Document File Name: PUTNAM TAX-FREE INCOME TRUST POS EX
As filed with the Securities and Exchange Commission on
April 18, 2005
Registration No.
(Investment Company Act Registration No. 811-4345)
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No.1 /X/
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(Check appropriate box or boxes)
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PUTNAM TAX-FREE INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
617-292-1000
(Area Code and Telephone Number)
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BETH S. MAZOR, Vice President
PUTNAM TAX-FREE INCOME TRUST
One Post Office Square
Boston, Massachusetts 02109
(Name and address of Agent for Service)
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Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY LLP
One International Place
Boston, Massachusetts 02110
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It is proposed that this filing will become effective immediately upon
filing pursuant to paragraph (d) of Rule 462 under the Securities Act of
1933, as amended. This amendment to the registration statement on Form N-14
of Putnam Tax-free High Yield Fund, filed with the Commission on November 10,
2004 (Registration No. 333-120361) (the "Registration Statement"), is being
filed to add Exhibit 12 to the Registration Statement. No other information
contained in the Registration Statement is amended, deleted, or superseded
hereby.
Important information for shareholders of
PUTNAM MUNICIPAL INCOME FUND
The document you hold in your hands contains a combined prospectus/proxy
statement and proxy card. A proxy card is, in essence, a ballot. When
you vote your proxy, it tells us how to vote on your behalf on important
issues relating to your fund. If you complete and sign the proxy, we'll
vote it exactly as you tell us. If you simply sign the proxy, we'll vote
it in accordance with the Trustees' recommendation on page 1.
We urge you to carefully review the prospectus/proxy statement, and
provide your voting instructions by using any of the methods shown on
your proxy card. When shareholders don't return their proxies in
sufficient numbers, we have to make follow-up solicitations, which can
cost your fund money.
We want to know how you would like to vote, and welcome your comments.
Please take a few minutes with these materials and return your proxy to
us.
PUTNAM INVESTMENTS
(scale logo)
TABLE OF CONTENTS
A Message from the Chairman 1
Notice of a Meeting of Shareholders 3
Prospectus/Proxy Statement 4
Proxy card enclosed
If you have any questions, please contact us at the special toll-free
number we have set up for you 1-800-225-1581 or call your financial
advisor.
A Message from the Chairman
Dear Shareholder:
I am writing to you to ask for your vote on an important matter that
affects your investment in Putnam Municipal Income Fund ("Municipal
Income Fund"). While you are, of course, welcome to join us at Municipal
Income Fund's meeting, most shareholders cast their vote by filling out
and signing the enclosed proxy card, by calling or by voting via the
Internet.
We are asking for your vote on the following matter:
Approving a proposed merger of Municipal Income Fund into Putnam
Tax-Free High Yield Fund ("Tax-Free High Yield Fund"). In this merger,
your shares of Municipal Income Fund would, in effect, be exchanged on a
tax-free basis for shares of Tax-Free High Yield Fund with an equal
total net asset value.
Municipal Income Fund seeks as high a level of current income exempt
from federal income tax as Putnam Investment Management, LLC ("Putnam
Management"), the fund's investment manager, believes to be consistent
with preservation of capital. Tax-Free High Yield Fund seeks high
current income exempt from federal income tax. Both funds invest mainly
in bonds that
* pay interest that is exempt from federal income tax but that may be
subject to federal alternative minimum tax (AMT),
* are a combination of lower-rated and investment grade securities
* have intermediate- to long-term maturities (three years or longer).
Putnam Management has recommended the proposed merger because it believes
the proposed merger offers shareholders of Municipal Income Fund the
opportunity to invest in a larger fund with similar policies and a greater
potential to achieve economies of scale and a lower expense ratio.
The Trustees of your fund have carefully reviewed the terms of the
proposed merger and unanimously recommend approval of the proposed
merger by shareholders of Municipal Income Fund.
Your vote is important to us. We urge you to record your voting
instructions by automated telephone, on the Internet or by completing,
signing and returning the enclosed proxy card promptly. A postage-paid
envelope is enclosed for mailing, and automated telephone and Internet
voting instructions are listed on your proxy card.
I'm sure that you, like most people, lead a busy life and are tempted to
put this proxy aside for another day. Please don't. When shareholders do
not return their proxies, their fund may have to incur the expense of
follow-up solicitations. