market-making activities
undertaken by Smith Barney Inc.
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 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.
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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 May , 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 May , 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 May , 1995 in conformity
with generally accepted accounting principles.
Boston, Massachusetts
May , 1995
52
<PAGE>
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
May , 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 shares of beneficial interest without par value
issued and outstanding; unlimited number of shares authorized $
NET ASSET VALUE PER SHARE $
</TABLE>
Notes to Financial Statement
Note 1. Organization
The Fund was organized as a Massachusetts business trust on February 23,
1995, and is registered under the Investment Company Act of 1940, as amended,
as a closed-end, diversified management investment company. The Fund has had
no operations other than those relating to organizational matters, and the
initial capital contribution of $100,000 has been made by Putnam Investments,
Inc. Certain expenses incurred by the Fund in connection with its
organization and its initial public offering have been or will be paid
initially by Putnam Investment Management, Inc. ("Putnam"), the Fund's
investment manager; however, the Fund will reimburse Putnam for certain of
these costs. Organizational costs, estimated at $, have been capitalized and
will be amortized by the Fund over a period not to exceed 60 months from the
date the Fund commences operations; offering costs will be charged to capital
upon completion of this offering.
Note 2. Investment Management Contract and Administrative Services Contract
The Fund has entered into an Investment Management Contract with Putnam.
As compensation for the services rendered, facilities furnished, and expenses
borne by Putnam, the Fund will pay Putnam a fee, computed and paid quarterly,
at the annual rate of 1.10% of the average net asset value of the Fund.
The Fund has entered into an Administrative Services Contract with Putnam.
As compensation for the services rendered, facilities furnished, and expenses
borne by Putnam, the Fund will pay Putnam a fee, computed and paid quarterly,
at the annual rate of 0.25% of the average net asset value of the Fund.
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<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-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than
the Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Baa - Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Standard & Poor's 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 it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
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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 as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation
and 'CCC' the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB - Debt rated 'BB' has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The 'BB' rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied 'BBB-' rating.
B - Debt rated 'B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'BB' or 'BB-' rating.
CCC - Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The 'CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'B' or 'B-' rating.
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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 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 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 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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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 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 futures contract generally creates an obligation by the
seller to deliver the type of financial instrument or commodity 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 futures contract creates an
obligation by the purchaser to take delivery of the underlying financial
instrument or commodity 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 financial instruments, 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
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value of the futures contract fluctuates. For example, when the Fund has
purchased a futures contract and the price of the underlying index, currency
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, currency 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 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 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.
B-3
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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 similar
to the use of options on index futures contracts.
U.S. Government securities futures contracts and options. The Fund may
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 securities futures contracts give the purchaser
the right in return for the premium paid to assume a position in a U.S.
Government securities 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
There are several risks in connection with the use by the Fund of futures
contracts and options on such contracts. 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 options 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. There is also
a risk that price movements in U.S. Government securities futures contracts
and options will not correlate closely with price movements in the securities
that are the subject of a hedge.
Successful use of futures contracts and related options by the Fund 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.
Similarly, successful use of U.S. Government securities futures contracts
and related options 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 securities 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, the prices of futures and related options may not correlate
perfectly with movements in the underlying index, security or currency 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,
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security or currency 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 profitable
transaction over a short time period.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on securities, currencies, 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 security, currency or index. The writing of an option on a
futures contract, security, currency or 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 these strategies may result in a higher portfolio
turnover rate and additional brokerage costs. In addition, 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.
To reduce or eliminate a position held by the Fund (including for the
purpose of taking a subsequent position in the same futures contract or
option), 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 or
currencies; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of
contracts or options (or a particular class or series of contracts or
options), in which event the 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 an 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 ("CFTC"). There can be no
assurance that such approvals will be obtained.
B-5
<PAGE>
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. 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 and 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 and sell foreign currency
forward contracts and foreign currency futures contracts and may purchase put
and call options on foreign currencies and foreign currency futures contracts
on exchanges or over-the-counter. 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 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 foreign currency exchange transactions are entered into
and the dates they mature.
It is impossible to forecast with precision the market value of securities
at the expiration or maturity of a forward or futures contract. Accordingly,
it may be necessary for the Fund to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if the market value
of the security or securities being hedged is less than the amount of foreign
currency the Fund is obligated to deliver and if a decision is made to sell
the security or securities and make delivery of the foreign currency.
Conversely,
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<PAGE>
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, if successful,
these techniques can 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 currencies of certain foreign countries are not widely traded, and as
a result foreign currency exchange transactions may not be available with
respect to such currencies.
The Fund may seek to increase its current return or to offset some of the
costs of hedging against fluctuations in current exchange rates by writing
covered call options and covered put options on foreign currencies. The Fund
receives a premium from writing a call or put option, which increases the
Fund's current return if the option expires unexercised or is closed out at a
net profit. The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written.
The Fund's currency hedging transactions may call for the delivery of one
foreign currency in exchange for another foreign currency and may at times
not involve currencies in which its portfolio securities are then
denominated. Putnam will engage in such "cross hedging" activities when it
believes that such transactions provide significant hedging opportunities for
the Fund. Cross hedging transactions by the Fund involve the risk of
imperfect correlation between changes in the values of the currencies to
which such transactions relate and changes in the value of the currency or
other asset or liability which is the subject of a hedge.
Currency Forward and Futures Contracts
A forward foreign currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract as agreed by the parties, at a price set
at the time of the contract. In the case of a cancelable forward contract,
the holder has the unilateral right to cancel the contract at maturity by
paying a specified fee. The contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks)
and their customers. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for trades. A foreign currency
futures contract is a standardized contract for the future delivery of a
specified amount of a foreign currency at a future date at a price set at the
time of the contract. Foreign currency futures contracts traded in the United
States are designed by and traded on exchanges regulated by the CFTC, such as
the New York Mercantile Exchange.
Forward foreign currency 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 currency contracts are
traded directly between currency traders so that no intermediary is required.
A forward contract generally requires no margin or other deposit.
C-2
<PAGE>
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 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. For
additional information concerning futures contracts and related options, see
Appendix B.
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.
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 or, in the case of cross hedges,
the two foreign currencies 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.
Foreign Currency Markets and Settlement Procedures
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
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<PAGE>
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 futures or options markets are closed while the markets
for the underlying currencies remain open, significant price and rate
movements may take place in the underlying currency markets that cannot be
reflected in the futures or options markets.
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 foreign currency exchange transactions 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.
C-4
<PAGE>
APPENDIX D--PERFORMANCE DATA AND OTHER STATISTICAL INFORMATION
Performance Data of Selected Putnam Funds
The Fund is newly organized and has no performance record of its own.
However, Putnam acts as investment manager to a number of open-end and
closed-end investment companies that invest primarily in Convertible
Securities, Nonconvertible High Yield Securities or a combination of both.
The investment objectives and policies of these funds, which differ in
certain respects from the Fund's investment objectives and policies, are
described below. In addition, in certain cases funds having similar
investment objectives and policies may have been managed with different
investment styles and emphasized different sectors of the market for
Convertible Securities or Nonconvertible High Yield Securities. In certain
cases the investment objectives and policies of these funds or their
investment styles have changed since inception. Also, the net assets and
expense ratios of the funds have varied over the periods shown.
The following table sets forth the average annual total return and
standard deviation for these funds as calculated by Lipper Analytical
Services, Inc. ("Lipper") for the periods shown. The total return information
shown in the table does not include the effect of sales charges imposed by
open-end funds. See "Total Return Calculations" below for more information.
Except as noted below, each fund's overall Morningstar rating, which, as
described below under "Morningstar Ratings," is determined by Morningstar,
Inc. based on a weighted average of a fund's Morningstar ratings for selected
periods, is also included in the table. In the narrative following the table,
each fund's average annual total return, calculated using the SEC
standardized total return formula, which reflects the effect of sales charges
imposed by open-end funds, is also presented, along with its Morningstar
rating for each period used in determining its overall Morningstar rating.
The performance and standard deviation information in the table and the
performance information in the narrative following the table do not represent
the Fund's investment performance and standard deviation, nor should it be
considered a prediction of the Fund's performance and standard deviation. The
Fund's performance and standard deviation may be higher or lower than the
performance and standard deviation of the Putnam funds presented below.
D-1
<PAGE>
TABLE 1
AVERAGE ANNUAL TOTAL RETURN AND STANDARD DEVIATION(1)
(PERIODS ENDED APRIL 30, 1995)
<TABLE>
<CAPTION>
1 Year 3 Years 3 Years 5 Years 5 Years 7 Years
Putnam Funds Ann. Ret. Ann. Ret. Std. Dev. Ann. Ret. Std. Dev. Ann. Ret.
<S> <C> <C> <C> <C> <C> <C>
Putnam High Income
Convertible and
Bond Fund 6.88% 13.42% 4.59% 16.93% 8.30% 12.81%
Putnam Convertible
Income-Growth Trust
(Class A Shares)
(4) 9.44 11.60 5.81 12.92 9.58 11.30
Putnam High Yield
Advantage Fund
(Class A Shares) 4.75 9.47 5.10 15.77 7.87 10.67
Putnam High Yield
Trust (Class A
Shares) 4.69 9.11 4.78 14.56 7.19 10.28
PCM High Yield
Fund (5) 8.49 10.89 4.57 15.90 8.11 10.45
Putnam Managed High
Yield Trust (6) 5.34 n/a n/a n/a n/a n/a
</TABLE>
<TABLE>
<CAPTION>
Since Since
Incep- Incep-
7 Years 10 Years 10 Years tion (2) tion (2) Morningstar
Putnam Funds Std. Dev. Ann. Ret. Std. Dev. Ann. Ret. Std. Dev. Rating (3)
<S> <C> <C> <C> <C> <C> <C>
Putnam High Income
Convertible and
Bond Fund 7.66% n/a n/a 11.10% 8.69% 5 stars
Putnam Convertible
Income-Growth Trust
(Class A Shares)
(4) 9.17 11.37 11.68 11.89 n/a 4 stars
Putnam High Yield
Advantage Fund
(Class A Shares) 7.69 n/a n/a 10.04 7.41 5 stars
Putnam High Yield
Trust (Class A
Shares) 6.92 11.06 6.53 11.02 8.85 4 stars
PCM High Yield
Fund (5) 7.92 n/a n/a 10.31 7.84 n/a
Putnam Managed High
Yield Trust (6) n/a n/a n/a 5.50 5.38 n/a
</TABLE>
(1) Average annual total return shown in the table does not reflect the
effect of sales charges. For information concerning how Lipper calculates
total return, see "Total Return Calculations" below. Standard deviation
is an annualized statistical measure of the range of performance within
which a fund's monthly total return has fallen. A high standard deviation
indicates that the range of performance has been very wide, meaning that
there has been historically greater volatility. Standard deviations of
monthly returns for a one-year period are not considered statistically
meaningful and are therefore not presented.
(2) The inception dates for the Putnam funds shown in the table are provided
in the discussion following the table.
(3) As of April 30, 1995. For information concerning how these ratings are
determined by Morningstar, Inc., see "Morningstar Ratings" below.
(4) Lipper does not report the fund's standard deviation for the period June
29, 1972 (the fund's inception) through April 30, 1995.
(5) Insurance-related charges and expenses of the separate accounts investing
in the fund are not reflected in the fund's performance information.
Morningstar does not rate the fund independently from the separate
accounts investing in the fund.
(6) Because the fund has been in operation for less than three years, the
fund has no Morningstar rating.
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<PAGE>
Putnam High Income Convertible and Bond Fund ("High Income Convertible"),
which commenced operations on July 16, 1987, is a diversified closed-end
investment company. High Income Convertible's primary investment objective is
high current income. Capital appreciation is a secondary objective. Under
normal market conditions, High Income Convertible invests approximately
60-70% of its assets in convertible securities and common stocks or other
securities received upon conversion or exchange of convertible securities and
30-40% of its assets in Nonconvertible High Yield Securities rated at least
Caa by Moody's or CCC by Standard & Poor's and in nonrated securities
determined by Putnam to be of comparable quality. Unlike the Fund, which
expects that initially its investments in Convertible Securities will
emphasize Convertible Securities with conversion values in excess of their
investment values, High Income Convertible typically emphasizes investments
in convertible securities having conversion values substantially below their
investment values. As a result, such convertible securities tend to trade
more like nonconvertible debt securities or preferred stock. For a discussion
of conversion value, see "Investment Objectives and Policies--Basic
Investment Strategy." High Income Convertible may invest up to 20% of its
assets in securities principally traded in foreign markets. High Income
Convertible may write covered call options with respect to securities in its
portfolio. No more than 5% of High Income Convertible's assets may be
invested in the securities of any one issuer (other than the U.S.
Government). As of April 30, 1995, High Income Convertible had approximately
$119.6 million in assets. For its fiscal year ended August 31, 1994, High
Income Convertible had a total expense ratio of 1.04%. High Income
Convertible's average annual total return, calculated by reference to changes
in net asset value, for the one-, three-, five- and seven-year periods ended
April 30, 1995 and for the life of High Income Convertible through that date
was 6.81%, 13.30%, 17.13%, 13.15% and 11.36%, respectively. High Income
Convertible's average annual total return, calculated by reference to changes
in the market price of its shares, for the one-, three-, five- and seven-year
periods ended April 30, 1995 and for the life of High Income Convertible
through that date was 4.22%, 12.98%, 21.09%, 13.84% and 10.64%, respectively.
High Income Convertible's Morningstar rating for the three- and five-year
periods ended April 30, 1995 was five stars for both periods.
Putnam Convertible Income-Growth Trust ("Convertible Income-Growth"),
which commenced operations on June 29, 1972, is a diversified open-end
investment company investing primarily in convertible securities. Convertible
Income-Growth seeks, with equal emphasis, current income and capital
appreciation. Its secondary objective is conservation of capital. Under
normal market conditions, Convertible Income-Growth invests at least 65% of
its assets in convertible securities. The remainder may be invested in common
stocks, nonconvertible preferred stocks and debt securities. Convertible
Income-Growth will only invest in nonconvertible debt securities rated at
least Caa by Moody's or CCC by Standard & Poor's and may only invest up to
10% of its assets in convertible securities rated Ca or C by Moody's or CC or
C by Standard & Poor's and in nonrated securities determined by Putnam to be
of comparable quality. Convertible Income-Growth may not invest in securities
rated, at the time of purchase, below C by Moody's and Standard & Poor's or
in nonrated securities determined by Putnam to be of comparable quality.
Convertible Income-Growth may invest up to 10% of its assets in securities
principally traded in foreign markets. Convertible Income-Growth may purchase
and sell put and call options on securities. No more than 5% of its assets
may be invested in the securities of any one issuer (other than the U.S.
Government). As an open-end investment company, Convertible Income-Growth can
invest no more than 15% of its assets in illiquid securities. As of April 30,
1995, Convertible Income-Growth had approximately $768.8 million in assets.
For its fiscal year ended October 31, 1994, Convertible Income-Growth had a
total expense ratio of 0.96%. Convertible Income-Growth's average annual
total return for its Class A shares
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<PAGE>
for the one-, three-, five-, seven- and ten-year periods ended April 30, 1995
and for the life of Convertible Income- Growth through that date was 3.14%,
9.42%, 11.59%, 10.37%, 10.71% and 11.60%, respectively, adjusted to reflect
deduction of the maximum sales charge of 5.75%. Convertible Income-Growth's
Morningstar rating for its Class A shares for the three-, five- and ten-year
periods ended April 30, 1995 was four stars, four stars and three stars,
respectively.
Putnam High Yield Advantage Fund ("High Yield Advantage"), which commenced
operations on March 25, 1986, is a diversified open-end investment company
investing primarily in high-yielding, lower- rated fixed income securities.
The primary investment objective of High Yield Advantage is high current
income. Capital growth is a secondary objective when consistent with the
objective of high current income. Under normal market conditions, High Yield
Advantage invests at least 80% of its assets in debt securities, convertible
securities and preferred stocks that are consistent with its primary
objective of high current income. High Yield Advantage may invest up to 15%
of its assets in securities rated below Caa by Moody's or CCC by Standard &
Poor's, including securities in the lowest rating category of each rating
agency, and in nonrated securities determined by Putnam to be of comparable
quality. High Yield Advantage may invest up to 20% of its assets in
securities principally traded in foreign markets. No more than 5% of High
Yield Advantage's assets may be invested in the securities of any one issuer
(other than the U.S. Government). As an open-end investment company, High
Yield Advantage can invest no more than 15% of its assets in illiquid
securities. As of April 30, 1995, High Yield Advantage had approximately
$861.6 million in assets. For its fiscal year ended November 30, 1994, High
Yield Advantage had a total expense ratio of 1.03%. High Yield Advantage's
average annual total return for its Class A shares for the one-, three-,
five- and seven-year periods ended April 30, 1995 and for the life of High
Yield Advantage through that date was -0.18%, 7.72%, 14.66%, 9.91% and 9.45%,
respectively, adjusted to reflect deduction of the maximum sales charge of
4.75%. High Yield Advantage's Morningstar rating for its Class A shares for
the three- and five-year periods ended April 30, 1995 was four stars and five
stars, respectively.
Putnam High Yield Trust ("High Yield"), which commenced operations
on February 14, 1978, is a diversified open-end investment company investing
primarily in high-yielding, lower-rated fixed income securities. The primary
investment objective of High Yield is high current income. Capital growth is
a secondary objective when consistent with the objective of high current
income. Under normal market conditions, High Yield invests at least 80% of
its assets in debt securities, convertible securities and preferred stocks
that are consistent with its primary objective of high current income. High
Yield may invest in any security rated, at the time of purchase, at least Caa
by Moody's or CCC by Standard & Poor's and in nonrated securities determined
by Putnam to be of comparable quality. It may invest up to 20% of its assets
in securities principally traded in foreign markets. No more than 5% of High
Yield's assets may be invested in the securities of any one issuer (other
than the U.S. Government). As an open-end investment company, High Yield can
invest no more than 15% of its assets in illiquid securities. As of April 30,
1995, High Yield had approximately $3.6 billion in assets. For its fiscal
year ended August 31, 1994, High Yield had a total expense ratio of 0.94%.
High Yield's average annual total return for its Class A shares for the one-,
three-, five-, seven- and ten-year periods ended April 30, 1995 and for the
life of High Yield through that date was -0.31%, 7.36%, 13.46%, 9.51%, 10.52%
and 10.67%, respectively, adjusted to reflect deduction of the maximum sales
charge of 4.75%. High Yield's Morningstar rating for its Class A shares for
the three-, five- and ten-year periods ended April 30, 1995 was four stars,
five stars and four stars, respectively.
D-4
<PAGE>
PCM High Yield Fund ("PCM High Yield"), which commenced operations on
February 1, 1988, is a series of Putnam Capital Manager Trust, an open-end
investment company the shares of which are available only through separate
accounts associated with variable annuity contracts and variable life
insurance policies. PCM High Yield invests primarily in high-yielding,
lower-rated fixed income securities. The primary investment objective of PCM
High Yield is high current income. Capital growth is a secondary objective
when consistent with the objective of high current income. Under normal
market conditions, PCM High Yield invests at least 80% of its assets in debt
securities, convertible securities and preferred stocks that are consistent
with its primary objective of high current income. PCM High Yield may invest
without limit in securities rated, at the time of purchase, at least Caa by
Moody's or CCC by Standard & Poor's, and in nonrated securities determined by
Putnam to be of comparable quality, and may invest up to 15% of its assets in
securities rated below Caa by Moody's or CCC by Standard & Poor's, including
securities in the lowest rating category of each agency, or in nonrated
securities determined by Putnam to be of comparable quality. PCM High Yield
may invest up to 20% of its assets in securities principally traded in
foreign markets. PCM High Yield generally may not invest more than 5% of its
assets in the securities of any issuer. As a series of an open-end investment
company, PCM High Yield can invest no more than 15% of its assets in illiquid
securities. As of April 30, 1995, PCM High Yield had approximately $402.7
million in assets. For its fiscal year ended December 31, 1994, PCM High
Yield had a total expense ratio of .74%. PCM High Yield's average annual
total return for the one-, three-, five- and seven-year periods ended April
30, 1995 and for the life of PCM High Yield through that date was 8.46%,
10.88%, 15.89%, 10.69% and 10.31%, respectively. Insurance-related charges
and expenses of the separate accounts investing in PCM High Yield are not
reflected in PCM High Yield's performance information.
Putnam Managed High Yield Trust ("Managed High Yield"), which commenced
operations on June 26, 1993, is a non-diversified closed-end investment
company investing primarily in high-yielding, lower-rated fixed income
securities. The primary investment objective of Managed High Yield is high
current income. Capital growth is a secondary objective when consistent with
the principal objective of high current income. Under normal market
conditions, Managed High Yield invests at least 80% of its assets in
securities rated Ba or B by Moody's or BB or B by Standard & Poor's or
comparably rated by any other nationally recognized securities rating
organization or in nonrated securities determined by Putnam to be of
comparable quality. Managed High Yield may only invest in securities rated,
at the time of purchase, at least B by Moody's or Standard & Poor's or
comparably rated by any other nationally recognized securities rating
organization or in nonrated securities determined by Putnam to be of
comparable quality. Managed High Yield may invest up to 15% of its assets in
U.S. dollar-denominated securities of foreign issuers and up to 5% of its
assets in securities denominated and traded in foreign currencies. Managed
High Yield may invest up to 25% of its assets in each of any two issuers and,
with respect to the remaining 50% of its assets, may not invest more than 5%
of its assets in the securities of any one issuer (other than the U.S.
Government). As of April 30, 1995, Managed High Yield had approximately $96.5
million in assets. For its fiscal year ended May 31, 1994, Managed High Yield
had a total expense ratio of 1.07%. Managed High Yield's average annual total
return, calculated by reference to changes in net asset value, for the
one-year period ended April 30, 1995 and for the life of Managed High Yield
through that date was 5.75% and 5.74%, respectively. Managed High Yield's
average annual total return, calculated by reference to changes in the market
price of its shares, for the one-year period ended April 30, 1995 and for the
life of Managed High Yield through that date was 6.86% and -1.24%,
respectively.
D-5
<PAGE>
Total Return Calculations. Average annual total return calculated by
Putnam using the SEC's standardized total return formula is based upon the
change in value of an assumed initial investment of $1,000 from the beginning
through the end of a period and assumes reinvestment of all dividends and
other distributions. The result is then annualized and expressed as a
percentage of the initial investment, and includes the effect of operating
expenses, including advisory fees and brokerage commissions, and applicable
sales charges in the case of open-end funds. In the case of closed-end funds,
average annual total return is also calculated using this formula based both
on changes in the market price of a fund's shares and changes in net asset
value.
Lipper, a firm recognized for its reporting of performance of open-end and
closed-end investment companies, calculates average annual total return by
comparing an investment company's net asset value at the beginning and end of
a period, with the result being expressed as a percentage change in the
beginning net asset value. The net asset value is adjusted to reflect the
compounding effect of reinvesting income dividends as well as capital gains
distributions, if any. Distributions are reinvested on the ex-dividend date
at the ex-dividend net asset value. The cumulative return obtained is then
annualized. According to Lipper, performance data reflects all fees and
expenses other than front-end sales charges or redemption fees.
Other methods of computing average annual total return may produce
different results.
Morningstar Ratings. Morningstar, Inc. ("Morningstar") regularly
distributes mutual fund star ratings. According to Morningstar, these ratings
represent a fund's historical risk/reward ratio relative to other funds
within its investment class as determined by Morningstar. Total return data
underlying this ratio reflects deduction of expenses and sales charges and is
expressed relative to the average performance of other funds within an
investment class. The risk component underlying this ratio evaluates a fund's
downside volatility relative to that of other funds within its investment
class. To determine a fund's star rating for a given period, Morningstar
subtracts the fund's comparative risk score from its return score. The
resulting number is plotted along a bell curve to determine the fund's rating
for the relevant time period: If a fund scores in the top 10% of its class it
receives five stars (highest); if it falls in the next 22.5% it receives four
stars (above average); a place in the middle 35% earns it three stars
(neutral or average); those lower still, in the next 22.5%, receive two stars
(below average); and the bottom 10% get one star (lowest). Morningstar's
overall rating for each fund is based on a weighted average of the fund's
three-, five- and ten-year ratings. The ten-year rating accounts for 50% of
the overall rating, the five-year figure for 30% and the three-year rating
for 20%. If only five years of history are available, the five-year period is
weighted 60% and the three-year period is weighted 40%. If only three years
of data are available, the three-year rating is also the overall rating.
All of the Putnam funds shown in Table 1 are in Morningstar's hybrid
investment class. For the three-, five- and ten-year periods ended April 30,
1995, Morningstar ranked open-end hybrid funds against a universe of 2,086,
1,520 and 671 funds, respectively. For the three- and five-year periods ended
April 30, 1995, Morningstar ranked closed-end hybrid funds against a universe
of 198 and 166 funds, respectively.
Market Indices
The following table shows the total return of each of the indices shown
under the heading "Investment Considerations" on a quarter-by-quarter basis
since December 31, 1987 (the inception date of the Merrill Lynch All
Convertible Bonds & Preferreds Index). Additional information concerning
these indices, each of which is unmanaged and market-weighted and is not
adjusted for fees, commissions or other costs, is provided after the table.
The securities the Fund owns will not match and are not intended to be
representative of those in any of the indices.
D-6
<PAGE>
TABLE 2
QUARTERLY RETURNS
<TABLE>
Merrill Lynch
All Convertible CS 50/50
Bonds & First Boston Convertible S&P 500 Russell
Preferreds High Yield and High Yield Composite 2000
Index Index Index Stock Price Index Index
<S> <C> <C> <C>
1988
First Quarter 7.54% 5.69% 6.61% 5.75% 19.07%
Second Quarter 4.59 3.36 3.98 6.54 6.59
Third Quarter -0.41 1.76 0.68 0.37 -0.94
Fourth Quarter 0.66 2.24 1.46 3.02 -0.66
1989
First Quarter 5.80 1.74 3.76 7.02 7.70
Second Quarter 4.75 3.61 4.19 8.80 6.37
Third Quarter 4.08 -2.06 0.98 10.65 6.75
Fourth Quarter -2.45 -2.75 -2.60 2.02 -4.95
1990
First Quarter -1.07 -2.58 -1.82 -3.06 -2.21
Second Quarter 3.39 5.74 4.59 6.30 3.86
Third Quarter -11.61 -9.04 -10.29 -13.80 -24.54
Fourth Quarter 2.86 -0.08 1.41 8.98 5.03
1991
First Quarter 16.55 18.52 17.56 14.56 29.74
Second Quarter 2.01 7.41 4.73 -0.21 -1.55
Third Quarter 5.97 7.65 6.82 5.38 8.15
Fourth Quarter 4.74 4.90 4.85 8.36 5.73
1992
First Quarter 7.46 8.19 7.83 -2.55 7.50
Second Quarter 1.99 2.46 2.23 1.97 -6.82
Third Quarter 4.77 3.61 4.20 3.10 2.87
Fourth Quarter 6.61 1.58 4.07 5.11 14.92
1993
First Quarter 8.36 6.97 7.67 4.31 4.27
Second Quarter 3.04 3.89 3.46 0.49 2.18
Third Quarter 4.41 2.48 3.44 2.56 8.74
Fourth Quarter 1.99 4.41 3.21 2.31 2.62
1994
First Quarter -2.76 -1.06 -1.91 -3.81 -2.65
Second Quarter -3.86 -1.44 -2.66 0.39 -3.89
Third Quarter 2.24 1.60 1.93 4.92 6.94
Fourth Quarter -2.78 -0.04 -1.41 0.01 -1.87
1995
First Quarter 6.56 4.71 5.63 9.73 4.61
</TABLE>
D-7
<PAGE>
The CS First Boston High Yield Index, which is maintained by CS First
Boston Corporation, is comprised of all publicly traded bonds having an
initial par value of at least $75 million and a rating below BBB by Standard
& Poor's or Baa by Moody's at the time of issuance, a market value of at
least $75 million and a rating below BBB by Standard & Poor's or Baa by
Moody's two months after being downgraded, or an initial par value or a
market value of at least $125 million and a rating of BBB by Standard &
Poor's and Ba by Moody's or BB by Standard & Poor's and Baa by Moody's. The
CS First Boston High Yield Index excludes bonds upgraded above BBB by
Standard & Poor's and Baa by Moody's, defaulted issues with market values
below $20 million for six consecutive months and non-defaulted issues with
market values below $50 million for six consecutive months. The CS First
Boston High Yield Index reflects changes in market prices and reinvestment of
all interest payments.
The Merrill Lynch All Convertible Bonds & Preferreds Index (the "Merrill
Lynch Convertible Index"), which is maintained by Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), includes all significant
publicly-held convertible securities of at least $50 million market value
issued by U.S. corporations with maturities of at least one year. No
securities which are convertible into cash, bonds or preferred stocks as a
result of mergers, no convertible securities of bankrupt issuers, and no
convertible securities with mandatory conversion features are included in the
Merrill Lynch Convertible Index. The Merrill Lynch Convertible Index reflects
changes in market prices and reinvestment of all interest payments.
The 50/50 Convertible and High Yield Index is an index prepared by Putnam,
50% of the value of which is represented by the Merrill Lynch Convertible
Index and 50% of the value of which is represented by the CS First Boston
High Yield Index, with such weightings being reset monthly. Performance
figures for the 50/50 Convertible and High Yield Index reflect changes in
market prices and reinvestment of all interest payments.
The S&P 500 Composite Stock Price Index (the "S&P 500"), which is
maintained by Standard & Poor's, is comprised of 500 stocks that are traded
on the New York or American Stock Exchanges or through The Nasdaq Stock
Market, Inc. According to Standard & Poor's, the stocks are intended to be
representative of important industries within the U.S. economy and many are
issued by companies that are also the leaders of their industries. The S&P
500 performance figures reflect changes in market prices and reinvestment of
all cash dividends.
The Russell 2000 Index (the "Russell 2000") is maintained by Frank Russell
Co. In constructing the Russell 2000, Frank Russell Co. first identifies the
3,000 largest-capitalization common stocks of U.S.-domiciled corporations,
then excludes from such list the 1,000 largest-capitalization common stocks.
The remaining stocks comprise the index. The Russell 2000 performance figures
reflect changes in market prices and reinvestment of all regular cash
dividends.
The foregoing descriptions of the various market indices are based on
current information concerning the criteria for a security's inclusion in
each index. However, such criteria, as well as the securities comprising each
index, are subject to change from time to time. For example, as of January 1,
1995, the securities comprising the Merrill Lynch Convertible Index changed
due to both changes in the criteria for a security's inclusion in the index
(an increase in the minimum market value from $25 million to $50 million) and
changes in the securities included in the index in order for the index to be,
in the opinion of Merrill Lynch, more representative of the convertible
securities market.
D-8
<PAGE>
Statistical Information Concerning Convertible Securities
In Putnam's view, Convertible Securities, under current market conditions,
are attractively valued. Putnam's view is based on a variety of factors,
including its analysis of certain statistical data about the market for
Convertible Securities. This data is summarized in the following table. To
the extent available, the information in the following table is as of the end
of each month since the inception of the Merrill Lynch Convertible Index on
December 31, 1987.
TABLE 3
Source: Merrill Lynch Convertible Index
<TABLE>
<CAPTION>
Average
Average Average Break-Even Average Premium to
Current Yield Conversion Premium (years) Investment Value
<S> <C> <C> <C> <C>
1988
January 31 n/a n/a n/a n/a
February 29 n/a n/a n/a n/a
March 31 n/a n/a n/a n/a
April 30 n/a n/a n/a n/a
May 31 n/a n/a n/a n/a
June 30 n/a n/a n/a n/a
July 31 n/a n/a n/a n/a
August 31 7.59% n/a 5.14 56.96%
September 30 7.61 n/a 6.52 50.26
October 31 7.57 n/a 5.06 47.17
November 30 7.62 n/a 4.44 44.54
December 31 7.52 33.27% 4.09 48.82
1989
January 31 7.32 30.02 3.36 51.68
February 28 7.32 31.10 3.97 52.74
March 31 7.14 30.37 3.85 54.36
April 30 6.90 28.70 3.41 59.90
May 31 7.06 27.96 3.44 52.43
June 30 7.03 29.15 3.95 48.08
July 31 6.74 27.05 3.26 51.62
August 31 6.76 25.76 3.31 58.01
September 30 6.69 29.14 3.42 61.96
October 31 6.66 33.79 4.34 59.12
November 30 6.53 33.74 4.06 58.36
December 31 6.70 31.18 3.90 58.57
1990
January 31 7.04 39.99 4.82 n/a
February 28 6.96 35.82 4.43 53.44
March 31 6.88 34.71 4.24 60.84
April 30 7.01 37.45 4.61 56.74
May 31 7.13 32.34 3.76 66.33
June 30 6.97 34.48 3.80 57.56
July 31 7.11 38.21 4.00 54.41
August 31 7.59 46.82 4.70 42.80
September 30 7.78 52.20 4.45 46.75
October 31 8.19 49.35 4.36 45.24
D-9
<PAGE>
Average
Average Average Break-Even Average Premium to
Current Yield Conversion Premium (years) Investment Value
November 30 7.91% 46.26% 4.20 50.60%
December 31 7.78 42.19 3.93 50.83
1991
January 31 7.57 38.90 3.74 54.32
February 28 6.77 34.87 3.57 68.38
March 31 6.78 36.15 3.65 59.86
April 30 6.56 38.07 4.09 56.40
May 31 6.36 34.99 3.60 58.92
June 30 6.51 45.02 4.39 52.71
July 31 6.31 43.35 4.09 60.24
August 31 6.11 39.94 3.83 60.41
September 30 6.19 40.90 3.85 59.56
October 31 6.00 48.66 4.72 41.28
November 30 6.24 51.28 5.64 45.76
December 31 6.00 44.43 4.94 51.24
1992
January 31 5.65 46.64 5.19 56.55
February 29 5.60 41.34 4.78 57.93
March 31 5.69 42.39 4.88 50.56
April 30 5.65 41.57 4.42 51.08
May 31 5.55 42.82 4.84 54.36
June 30 5.67 42.82 4.75 46.07
July 31 5.58 43.68 4.81 51.29
August 31 5.67 50.18 5.41 46.67
September 30 5.58 50.41 5.58 44.45
October 31 6.29 49.51 5.35 41.75
November 30 5.41 41.49 4.73 55.34
December 31 5.24 38.85 4.58 52.96
1993
January 31 5.04 34.29 4.05 55.71
February 28 5.00 34.69 4.10 57.62
March 31 5.00 33.07 4.10 61.68
April 30 5.03 37.05 4.33 53.70
May 31 4.94 34.63 4.27 59.25
June 30 4.83 35.10 4.45 61.71
July 31 4.77 36.77 4.42 63.09
August 31 4.74 35.20 4.31 57.65
September 30 4.81 36.61 4.44 55.09
October 31 4.64 33.54 4.44 60.43
November 30 4.79 35.06 4.62 55.91
December 31 4.75 32.11 4.14 58.50
D-10
<PAGE>
Average
Average Average Break-Even Average Premium to
Current Yield Conversion Premium (years) Investment Value
1994
January 31 4.82% 29.70% 3.92 61.79%
February 28 4.90 30.59 4.16 58.30
March 31 5.16 32.61 4.31 51.46
April 30 5.28 32.61 3.94 63.34
May 31 5.34 30.95 3.60 64.59
June 30 5.52 31.97 3.63 62.12
July 31 5.36 30.41 3.16 67.62
August 31 5.29 28.34 3.15 67.41
September 30 5.40 27.87 3.11 63.98
October 31 5.36 27.86 2.97 66.85
November 30 5.63 32.05 3.34 53.21
December 31 5.63 29.03 2.73 54.74
1995
January 31 n/a n/a n/a n/a
February 28 n/a n/a n/a n/a
March 31 5.2 24.5 2.3 65.1
April 30 5.1 24.3 2.6 58.7
</TABLE>
The foregoing data represents the market-weighted average, calculated by
Merrill Lynch, of securities included in the Merrill Lynch Convertible Index.
The conversion premium of a convertible security is the security's price
above its conversion value, expressed as a percentage. A convertible
security's conversion value is determined by multiplying the number of shares
the holder of a convertible security is entitled to receive upon conversion
or exchange by the current price of the underlying security. A convertible
security's break-even period represents the time it will take (measured in
years) for the greater current income of a convertible security (measured as
the excess over the income provided by the underlying security) to offset the
conversion premium. The premium to investment value is the premium of a
convertible security's price above its investment value, expressed as a
percentage. A convertible security's investment value represents the value of
the security without its conversion feature (i.e., a nonconvertible fixed
income security). The yield of a convertible security represents its current
yield.
The information in the table, which is provided for illustrative purposes
only, is as of the dates shown above. Presentation of similar information as
of different points in time would show different results and the data shown
may have varied significantly during the month. The securities the Fund owns
will not match those in the Merrill Lynch Convertible Index and, accordingly,
the information in the table is not intended to reflect the characteristics
of the Fund's portfolio or the Convertible Securities in which it will
invest. There can be no assurance that Putnam's analysis of this data or its
view concerning Convertible Securities is or will be correct. Although Putnam
believes this data supports its view that Convertible Securities are
currently attractively valued, other investment professionals, based on this
or other data, may conclude differently. See "Special Considerations and Risk
Factors" for additional information concerning the risks associated with an
investment in the Fund.
D-11
<PAGE>
Statistical Information Concerning Nonconvertible High Yield Securities
The following table provides information as of the end of each quarter
since the inception of the CS First Boston High Yield Index concerning
comparative yields on Nonconvertible High Yield Securities and U.S. Treasury
securities. "Average yield" for Nonconvertible High Yield Securities is based
on the market-weighted average of the "yield-to-worst" of all securities
included in the CS First Boston High Yield Index. According to CS First
Boston Corporation, each security's "yield-to-worst" represents the lowest
yield obtained after calculating the yield to every call date in the call
schedule of a security. "Average spread" represents the market-weighted
average of the difference between the yield-to-worst of each security
included in the CS First Boston High Yield Index and the yield on a U.S.
Treasury security of comparable maturity to such security. Information
concerning yields on convertible securities is included in Table 3. As
presented in Table 3, average yield is calculated based on current yield.
TABLE 4
Source: CS First Boston High Yield Index
<TABLE>
<CAPTION>
Average Yield on
Nonconvertible
High Yield Average
Securities Spread
<S> <C> <C>
1986
March 31 12.42% 4.90%
June 30 12.00 4.51
September 30 12.22 4.73
December 31 12.22 4.95
1987
March 31 12.55 4.00
June 30 12.55 4.35
September 30 13.30 3.80
December 31 13.25 4.59
1988
March 31 12.97 4.67
June 30 12.83 4.24
September 30 13.17 4.43
December 31 13.62 4.48
1989
March 31 13.91 4.51
June 30 14.00 5.91
September 30 14.73 6.36
December 31 15.88 7.90
1990
March 31 16.61 7.94
June 30 15.81 7.36
September 30 18.45 9.70
December 31 18.87 10.96
D-12
<PAGE>
Average Yield on
Nonconvertible
High Yield Average
Securities Spread
1991
March 31 15.79% 8.02%
June 30 15.26 7.43
September 30 14.26 7.54
December 31 12.81 7.29
1992
March 31 11.17 4.90
June 30 10.94 5.21
September 30 10.57 5.63
December 31 11.14 5.48
1993
March 31 9.92 5.02
June 30 9.87 5.08
September 30 10.05 5.46
December 31 9.04(1) 4.22
1994
March 31 10.57 4.42
June 30 10.83 3.90
September 30 10.98 3.76
December 31 11.65 3.88
1995
March 31 11.32 4.24
April 30 11.04 4.14
</TABLE>
(1) Reflects the elimination from the index (only as of December 31, 1993) of
one security that CS First Boston Corporation believed would have materially
altered the data.
The information in the table, which is provided for illustrative purposes
only, is as of the dates shown above. Presentation of similar information as
of different points in time would show different results. The securities the
Fund owns will not match those in the CS First Boston High Yield Index and,
accordingly, the information in the table is not intended to reflect the
projected yield of the Fund or of the Nonconvertible High Yield Securities in
which it will invest. Other statistical data concerning Nonconvertible High
Yield Securities may be relevant to investors deciding whether to purchase
shares of the Fund. See "Special Considerations and Risk Factors" for
additional information concerning the risks associated with an investment in
the Fund. Of course, unlike U.S. Treasury securities, Nonconvertible High
Yield Securities are not guaranteed by the U.S. Government.
D-13
<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>
<S> <C>
Page
Expenses Summary 3
Prospectus Summary 4
The Fund 17
Investment Manager and Administrator 17
Use of Proceeds 17
Investment Objectives and Policies 18
Special Considerations and Risk Factors 25
Investment Restrictions 30
Trustees and Officers 31
Investment Management Contract 38
Administrative Services Contract 39
Portfolio Transactions 39
Dividends and Distributions 41
Dividend Reinvestment Plan 41
Taxation 43
Description of Shares 46
Repurchase of Shares; Conversion to Open-end Status 47
Determination of Net Asset Value 48
Underwriting 49
Custodian, Transfer Agent, Dividend Disbursing Agent, and Registrar 51
Legal Matters 51
Experts 51
Additional Information 51
Report of Independent Accountants 52
Statement of Assets and Liabilities 53
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 and Other Statistical Information 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.
2,400,000 Shares
Putnam Convertible
Opportunities and
Income Trust
Beneficial Interest
P R O S P E C T U S
Smith Barney Inc.
A. G. Edwards & Sons, Inc.
Advest, Inc.
Dain Bosworth
Incorporated
Fahnestock & Co. Inc.
First of Michigan Corporation
Gruntal & Co., Incorporated
Kemper Securities, Inc.
Legg Mason Wood Walker
Incorporated
Raymond James & Associates, Inc.
The Robinson-Humphrey Company, Inc.
Sutro & Co. Incorporated
June , 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-May , 1995.
(b) Statement of Assets and Liabilities-May , 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) - Terms and Conditions of Dividend Reinvestment Plan
(2) - Dividend Reinvestment Plan Agency Agreement
(f) - Inapplicable
(g) - Investment 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) - Custodian Agreement
(k)(1) - Investor Servicing Agreement
(2) - Administrative Services Contract
(l) - Opinion and Consent of Ropes & Gray***
(m) - Inapplicable
(n) - Consent of Independent Accountants***
(o) - Inapplicable
(p) - Initial Capital Agreement***
(q) - Inapplicable
(r) - Inapplicable
*Incorporated by reference to the Registrant's initial Registration
Statement.
**Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.
***To be filed by amendment.
C-1
<PAGE>
Item 25. Marketing Arrangements
Reference is made to the Form of Underwriting Agreement for Registrant's
shares of beneficial interest filed as an exhibit to this Registration
Statement.
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
C-2
<PAGE>
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 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.
C-3
<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
C-4
<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
Mark D. Goodwin
Assistant Vice President Prior to May, 1994, Manager, Audit & Operations
Analysis, Mitre Corporation, 202 Burlington Rd.,
Bedford, MA 01730
Stephen A. Gorman
Assistant Vice President Prior to July, 1994, Financial Analyst, Boston
Harbor Trust Company, 100 Federal St.,
Boston, MA 02110
C-5
<PAGE>
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
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
C-6
<PAGE>
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,
Merrill 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
Brian O'Keefe
Vice President Prior to December, 1993, Vice President-Foreign
Exchange Trader, Bank of Boston, 100 Federal
Street, Boston, MA 02109
C-7
<PAGE>
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 D. 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.
POWER OF ATTORNEY
I, the undersigned Trustee of Putnam Convertible Opportunities and Income
Trust, hereby severally constitute and appoint George Putnam, Charles E.
Porter, Gordon H. Silver, Edward A. Benjamin, Timothy W. Diggins and John W.
Gerstmayr, and each of them singly, my true and lawful attorneys, with full
power to them and each of them, to sign for me, and in my name and in the
capacity indicated below, the Registration Statement on Form N-2 of Putnam
Convertible Opportunities and Income Trust and any and all amendments
(including post-effective amendments) to said Registration Statement and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully to all intents and purposes as he might or could do in
person, and hereby ratify and confirm all that said attorneys or any of them
may lawfully do or cause to be done by virtue thereof.
WITNESS MY HAND AND SEAL ON THE DATE SET FORTH BELOW.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
Eli Shapiro Trustee April 11, 1995
Eli Shapiro
</TABLE>
C-10
<PAGE>
POWER OF ATTORNEY
We, the undersigned Trustees and Officers of Putnam Convertible
Opportunities and Income Trust, hereby severally constitute and appoint
George Putnam, Charles E. Porter, Gordon H. Silver, Edward A. Benjamin,
Timothy W. Diggins and John W. Gerstmayr, and each of them singly, our true
and lawful attorneys, with full power to them and each of them, to sign for
us, and in our names and in the capacities indicated below, the Registration
Statement on Form N-2 of Putnam Convertible Opportunities and Income Trust
and any and all amendments (including post-effective amendments) to said
Registration Statement and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto our said attorneys, and each of them acting alone,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in the premises, as fully to all intents
and purposes as he might or could do in person, and hereby ratify and confirm
all that said attorneys or any of them may lawfully do or cause to be done by
virtue thereof.
WITNESS OUR HANDS AND COMMON SEAL ON THE DATE SET FORTH BELOW.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
George Putnam Principal Executive Officer, May 5, 1995
George Putnam President and Chairman of the
Trustees
William F. Pounds Trustee; Vice Chairman May 5, 1995
William F. Pounds
John D. Hughes Principal Financial Officer, May 5, 1995
John D. Hughes Treasurer and Vice President
Paul G. Bucuvalas Principal Accounting Officer and May 5, 1995
Paul G. Bucuvalas Assistant Treasurer
Jameson A. Baxter Trustee May 5, 1995
Jameson A. Baxter
Hans H. Estin Trustee May 5, 1995
Hans H. Estin
John A. Hill Trustee May 5, 1995
John A. Hill
Elizabeth T. Kennan Trustee May 5, 1995
Elizabeth T. Kennan
Lawrence J. Lasser Trustee May 5, 1995
Lawrence J. Lasser
Robert E. Patterson Trustee May 5, 1995
Robert E. Patterson
Donald S. Perkins Trustee May 5, 1995
Donald S. Perkins
George Putnam, III Trustee May 5, 1995
George Putnam, III
A.J.C. Smith Trustee May 5, 1995
A.J.C. Smith
W. Nicholas Thorndike Trustee May 5, 1995
W. Nicholas Thorndike
</TABLE>
C-11
<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
Pre-Effective Amendment No. 2 to its 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 24th day of May, 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
Pre-Effective Amendment No. 2 has been signed below by the following persons
in the capacities indicated on the 24th day of May, 1995.
<TABLE>
<CAPTION>
<S> <C>
Signature Title
* President and Chairman of the Board;
George Putnam Principal Executive Officer; Trustee
* Trustee; Vice Chairman
William F. Pounds
* Treasurer and Principal Financial
John D. Hughes Officer
* Assistant Treasurer and Principal
Paul G. Bucuvalas Accounting Officer
* Trustee
Jameson A. Baxter
* Trustee
Hans H. Estin
* Trustee
John A. Hill
* Trustee
Elizabeth T. Kennan
* Trustee
Lawrence J. Lasser
* Trustee
Robert E. Patterson
* Trustee
Donald S. Perkins
* Trustee
George Putnam, III
* Trustee
Eli Shapiro
C-12
<PAGE>
Signature Title
* Trustee
A.J.C. Smith
* Trustee
W. Nicholas Thorndike
By: Gordon Silver
</TABLE>
Gordon Silver
Attorney-in-Fact Pursuant to
Powers of Attorney
Filed Herewith
C-13
<PAGE>
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Title of Exhibit Page
99.2E1 Terms and Conditions of Dividend
Reinvestment Plan
99.2E2 Dividend Reinvestment Plan
Agency Agreement
99.2G Investment Management Contract
99.2H1 Form of Master Agreement Among Underwriters
99.2J Custodian Agreement
99.2K1 Investor Servicing Agreement
99.2K2 Administrative Services Contract
</TABLE>
C-14
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
TERMS AND CONDITIONS OF DIVIDEND REINVESTMENT PLAN
1. The First National Bank of Boston (the "Agent") will act as Agent for
participants in the Dividend Reinvestment Plan (the "Plan") of Putnam
Convertible Opportunities and Income Trust (the "Fund"), and will open and
maintain an account for each participant under the Plan in the same name as the
participant's shares are registered. Each registered shareholder will be deemed
conclusively upon purchase and, where applicable, registration of transfer on
the shareholder records of the Fund to have elected to participate in the Plan.
2. Whenever the Fund declares a distribution from capital gains or surplus
or an income dividend, the amount of such dividend or distribution payable to
each participant (less such participant's pro rata share of brokerage
commissions incurred with respect to open-market purchases, if any, in
connection with the reinvestment of such dividend or distribution) will be made
payable to each participant either (i) through receipt of additional unissued
but authorized shares of beneficial interest ("Shares") of the Fund from the
Fund ("newly issued Shares") as described in paragraph 6 or (ii) by purchase on
the open market of Shares for such participant's account as described in
paragraph 4.
3. If the net asset value per Share, as determined pursuant to paragraph
8, is equal to or less than the market price per Share, as determined pursuant
to paragraph 8, plus estimated brokerage commissions (such condition being
referred to herein as "market premium"), on the payment date of the dividend or
distribution (the "valuation date"), the Agent shall invest the amount of the
dividend or distribution in newly issued Shares on each participant's behalf as
described in paragraph 6. If the net asset value per Share is greater than the
market price per Share, plus estimated brokerage commissions (such condition
being referred to herein as "market discount"), on the valuation date, or if the
dividend or distribution is payable only in cash, the Agent shall invest the
amount of the dividend or distribution in Shares acquired on each participant's
behalf in open-market purchases as described in paragraph 4.
<PAGE>
4. Open-market purchases may be made on any securities exchange where
Shares are traded, in the over-the-counter market, or in negotiated transactions
and may be on such terms as to price, delivery, and otherwise as the Agent shall
determine. Any such purchases will be made on or shortly after the payment date
for such dividend or distribution, and in no event later than the last business
day before the next month's ex-dividend date except where temporary curtailment
or suspension of purchase is necessary to comply with applicable provisions of
federal securities law (the "last purchase date"). It is understood that, in any
event, the Agent shall have no liability in connection with any inability to
purchase Shares prior to the next month's ex-dividend date, or with the timing
of any purchases effected. The Agent shall have no responsibility as to the
value of the Shares acquired for any participant's account. For the purposes of
purchase in the open market, the Agent may aggregate a participant's purchase
with those of other shareholders of the Fund for whom it similarly acts as
Agent, and the average price (including brokerage commissions) of all Shares
purchased by the Agent as such shall be the price per Share allocable to such
participant in connection therewith.
5. If the Agent is unable for any reason to invest the full amount of a
dividend or distribution payable either in cash or Shares, in Shares purchased
in open-market purchases at a market discount during the period ending at the
close of business on the last purchase date, the Agent will invest the
uninvested portion of the amount of the dividend or distribution in newly issued
Shares at the close of business on the last purchase date; except that the Agent
may not acquire newly issued Shares after the valuation date under the foregoing
circumstances unless the Agent has received a legal opinion that registration of
such Shares is not required under the Securities Act of 1933, as amended, or
unless the Shares to be issued are registered under such Act.
6. In the event that all or part of the amount of the dividend or
distribution is to be invested in newly issued Shares, the Agent shall
automatically receive such newly issued Shares, including fractional Shares, for
participants' accounts, and the number of additional newly issued Shares to be
credited to a participant's account shall be determined by dividing the dollar
amount of the dividend or distribution on the
<PAGE>
participant's Shares to be invested in newly issued Shares by the greater of (i)
the net asset value per Share on the date the Shares are issued (the valuation
date in the case of an initial market premium or the last purchase date in case
the Agent is unable to complete open-market purchases during the purchase period
as contemplated in paragraph 4), and (ii) 95% of the fair market value of a
Share on the date the Shares are issued.
7. The Agent will confirm to each participant each acquisition made for
such participant's account as soon as practicable but not later than 30 days
after the date thereof. Although a participant may from time to time have an
undivided fractional interest (computed to three decimal places) in a Share, no
certificates for a fractional Share will be issued. However, dividends and
distributions on fractional Shares will be credited to a participant's account.
In the event of termination of a participant's account under the Plan, the Agent
will adjust for any such undivided fractional interest in cash at the market
value of the Shares at the time of termination.
8. For all purposes of the Plan: (a) the market price of the Shares on a
particular date shall be the last sale price on the New York Stock Exchange (the
"Exchange") on that date, or, if there is no sale on the Exchange on that date,
then the mean between the closing bid and asked quotations for such Shares on
the Exchange on such date, and (b) net asset value per Share on a particular
date shall be as determined by or on behalf of the Fund.
9. The Agent may hold the Shares in a participant's account under the
Plan, together with the Shares in other accounts under the Plan, in
noncertificated form in the Agent's name or that of the Agent's nominee. The
Agent will forward to each participant any proxy solicitation material and will
vote any Shares so held for a participant only in accordance with the proxy
returned by such participant to the Fund. Upon a participant's written request,
the Agent will deliver to such participant, without charge, a certificate or
certificates for the full Shares.
10. Any stock dividends or split Shares distributed by the Fund on Shares
held by the Agent for a participant will be credited to such participant's
account. In the event that the
<PAGE>
Fund makes available to its shareholders rights to purchase additional Shares or
other securities, the Shares held for a participant under the Plan will be added
to other Shares held by such participant in calculating the number of rights to
be issued to such participant.
11. The Agent's service fee for handling capital gains distributions or
income dividends will be paid by the Fund. Each participant will be charged a
pro rata share of brokerage commissions on all open-market purchases.
12. A participant may terminate his account under the Plan by notifying
the Agent in writing or by telephone. Such termination will be effective on the
date of receipt or on the next business day if notice is received by the Agent
after 3:00 p.m. The Plan may be terminated by the Agent or the Fund upon notice
in writing mailed to participants at least 30 days prior to any record date for
the payment of any dividend or distribution by the Fund. Upon any termination
the Agent will cause a certificate or certificates for the full Shares held for
participants under the Plan and cash adjustment for any fraction to be delivered
to them without charge.
13. These terms and conditions may be amended or supplemented by the Agent
or the Fund at any time or times but, except when necessary or appropriate to
comply with applicable law or the rules or policies of the Securities and
Exchange Commission or any other regulatory authority, only by mailing to
participants appropriate written notice at least 30 days prior to the effective
date thereof. Any such amendment or supplement shall be deemed to be accepted by
each participant unless, prior to the effective date thereof, the Agent receives
written notice of the termination of such participant's account under the Plan.
Any such amendment may include an appointment by the Agent in its place and
stead of a successor Agent under these terms and conditions, with full power and
authority to perform all or any of the acts to be performed by the Agent under
these terms and conditions. Upon any such appointment of any Agent for the
purpose of receiving dividends and distributions, the Fund will be authorized to
pay to such successor Agent, for each participant's account, all dividends and
distributions payable on Shares held in such participant's name or under the
Plan for
<PAGE>
retention or application by such successor Agent as provided in these terms
and conditions.
14. The Agent shall at all times act in good faith and agree to use its
best efforts within reasonable limits to ensure the accuracy of all services
performed pursuant to these terms and conditions and to comply with applicable
law, but assume no responsibility and shall not be liable for loss or damage due
to errors unless such error is caused by the Agent's negligence, bad faith, or
willful misconduct or that of its employees.
15. These terms and conditions shall be governed by the laws of The
Commonwealth of Massachusetts.
<PAGE>
[Outside Back Cover of Plan Brochure]
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
This form is for shareholders who hold Shares of Putnam Convertible
Opportunities and Income Trust in their own name (registered shareholders). If
your Shares are held at a brokerage firm, bank, or other nominee and your
distributions are being reinvested, you must contact that institution if you
wish to withdraw from the Dividend Reinvestment Plan.
I hereby authorize The First National Bank of Boston to withdraw my
account from the Dividend Reinvestment Plan. I elect to receive all future
dividends and distributions paid by Putnam Convertible Opportunities and Income
Trust in cash.
-----------------------------------
Shareholder Signature
-----------------------------------
Shareholder Signature
-----------------------------------
Date
Please sign exactly as your Shares are registered. All persons whose names
appear on the Share certificates must sign this authorization form.
YOU SHOULD NOT RETURN THIS FORM IF YOU WISH TO CONTINUE TO HAVE YOUR
DIVIDENDS AND DISTRIBUTIONS REINVESTED IN ADDITIONAL SHARES OF PUTNAM
CONVERTIBLE OPPORTUNITIES AND INCOME TRUST.
This authorization form, when signed, should be mailed to:
Putnam Investor Services
P.O. Box 41203
Providence, RI 02940-1203
THIS IS NOT A PROXY
DIVIDEND REINVESTMENT PLAN AGENCY AGREEMENT
THIS AGREEMENT is made as of the 15th day of October, 1993, by and among
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 and not jointly with any of such other Funds, and each of such Funds
having its principal office and place of business at One Post Office Square,
Boston, Massachusetts 02109 (each Fund being referred to herein as the "Fund"),
Putnam Fiduciary Trust Company, a Massachusetts trust company having its
principal office and place of business at One Post Office Square, Boston,
Massachusetts 02109 (the "Agent"), and The First National Bank of Boston, a
national banking association having its principal office and place of business
at 100 Federal Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to make available to its shareholders an
opportunity to reinvest their Fund distributions in additional shares of the
Fund pursuant to the terms and conditions of a Dividend Reinvestment Plan in the
form heretofore furnished to the Bank, as the same may be amended from time to
time by the Trustees of the Fund (the "Plan");
WHEREAS, the Fund has engaged the Agent to act as its "Investor Servicing
Agent", including in such capacity acting as its transfer agent, registrar and
distribution disbursing agent;
WHEREAS, the Fund desires to employ the Bank to act as agent for
shareholders of the Fund pursuant to the terms and conditions of the Plan and
the Bank desires to accept such employment; and
WHEREAS, the Agent will provide certain administrative services in
connection with the Plan;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank and the Agent.
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs the Bank to act as, and the Bank agrees to
act as, Dividend Reinvestment Plan Agent for the Fund's shareholders pursuant to
the terms and conditions of the Plan.
<PAGE>
1.02 Upon receipt of the cash distributions payable to shareholders
of the Fund participating in the Plan, the Bank will apply such monies to the
purchase of shares of the Fund in accordance with the terms and conditions of
the Plan. The Bank shall thereafter deliver shares purchased as instructed by
the Agent.
1.03 Pending purchase of shares of the Fund, the Bank shall invest
all of the cash deposited with the Bank in an interest bearing account for the
benefit of the Fund at the Bank, unless otherwise directed by the Fund.
1.04 The Bank shall provide monthly a complete statement of
transactions in Fund shares on behalf of shareholders in the Plan and a
statement of interest earned under Section 1.03.
1.05 The Agent, pursuant to the terms and conditions of its Investor
Servicing Agreement with the Funds, shall perform all administrative and
bookkeeping services required in connection with the operation of the Plan.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this Agreement, the
Agent agrees to pay the Bank such fees and out-of-pocket expenses as may from
time to time be specified by mutual written agreement between the Agent and the
Bank.
2.02 The Agent agrees to pay all fees and reimbursable expenses
within 30 days following the mailing of the respective billing notice.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a national banking association duly organized and
existing and in good standing under the laws of the United States of America.
3.02 It is duly qualified to carry on its business in the United
States of America.
3.03 It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
<PAGE>
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
3.06 It will take and accept instructions from persons duly
authorized by the Fund, as certified to the Bank from time to time.
Article 4 Representations and Warranties of the Fund and the Agent.
4.01 The Fund represents and warrants to the Bank that:
(a) It is a business trust duly organized and existing under the
laws of Massachusetts.
(b) It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
(c) All proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
(d) It is a closed-end investment company registered under the
Investment Company Act of 1940.
(e) It shall make all filings required to be made by it under
federal and state securities laws.
4.02 The Agent represents and warrants to the Bank that:
(a) It is a trust company duly organized and existing and in good
standing under the laws of Massachusetts.
(b) It is empowered under applicable laws and by its Articles of
Organization and Bylaws to enter into and perform this Agreement.
(c) All proceedings required by said Articles of Organization and
Bylaws have been taken to authorize it to enter into and perform this Agreement.
(d) It is duly registered as a transfer agent with the Federal
Deposit Insurance Corporation and the New York and American Stock Exchanges.
(e) It shall make all filings required to be made by it under
federal and state securities laws.
<PAGE>
Article 5 Indemnification
5.01 The Bank shall not be responsible for, and the Fund shall
indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required
to be taken pursuant to this Agreement, provided that such actions are taken in
good faith consistent with the exercise of reasonable care.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records and documents which (i) are received by
the Bank or its agents or subcontractors and furnished to it by or on behalf of
the Fund, and (ii) have been prepared and/or maintained by the Fund or any other
person or firm on behalf of the Fund. Such other person or firm shall include
any former transfer agent or former registrar, or co-transfer agent or
co-registrar.
(d) The reliance on, or the carrying out by the Bank or its agents
or subcontractors of, any instructions or requests of the Fund's representative
as certified from time to time by the Fund.
(e) The offer or sale of shares of the Fund in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state that such shares be registered in such state or
in violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such shares in such
state.
5.02 The Bank shall indemnify and hold the Fund and the Agent
harmless from and against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of or attributable to any
action or failure or omission to act by the Bank as a result of the Bank's lack
of good faith or failure to exercise reasonable care.
<PAGE>
5.03 At any time the Bank may apply to any officer of the Fund or
the Agent for instructions, and may consult with legal counsel with respect to
any matter arising in connection with the services to be performed by the Bank
under this Agreement, and the Bank and its agents or subcontractors shall not be
liable and shall be indemnified by the Fund for any action in good faith taken
or omitted by it in reliance upon such instructions or upon the written opinion
of such counsel. The Bank, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Fund or the Agent, reasonably believed to be genuine and to have been signed
by the proper person or persons, or upon any instruction, information, data,
records or documents provided to the Bank or its agents or subcontractors by
telephone, in person, machine readable input, telex, CRT data entry or other
similar means authorized by the Fund or the Agent, and shall not be held to have
notice of any change of authority of any person, until receipt of written notice
thereof from the Fund or the Agent.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 Covenants of the Fund, the Agent and the Bank
6.01 The Fund and the Agent shall promptly furnish to the Bank
the following:
<PAGE>
(a) A certified copy of the resolution of the Board of Trustees of
the Fund authorizing the employment of the Bank and the execution and delivery
of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and a
copy of the Articles of Organization and Bylaws of the Agent and all amendments
thereto.
6.02 The Bank and the Agent shall keep records relating to the
services to be performed hereunder, in the form and manner as they may deem
advisable. To the extent required by Section 31 of the Investment Company Act of
1940, as amended, and the Rules thereunder, the Bank and the Agent agree that
all such records prepared or maintained by the Bank relating to the services to
be performed by the Bank hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to the Fund on and in accordance with
its request.
6.03 The Bank, the Agent and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.04 In case of any requests or demands for the inspection of the
records of the Fund or the Agent, the Bank will endeavor to notify the Fund or
the Agent and to secure instructions from an authorized officer of the Fund or
the Agent as to such inspection. The Bank reserves the right, however, to
exhibit such records to any person whenever it is advised by its counsel that it
may be held liable for the failure to exhibit such records to such person.
6.05 The Agent agrees to notify the Bank immediately of any
declaration of dividends by the Fund.
Article 7 Effective Date; Termination of Agreement
7.01 This Agreement shall take effect on October 15, 1993.
7.02 This Agreement may be terminated thereafter by either the Fund
or the Bank upon sixty (60) days written notice to the other.
7.03 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Agent. Additionally, the Bank reserves the right to charge the
Agent for any other reasonable expenses associated with such termination.
<PAGE>
Article 8 Assignment
8.01 Neither this Agreement nor any rights or obligations hereunder
may be assigned by any party without the written consent of the other parties.
8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
Article 9 Amendment
9.01 This Agreement may be amended or modified by a written
agreement executed by all parties.
Article 10 Massachusetts Law to Apply
10.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 11 Merger of Agreement
11.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
Article 12 Declaration of Trust
12.01 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 or arising out of this instrument are not binding upon any of the Trustees or
shareholders individually but binding only upon the assets and property of the
Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers, as of the day 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
Robert F. Lucey
BY: -----------------------------------
Robert F. Lucey
President
THE FIRST NATIONAL BANK OF BOSTON
Janice Chanbonnier
BY: -------------------------------------
<PAGE>
Appendix A
List of Closed-End Putnam Funds Executing
Dividend Reinvestment Plan Agency Agreement
dated as of May 5, 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 Investment Grade Municipal Trust III
Putnam California Investment Grade Municipal Trust
Putnam New York Investment Grade Municipal Trust
Putnam Municipal Opportunities Trust
Putnam Investment Grade Intermediate Municipal Trust
Putnam Managed High Yield Trust
Putnam Convertible Opportunities and Income Trust
<PAGE>
BANK OF BOSTON
Dividend Reinvestment Plan Agent
Fee Schedule
For
PUTNAM INVESTMENTS
Annual Administrative Fee for Omnibus Account:
$3,000.00
Transactions: $12.00 Each for DTC
$10.00 Each for DWAC
Out-of Pocket Expenses as incurred including but not limited to:
Insurance, Expedited Mail, Duplicating, Fax Charges, Wires in and out,
Microfiche, etc.
Overdraft Recovery
Overdraft charge will be calculated on the actual overdraft
incurred plus Federal Reserve requirements and F.D.I.C.
assessments.
Term of Contract
Three years
<PAGE>
THE PUTNAM FUNDS LISTED ON APPENDIX A
Charles E. Porter
BY:
PUTNAM FIDUCIARY TRUST COMPANY
Robert F. Lucey
BY:
THE FIRST NATIONAL BANK OF BOSTON
Janice Chanbonnier
BY:
NF-64.94
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
INVESTMENT MANAGEMENT CONTRACT
Management Contract dated as of May 5, 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 1.10% 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 May
5, 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: Charles E. Porter
PUTNAM INVESTMENT MANAGEMENT, INC.
By: Gordon Silver
-5-
3035453.02
MASTER AGREEMENT AMONG UNDERWRITERS
July 18, 1985
Smith Barney, Harris Upham & Co. Incorporated
1345 Avenue of the Americas
New York, N.Y. 10105
Dear Sirs:
We understand that from time to time you may act as Representative or as one
of the Representatives of the several underwriters of offerings of securities
of various issuers. This Agreement shall apply to any offering of securities
handled by your Corporate Syndicate Department in which we elect to act as an
underwriter after receipt of an invitation from your Corporate Syndicate
Department which shall identify the issuer, contain information regarding
certain terms of the securities to be offered and specify the amount of our
proposed participation and the names of the other Representatives, if any,
and that our participation as an underwriter in the offering shall be subject
to the provisions of this Agreement. Your invitation will include instructions
for our acceptance of such invitation. At or prior to the time of an
offering, you will advise us, to the extent applicable, as to the expected
offering date, the expected closing date, the initial public offering price,
the interest or dividend rate (or the method by which such rate is to be
determined), the conversion price, the underwriting discount, the management
fee, the selling concession and the reallowance, except that if the public
offering price of the securities is to be determined by a formula based upon
the market price of certain securities (such procedure being hereinafter
referred to as "Formula Pricing"), you shall so advise us and shall specify
the maximum underwriting discount, management fee and selling concession.
Such information may be conveyed by you in one or more communications (such
communications received by us with respect to the offering are hereinafter
collectively referred to as the "Invitation"). If the Underwriting Agreement
(as hereinafter defined) provides for the granting of an option to purchase
additional securities to cover over-allotments, you will notify us, in the
Invitation, of such option.
This Agreement, as amended or supplemented by the Invitation, shall become
effective with respect to our participation in an offering of securities if
your Corporate Syndicate Department receives our oral or written acceptance
and does not subsequently receive a written communication revoking our
acceptance prior to the time and date specified in the Invitation (our
unrevoked acceptance after expiration of such time and date being hereinafter
referred to as our "Acceptance"). Our Acceptance will constitute our
confirmation that, except as otherwise stated in such Acceptance, each
statement included in the Master Underwriters' Questionnaire set forth as
Exhibit A hereto (or otherwise furnished to us) is correct. The issuer of the
securities in any offering of securities made pursuant to this Agreement is
hereinafter referred to as the "Issuer". If the Underwriting Agreement does
not provide for an over-allotment option, the securities to be purchased are
hereinafter referred to as the "Securities"; if the Underwriting Agreement
provides for an over-allotment option, the securities the Underwriters (as
hereinafter defined) are initially obligated to purchase pursuant to the
Underwriting Agreement are hereinafter called the "Firm Securities" and any
additional securities which may be purchased upon exercise of the
over-allotment option are hereinafter called the "Additional Securities",
with the Firm Securities and all or any part of the Additional Securities
being hereinafter collectively referred to as the "Securities". Any
underwriters of Securities under this Agreement, including the
Representatives (as hereinafter defined), are hereinafter collectively
referred to as the "Underwriters". All
<PAGE>
references herein to "you" or to the "Representatives" shall mean Smith
Barney, Harris Upham & Co. Incorporated and the other firms, if any, which
are named as Representatives in the Invitation. The Securities to be offered
may, but need not, be registered for a delayed or continuous offering
pursuant to Rule 415 under the Securities Act of 1933 (the "1933 Act").
The following provisions of this Agreement shall apply separately to each
individual offering of Securities. This Agreement may be supplemented or
amended by you by written notice to us and, except for supplements or
amendments set forth in an Invitation relating to a particular offering of
Securities, any such supplement or amendment to this Agreement shall be
effective with respect to any offering of Securities to which this Agreement
applies after this Agreement is so amended or supplemented.
1. Underwriting Agreement: Authority of Representatives. We authorize you to
execute and deliver an underwriting or purchase agreement and any amendment
or supplement thereto and any associated Terms Agreement or other similar
agreement (collectively, the "Underwriting Agreement") on our behalf with the
Issuer and/or any selling securityholder with respect to the Securities in
such form as you determine. We will be bound by all terms of the Underwriting
Agreement as executed. We understand that changes may be made in those who
are to be Underwriters and in the amount of Securities to be purchased by
them, but the amount of Securities to be purchased by us in accordance with
the terms of this Agreement and the Underwriting Agreement, including the
amount of Additional Securities, if any, which we may become obligated to
purchase by reason of the exercise of any over-allotment option provided in
the Underwriting Agreement, shall not be changed without our consent.
As Representatives of the Underwriters, you are authorized to take such
action as you deem necessary or advisable to carry out this Agreement, the
Underwriting Agreement, and the purchase, sale and distribution of the
Securities, and to agree to any waiver or modification of any provision of
the Underwriting Agreement. To the extent applicable, you are also authorized
to determine (i) the amount of Additional Securities, if any, to be purchased
by the Underwriters pursuant to any over-allotment option and (ii) with
respect to offerings using Formula Pricing, the initial public offering price
and the price at which the Securities are to be purchased in accordance with
the Underwriting Agreement. It is understood and agreed that Smith Barney,
Harris Upham & Co. Incorporated may act on behalf of all Representatives.
It is understood that, if so specified in the Invitation, arrangements may be
made for the sale of Securities by the Issuer pursuant to delayed delivery
contracts (hereinafter referred to as "Delayed Delivery Contracts").
References herein to delayed delivery and Delayed Delivery Contracts apply
only to offerings to which delayed delivery is applicable. The term
"underwriting obligation", as used in this Agreement with respect to any
Underwriter, shall refer to the amount of Securities, including any
Additional Securities (plus such additional Securities as may be required by
the Underwriting Agreement in the event of a default by one or more of the
Underwriters) which such Underwriter is obligated to purchase pursuant to the
provisions of the Underwriting Agreement, without regard to any reduction in
such obligation as a result of Delayed Delivery Contracts which may be
entered into by the Issuer.
If the Securities consist in whole or in part of debt obligations maturing
serially, the serial Securities being purchased by each Underwriter pursuant
to the Underwriting Agreement will consist, subject to adjustment as provided
in the Underwriting Agreement, of serial Securities of each maturity in a
principal amount which
<PAGE>
bears the same proportion to the aggregate principal amount of the serial
Securities of such maturity to be purchased by all the Underwriters as the
principal amount of serial Securities set forth opposite such Underwriter's
name in the Underwriting Agreement bears to the aggregate principal amount of
the serial Securities to be purchased by all the Underwriters.
2. Registration Statement and Prospectus; Offering Circular. In the case of
an Invitation regarding an offer of Securities registered under the 1933 Act
(a "Registered Offering"), you will furnish to us, to the extent made
available to you by the Issuer, copies of any registration statement or
registration statements relating to the Securities which may be filed with
the Securities and Exchange Commission (the "Commission") pursuant to the
1933 Act and of each amendment thereto (excluding exhibits but including any
documents incorporated by reference therein). Such registration statement(s)
as amended, and the prospectus(es) relating to the sale of Securities by the
Issuer constituting a part thereof, including all documents incorporated
therein by reference, as from time to time amended or supplemented by the
filing of documents pursuant to the Securities Exchange Act of 1934 (the
"1934 Act"), the 1933 Act or otherwise, are referred to herein as the
"Registration Statement" and the "Prospectus", respectively; provided
however, that a supplement to the Prospectus filed with the Commission
pursuant to Rule 424 under the 1933 Act with respect to an offering of
Securities (a "Prospectus Supplement") shall be deemed to have supplemented
the Prospectus only with respect to the offering of Securities to which it
relates.
With respect to Securities for which no Registration Statement is filed with
the Commission, you will furnish to us, to the extent made available to you
by the Issuer, copies of any offering circular or other offering materials to
be used in connection with the offering of the Securities and of each
amendment thereto (the "Offering Circular").
3. Public Offering. The sale of the Securities to the public shall commence
as soon as you deem advisable. We will not sell any Securities until they are
released by you for that purpose. When notified by you that the Securities
are released for sale, we will offer to the public in conformity with the
terms of offering set forth in the Prospectus or Offering Circular, such of
the Securities to be purchased by us ("our Securities") as are not reserved
for our account for sale to Selected Dealers and others pursuant to Section
5. After the initial public offering, the public offering price and the
concession and discount therefrom may be changed by you by notice to the
Underwriters, and we agree to be bound by any such change.
If, in accordance with the terms of offering set forth in the Prospectus or
Offering Circular, the offering of the Securities is not at a fixed price but
at varying prices set by individual Underwriters based on market prices or at
negotiated prices, the provisions above relating to your right to change the
public offering price and concession and discount to dealers shall not apply,
and other references in this Section and elsewhere in this Agreement to the
public offering price or Selected Dealers' concession shall be deemed to mean
the prices and concessions determined by you from time to time in your
discretion.
If so directed in the Invitation, we will not sell any Securities to any
account over which we have discretionary authority. We will also comply with
any other restrictions which may be set forth in the Invitation.
<PAGE>
The initial public advertisement with respect to the Securities shall appear
on such date, and shall include the names of such of the Underwriters, as you
may determine. Thereafter, any Underwriter may advertise at its own expense.
4. Delayed Delivery Arrangements. We authorize you to act on our behalf in
making all arrangements for the solicitation of offers to purchase Securities
from the Issuer pursuant to Delayed Delivery Contracts, and we agree that all
such arrangements will be made only through you (directly or through
Underwriters or Selected Dealers). You may allow to Selected Dealers in
respect of such Securities a commission equal to the concession allowed to
Selected Dealers pursuant to Section 5.
The obligations of the Underwriters shall be reduced in the aggregate by the
principal amount of Securities covered by Delayed Delivery Contracts made by
the Issuer, the obligations of each Underwriter to be reduced by the
principal amount of such Securities, if any, allocated by you to such
Underwriter. Your determination of the allocation of Securities covered by
Delayed Delivery Contracts among the several Underwriters shall be final and
conclusive, and we agree to be bound by any notice delivered by you to the
Issuer setting forth the amount of the reduction in our obligation as a
result of Delayed Delivery Contracts.
Upon receiving payment from the Issuer of the fee for arranging Delayed
Delivery Contracts, you will credit our account with the portion of such fee
applicable to the Securities covered by Delayed Delivery Contracts allocated
to us. You will charge our account with any commission allocated to Selected
Dealers in respect of Securities covered by Delayed Delivery Contracts
allocated to us.
5. Offering to Selected Dealers and Others; Management of Offering. We
authorize you, for our account, to reserve for sale and to sell to dealers
("Selected Dealers"), among whom any of the Underwriters may be included,
such amount of our Securities as you shall determine. Reservations for sales
to Selected Dealers for our account need not be in proportion to our
underwriting obligation, but sales of Securities reserved for our account for
sale to Selected Dealers shall be made as nearly as practicable in the ratio
which the amount of Securities reserved for our account bears to the
aggregate amount of Securities reserved for the account of all Underwriters,
as calculated from day to day. The price to Selected Dealers initially shall
be the public offering price less a concession not in excess of the Selected
Dealers concession set forth in the Invitation. Selected Dealers shall be
actually engaged in the investment banking or securities business and shall
be either members in good standing of the National Association of Securities
Dealers, Inc. (the "NASD") or dealers with their principal place of business
located outside the United States, its territories and its possessions and
not registered under the 1934 Act who agree to make no sales within the
United States, its territories or its possessions or to persons who are
nationals thereof or residents therein. Each Selected Dealer shall agree to
comply with the provisions of Section 24 of Article III of the Rules of Fair
Practice of the NASD, and each foreign Selected Dealer who is not a member of
the NASD also shall agree to comply with the NASD's interpretation with
respect to free-riding and withholding, to comply, as though it were a member
of the NASD, with the provisions of Sections 8 and 36 of Article III of such
Rules of Fair Practice, and to comply with Section 25 of Article III thereof
as that Section applies to a non-member foreign dealer.
With your consent, the Underwriters may allow, and Selected Dealers may
reallow, a discount on sales to any dealer who meets the above NASD
requirements in an amount not in excess of the amount set forth in the
Invitation. Upon your request, we will advise you of the identity of any
dealer to whom we allow such a discount and any Underwriter or Selected
Dealer from whom we receive such a discount.
<PAGE>
We also authorize you, for our account, to reserve for sale and to sell our
Securities at the public offering price to others, including institutions and
retail purchasers. Except for such sales which are designated by a purchaser
to be for the account of a particular Underwriter, such reservations and
sales shall be made as nearly as practicable in proportion to our
underwriting obligation, unless you agree to a smaller proportion at our
request.
At or before the time the Securities are released for sale, you shall notify
us of the amount of our Securities which have not been reserved for our
account for sale to Selected Dealers and others and which is to be retained
by us for direct sale.
We will from time to time, upon your request, report to you the amount of
Securities retained by us for direct sale which remains unsold and, upon your
request, deliver to you for our account, or sell to you for the account of
one or more of the Underwriters, such amount of our unsold Securities as you
may designate at the public offering price less an amount determined by you
not in excess of the concession to Selected Dealers. You may also repurchase
Securities from other Underwriters and Selected Dealers, for the account of
one or more of the Underwriters, at prices determined by you not in excess of
the public offering price less the concession to Selected Dealers.
You may from time to time deliver to any Underwriter, for carrying purposes
or for sale by such Underwriter, any of the Securities then reserved for sale
to, but not purchased and paid for by, Selected Dealers or others as above
provided, but to the extent that Securities are so delivered for sale by such
Underwriter, the amount of Securities then reserved for the account of such
Underwriter shall be correspondingly reduced. Securities delivered for
carrying purposes only shall be redelivered to you upon demand.
The Underwriters and Selected Dealers may, with your consent, purchase
Securities from and sell Securities to each other at the public offering
price less a concession not in excess of the concession to Selected Dealers.
6. Repurchase of Securities Not Effectively Placed. In recognition of the
importance of distributing the Securities to bona fide investors, we agree to
repurchase on demand any Securities sold by us, except through you, which are
purchased by you in the open market or otherwise during a period terminating
as provided in Section 16, at a price equal to the cost of such purchase,
including accrued interest, amortization of original issue discount or
dividends, commissions and transfer and other taxes, if any, on redelivery.
The certificates delivered to us need not be the identical certificates
delivered to you in respect of the Securities purchased. In lieu of requiring
repurchase, you may, in your discretion, sell such Securities for our account
at such prices, upon such terms and to such persons, including any of the
other Underwriters, as you may determine, charging the amount of any loss and
expense, or crediting the amount of any net profit, resulting from such sale,
to our account, or you may charge our account with an amount determined by
you not in excess of the concession to Selected Dealers.
7. Stabilization and Over-Allotment. In order to facilitate the distribution
of the Securities, we authorize you, in your discretion, to purchase and sell
Securities, any securities into which the Securities are convertible or for
which the Securities are exchangeable, and any other securities of the Issuer
or any guarantor of the Securities specified in the Invitation, in the open
market or otherwise, for long or short
<PAGE>
account, at such prices as you may determine, and, in arranging for sales to
Selected Dealers or others, to over-allot. You may liquidate any long
position or cover any short position incurred pursuant to this Section at
such prices as you may determine. You shall make such purchases and sales
(including over-allotments) for the accounts of the Underwriters as nearly as
practicable in proportion to their respective underwriting obligations. It is
understood that, in connection with any particular offering of Securities to
which this Agreement applies, you may have made purchases of any such
securities for stabilizing purposes prior to the time when we became one of
the Underwriters, and we agree that any such securities so purchased shall be
treated as having been purchased for the respective accounts of the
Underwriters pursuant to the foregoing authorization. At the close of
business of any day our net commitment, either for long or short account,
resulting from such purchases or sales (including over-allotments) shall not
exceed 15% (or such other amount as may be specified in the Invitation) of
our underwriting obligation, except that such percentage may be increased
with the approval of a majority in interest of the Underwriters. We will take
up at cost on demand any Securities or any such other securities so sold or
over-allotted for our account, including accrued interest, amortization of
original issue discount or dividends, and we will pay to you on demand the
amount of any losses or expenses incurred for our account pursuant to this
Section. In the event of default by any Underwriter in respect of its
obligations under this Section, each non-defaulting Underwriter shall assume
its share of the obligations of such defaulting Underwriter in the proportion
that its underwriting obligation bears to the underwriting obligations of all
non-defaulting Underwriters without relieving such defaulting Underwriter of
its liability hereunder.
If you effect any stabilizing purchase pursuant to this Section, you shall
promptly notify us of the date and time of the first stabilizing purchase and
the date and time when stabilizing was terminated. You shall prepare and
maintain such records as are required to be maintained by you as manager
pursuant to Rule 17a-2 under the 1934 Act.
8. Rule 10b-6. We represent and agree that in connection with the offering of
Securities we have complied and will comply with the provisions of Rule 10b-6
under the 1934 Act as they apply to the offering of the Securities.
9. Payment and Delivery. At or before such time, on such dates and at such
places as you may specify in the Invitation, we will deliver to you a
certified or official bank check in such funds as are specified in the
Invitation, payable to the order of Smith Barney, Harris Upham & Co.
Incorporated (unless otherwise specified in the Invitation) in an amount
equal to, as you direct, either (i) the public offering price or prices plus
accrued interest, amortization of original issue discount or dividends, if
any, set forth in the Prospectus or Offering Circular less the concession to
Selected Dealers in respect of the amount of Securities to be purchased by us
in accordance with the terms of this Agreement, or (ii) the amount set forth
in the Invitation with respect to the Securities to be purchased by us. We
authorize you to make payment for our account of the purchase price for the
Securities to be purchased by us against delivery to you of such Securities
(which, in the case of Securities which are debt obligations, may be in
temporary form), and the difference between such purchase price of the
Securities and the amount of our funds delivered to you therefore shall be
credited to our account.
Delivery to us of Securities retained by us for direct sale shall be made by
you as soon as practicable after your receipt of the Securities. Upon
termination of the provisions of this Agreement as provided in
<PAGE>
Section 16, you shall deliver to us any Securities reserved for our account
for sale to Selected Dealers and others which remain unsold at that time. If,
upon termination of the provisions of this Agreement specified in Section 16
hereof, an aggregate of not more than 10% of the Securities remains unsold,
you may, in your discretion, sell such Securities at such prices as you may
determine.
If we are a member of The Depository Trust Company or any other depository or
similar facility, you are authorized to make appropriate arrangements for
payment for and/or delivery through its facilities of the Securities to be
purchased by us, or, if we are not a member, settlement may be made through a
correspondent that is a member pursuant to our timely instructions to you.
Upon receiving payment for Securities sold for our account to Selected
Dealers and others, you shall remit to us an amount equal to the amount paid
by us to you in respect of such Securities and credit or charge our account
with the difference, if any, between such amount and the price at which such
Securities were sold.
In the event that the Underwriting Agreement for an offering provides for the
payment of a commission or other compensation to the Underwriters, we
authorize you to receive such commission or other compensation for our
account.
10. Management Compensation. As compensation for your services in the
management of the offering, we will pay you an amount equal to the management
fee specified in the Invitation in respect of the Securities to be purchased
by us pursuant to the Underwriting Agreement, and we authorize you to charge
our account with such amount. If there is more than one Representative, such
compensation shall be divided among the Representatives in such proportions
as they may determine.
11. Authority to Borrow. We authorize you to advance your own funds for our
account, charging current interest rates, or to arrange loans for our account
or the account of the Underwriters, as you may deem necessary or advisable
for the purchase, carrying, sale and distribution of the Securities. You may
execute and deliver any notes or other instruments required in connection
therewith and may hold or pledge as security therefor all or any part of the
Securities which we or such Underwriters have agreed to purchase. The
obligations of the Underwriters under loans arranged on their behalf shall be
several in proportion to their respective participations in such loans, and
not joint. Any lender is authorized to accept your instructions as to the
disposition of the proceeds of any such loans. You shall credit each
Underwriter with the proceeds of any loans made for its account.
12. Blue Sky Qualification. You shall inform us, upon request, of the states
and other jurisdictions of the United States in which it is believed that the
Securities are qualified for sale under, or are exempt from the requirements
of, their respective securities laws, but you assume no responsibility with
respect to our right to sell Securities in any jurisdiction. You are
authorized to file with the Department of State of the State of New York a
Further State Notice with respect to the Securities, if necessary.
If we propose to offer Securities outside the United States, its territories
or its possessions, we will take, at our own expense, such action, if any, as
may be necessary to comply with the laws of each foreign jurisdiction in
which we propose to offer Securities.
13. Membership in National Association of Securities Dealers, Inc.; Foreign
Underwriters. We understand that you are a member in good standing of the
NASD. We confirm that we are actually engaged
<PAGE>
in the investment banking or securities business and are either (i) a member
in good standing of the NASD or (ii) a dealer with its principal place of
business located outside the United States, its territories and its
possessions and not registered under the 1934 Act who hereby agrees to make
no sales within the United States, its territories or its possessions or to
persons who are nationals thereof or residents therein (except that we may
participate in sales to Selected Dealers and others under Section 5 of this
Agreement). We hereby agree to comply with Section 24 of Article III of the
Rules of Fair Practice of the NASD, and if we are a foreign dealer and not a
member of the NASD we also hereby agree to comply with the NASD's
interpretation with respect to free-riding and withholding, to comply, as
though we were a member of the NASD, with the provisions of Sections 8 and 36
of Article III of such Rules of Fair Practice, and to comply with Section 25
of Article III thereof as that Section applies to a non-member foreign
dealer.
14. Distribution of Prospectuses; Offering Circulars. We are familiar with
Securities Act of 1933 Release No. 4968 and Rule 15c2-8 under the 1934 Act,
relating to the distribution of preliminary and final prospectuses, and we
confirm that we will comply therewith, to the extent applicable, in
connection with any sale of Securities. You shall cause to be made available
to us, to the extent made available to you by the Issuer, such number of
copies of the Prospectus as we may reasonably request for purposes
contemplated by the 1933 Act, the 1934 Act and the rules and regulations
thereunder.
If an Invitation states that the offering is subject to the 48-hour
prospectus delivery requirement set forth in Rule 15c2-8(b), our Acceptance
of the Invitation shall be deemed to constitute confirmation that we have
delivered (or we will deliver) a copy of the preliminary prospectus to all
persons to whom we expect to confirm a sale of Securities and that such
delivery was effected (or will be effected) at least 48 hours prior to the
mailing of such confirmations of sale.
Our Acceptance of an Invitation relating to an offering made pursuant to an
Offering Circular shall constitute our agreement that, if requested by you,
we will furnish a copy of any amendment to a preliminary or final Offering
Circular to each person to whom we shall have furnished a previous
preliminary or final Offering Circular. Our Acceptance shall constitute our
confirmation that we have delivered and our agreement that we will deliver
all preliminary and final Offering Circulars required for compliance with the
applicable federal and state laws and the applicable rules and regulations of
any regulatory body promulgated thereunder governing the use and distribution
of offering circulars by underwriters and, to the extent consistent with such
laws, rules and regulations, our Acceptance shall constitute our confirmation
that we have delivered and our agreement that we will deliver all preliminary
and final Offering Circulars which would be required if the provisions of
Rule 15c2-8 (or any successor provision) under the 1934 Act applied to such
offering.
15. Net Capital. The incurrence by us of our obligations hereunder and under
the Underwriting Agreement in connection with the offering of the Securities
will not place us in violation of the capital requirements of Rule 15c3-1
under the 1934 Act.
16. Termination. With respect to each offering of Securities to which this
Agreement applies, all limitations in this Agreement on the price at which
the Securities may be sold, the period of time referred to in Section 6, the
authority granted by the first sentence of Section 7, and the restrictions
contained in Section 8 shall terminate at the close of business on the 45th
day after the commencement of the offering of such
<PAGE>
Securities. You may terminate any or all of such provisions at any time prior
thereto by notice to the Underwriters. All other provisions of this Agreement
shall remain operative and in full force and effect with respect to such
offering.
17. Expenses and Settlement. You may charge our account with any transfer
taxes on sales of Securities made for our account and with our proportionate
share (based upon our underwriting obligation) of all other expenses incurred
by you under this Agreement or otherwise in connection with the purchase,
carrying, sale or distribution of the Securities. With respect to each
offering of Securities to which this Agreement applies, the respective
accounts of the Underwriters shall be settled as promptly as practicable
after the termination of all the provisions of this Agreement as provided in
Section 16, but you may reserve such amount as you may deem advisable for
additional expenses. Your determination of the amount to be paid to or by us
shall be conclusive. You may at any time make partial distributions of credit
balances or call for payment of debit balances. Any of our funds in your
hands may be held with your general funds without accountability for
interest. Notwithstanding any settlement, we will remain liable for any taxes
on transfers for our account and for our proportionate share (based upon our
underwriting obligation) of all expenses and liabilities which may be
incurred by or for the accounts of the Underwriters with respect to each
offering of Securities to which this Agreement applies.
18. Indemnification. With respect to each offering of Securities pursuant to
this Agreement, we will indemnify and hold harmless each other Underwriter
and each person, if any, who controls each other Underwriter within the
meaning of Section 15 of the 1933 Act, to the extent that and on the terms
upon which we agree to indemnify and hold harmless the Issuer and other
specified persons as set forth in the Underwriting Agreement.
19. Claims Against Underwriters. With respect to each offering of Securities
to which this Agreement applies, if at any time any person other than an
Underwriter asserts a claim (including any commenced or threatened
investigation or proceeding by any government agency or body) against one or
more of the Underwriters or against you as Representative(s) of the
Underwriters arising out of an alleged untrue statement or omission in the
Registration Statement (or any amendment thereto) or in any preliminary
prospectus or the Prospectus or any amendment or supplement thereto, or in
any preliminary or final Offering Circular, or relating to any transaction
contemplated by this Agreement, we authorize you to make such investigation,
to retain such counsel for the Underwriters and to take such action in the
defense of such claim as you may deem necessary or advisable. You may settle
such claim with the approval of a majority in interest of the Underwriters.
We will pay our proportionate share (based upon our underwriting obligation)
of all expenses incurred by you (including the fees and expenses of counsel
for the Underwriters) in investigating and defending against such claim and
our proportionate share of the aggregate liability incurred by all
Underwriters in respect of such claim (after deducting any contribution or
indemnification obtained pursuant to the Underwriting Agreement, or
otherwise, from persons other than Underwriters), whether such liability is
the result of a judgment against one or more of the Underwriters or the
result of any settlement. Any Underwriter may retain separate counsel at its
own expense. A claim against or liability incurred by a person who controls
an Underwriter shall be deemed to have been made against or incurred by such
Underwriter. In the event of default by any Underwriter in respect of its
obligations under this Section, the non-defaulting Underwriters shall be
obligated to pay the full amount thereof in the proportions that their
respective
<PAGE>
underwriting obligations bear to the underwriting obligations of all
non-defaulting Underwriters without relieving such defaulting Underwriter of
its liability thereunder.
20. Default by Underwriters. Default by any Underwriter in respect of its
obligations hereunder or under the Underwriting Agreement shall not release
us from any of our obligations or in any way affect the liability of such
defaulting Underwriter to the other Underwriters for damages resulting from
such default. If one or more Underwriters default under the Underwriting
Agreement, if provided in the Underwriting Agreement you may (but shall not
be obligated to) arrange for the purchase by others, which may include
yourselves or other non-defaulting Underwriters, of all or a portion of the
Securities not taken up by the defaulting Underwriters.
In the event that such arrangements are made, the respective underwriting
obligations of the non-defaulting Underwriters and the amounts of the
Securities to be purchased by others, if any, shall be taken as the basis for
all rights and obligations hereunder; but this shall not in any way affect
the liability of any defaulting Underwriter to the other Underwriters for
damages resulting from its default, nor shall any such default relieve any
other Underwriter of any of its obligations hereunder or under the
Underwriting Agreement except as herein or therein provided. In addition, in
the event of default by one or more Underwriters in respect of their
obligations under the Underwriting Agreement to purchase the Securities
agreed to be purchased by them thereunder and, to the extent that
arrangements shall not have been made by you for any person to assume the
obligations of such defaulting Underwriter or Underwriters, we agree, if
provided in the Underwriting Agreement, to assume our proportionate share,
based upon our underwriting obligation, of the obligations of each such
defaulting Underwriter (subject to the limitations contained in the
Underwriting Agreement) without relieving such defaulting Underwriter of its
liability therefor.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any securities
purchased, or to deliver any securities sold or over-alloted, by you for the
respective accounts of the Underwriters, or to bear their proportion of
expenses or liabilities pursuant to this Agreement, and to the extent that
arrangements shall not have been made by you for any persons to assume the
obligations of such defaulting Underwriter or Underwriters, we agree to
assume our proportionate share, based upon our underwriting obligation, of
the obligations of each defaulting Underwriter without relieving any such
defaulting Underwriter of its liability therefor.
21. Legal Responsibility. As Representative(s) of the Underwriters, you shall
have no liability to us, except for your lack of good faith and for
obligations assumed by you in this Agreement and except that we do not waive
any rights that we may have under the 1933 Act or the 1934 Act or the rules
and regulations thereunder. No obligations not expressly assumed by you in
this Agreement shall be implied herefrom.
Nothing herein contained shall constitute the Underwriters an association, or
partners, with you, or with each other, or, except as otherwise provided
herein or in the Underwriting Agreement, render any Underwriter liable for
the obligations of any other Underwriter, and the rights, obligations and
liabilities of the Underwriters are several in accordance with their
respective underwriting obligations, and not joint.
If the Underwriters are deemed to constitute a partnership for federal income
tax purposes, we elect to be excluded from the application of Subchapter K,
Chapter 1, Subtitle A, of the Internal Revenue Code of 1954, as amended, and
agree not to take any position inconsistent with such election, and you, as
<PAGE>
Representative(s), are authorized, in your discretion, to execute on behalf
of the Underwriters such evidence of such election as may be required by the
Internal Revenue Service.
Unless we have promptly notified you in writing otherwise, our name as it
should appear in the Prospectus or Offering Circular and our address are set
forth below.
22. Notices. Any notice from you shall be deemed to have been duly given if
mailed or transmitted to us at our address appearing below.
23. Governing Law. This Agreement shall be governed by the laws of the State
of New York applicable to agreements made and to be performed in said State.
Please confirm this Agreement and deliver a copy to us.
Very truly yours,
Name of Firm:
By
Authorized Officer or Partner
Address:
Confirmed as of the date
first above written.
Smith Barney, Harris Upham & Co. Incorporated
By [INSERT SIGNATURE]
Managing Director
<PAGE>
EXHIBIT A
MASTER UNDERWRITERS' QUESTIONNAIRE
In connection with each offering of Securities pursuant to the Smith Barney,
Harris Upham & Co. Incorporated Master Agreement Among Underwriters, dated
July 18, 1985 (the "Agreement"), each Underwriter confirms the following
information, except as indicated in such Underwriter's Acceptance or other
written communication furnished to Smith Barney, Harris Upham & Co.
Incorporated. Defined terms used herein have the same meaning as defined
terms in the Master Agreement Among Underwriters.
(a) Neither such Underwriter nor any of its directors, officers or partners
have any material (as defined in Regulation C under the 1993 Act)
relationship with the Issuer, its parent (if any), any other seller of the
Securities or any guarantor of the Securities.
(b) Except as described or to be described in the Agreement, the Underwriting
Agreement or the Invitation, such Underwriter does not know: (i) of any
discounts or commissions to be allowed or paid to dealers, including all
cash, securities, contracts, or other consideration to be received by any
dealer in connection with the sale of the Securities, or of any other
discounts or commissions to be allowed or paid to the Underwriters or of any
other items that would be deemed by the NASD to constitute underwriting
compensation for purposes of the NASD's Rules of Fair Practice, (ii) of any
intention to over-allot, or (iii) that the price of any security may be
stabilized to facilitate the offering of the Securities.
(c) No report or memorandum has been prepared for external use (i.e., outside
such Underwriter's organization) by such Underwriter in connection with the
proposed offering of Securities and, in the case of a Registered Offering,
where the Registration Statement is on Form S-1, such Underwriter has not
prepared or had prepared for it any engineering, management or similar report
or memorandum relating to the broad aspects of the business, operations or
products of the Issuer, its parent (if any) or any guarantor of the
Securities within the past twelve months. If any such report or memorandum
has been prepared, furnish to Smith Barney, Harris Upham & Co. Incorporated
three copies thereof, together with a statement as to the distribution of the
report or memorandum, identifying each class of persons to whom the report or
memorandum was distributed, the number of copies distributed to each class
and the period of distribution.
(d) If the Securities are debt securities to be issued under an indenture to
be qualified under the Trust Indenture Act of 1939, neither such Underwriter
nor any of its directors, officers or partners is an "affiliate", as that
term is defined under the Trust Indenture Act of 1939, of the Trustee for the
Securities as specified in the Invitation, or of its parent (if any); neither
the Trustee nor its parent (if any) nor any of their directors or executive
officers is a director, officer, partner, employee, appointee or
representative of such Underwriter as those terms are defined in the Trust
Indenture Act of 1939 or in the relevant instructions to Form T-1; neither
such Underwriter nor any of its directors, partners or executive officers,
separately or as a group, owns beneficially 1% or more of the shares of any
class of voting securities of the Trustee or of its parent (if any); and if
such Underwriter is a corporation, it does not have outstanding nor has it
assumed or guaranteed any securities issued otherwise than in its present
corporate name, and neither the Trustee nor its parent (if any) is a holder
of any such securities.
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(e) If the Issuer is a public utility, such Underwriter is not a "holding
company" or a "subsidiary company" or an "affiliate" of a "holding company"
or of a "public utility company", each as defined in the Public Utility
Holding Company Act of 1935.
(f) Neither such Underwriter nor any "group" (as that term is defined in
Section 13(d)(3) of the 1934 Act) of which it is a member is the beneficial
owner (determined in accordance with Rule 13d-3 under the 1934 Act) of more
than 5% of any class of voting securities of the Issuer, its parent (if any),
any other seller of the Securities or any guarantor of the Securities nor
does it have any knowledge that more than 5% of any class of voting
securities of the Issuer is held or to be held subject to any voting trust or
other similar agreement.
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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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
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<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
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<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;
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<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;
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<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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<PAGE>
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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<PAGE>
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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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
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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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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
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<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
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<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
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<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
20
<PAGE>
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.
21
<PAGE>
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
24
<PAGE>
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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<PAGE>
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
27
<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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<PAGE>
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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<PAGE>
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
30
<PAGE>
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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<PAGE>
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 ---------------------------
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SCHEDULE A
Putnam Adjustable Rate U.S. Government Fund
Putnam American Government Income Fund
Putnam Arizona Tax Exempt Income Fund
Putnam Asia Pacific Growth Fund
Putnam Asset Allocation Funds
Putnam California Investment Grade Municipal Trust
Putnam California Tax Exempt Income Trust
Putnam California Tax Exempt Money Market Fund
Putnam Capital Appreciation Fund
Putnam Capital Manager Trust
Putnam Convertible Income-Growth Trust
Putnam Convertible Opportunities and Income Trust
Putnam Diversified Equity Trust
Putnam Diversified Income Trust
Putnam Dividend Growth Fund
Putnam Dividend Income Fund
Putnam Equity Income Fund
Putnam Europe Growth Fund
Putnam Federal Income Trust
Putnam Florida Tax Exempt Income Fund
The George Putnam Fund of Boston
Putnam Global Governmental Income Trust
Putnam Global Growth Fund
Putnam Growth Fund
The Putnam Fund for Growth and Income
Putnam Growth and Income Fund II
Putnam Health Sciences Trust
Putnam High Income Convertible and Bond Fund
Putnam High Yield Trust
Putnam High Yield Advantage Fund
Putnam High Yield Municipal Trust
Putnam Income Fund
Putnam Intermediate Tax Exempt Fund
Putnam Intermediate U.S. Government Fund
Putnam Investment Grade Bond Fund
Putnam Investment Funds
Putnam Investment Grade Intermediate Municipal Trust
Putnam Investment Grade Municipal Trust
Putnam Investment Grade Municipal Trust II
Putnam Investment Grade Municipal Trust III
Putnam Investors Fund
Putnam Managed High Yield Trust
Putnam Managed Income Trust
Putnam Managed Municipal Income Trust
Putnam Massachusetts Tax Exempt Income Fund II
Putnam Master Income Trust
Putnam Michigan Tax Exempt Income Fund II
Putnam Minnesota Tax Exempt Income Fund II
Putnam Money Market Fund
Putnam Municipal Income Fund
Putnam Municipal Opportunities Trust
Putnam New Jersey Tax Exempt Income Fund
Putnam Natural Resources Fund
Putnam New Opportunities Fund
Putnam New York Investment Grade Municipal Trust
Putnam New York Tax Exempt Income Trust
Putnam New York Tax Exempt Money Market Fund
Putnam New York Tax Exempt Opportunities Fund
Putnam Ohio Tax Exempt Income Fund II
Putnam OTC Emerging Growth Fund
Putnam Overseas Growth Fund
Putnam Pennsylvania Tax Exempt Income Fund
Putnam Preferred Income Fund
Putnam Tax Exempt Income Fund
Putnam Tax Exempt Money Market Fund
Putnam Tax-Free Income Trust
Putnam U.S. Government Income Trust
Putnam Utilities Growth and Income Fund
Putnam Vista Fund
Putnam Voyager Fund
Dated: May 5, 1995
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
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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 May 5, 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 May 5, 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 .25% 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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3038387.03
<PAGE>
Administrator under the Management Contract dated as of May 5, 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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3038387.03
<PAGE>
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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3038387.03
<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: Charles E. Porter
PUTNAM INVESTMENT MANAGEMENT, INC.
By: Gordon Silver
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3038387.03
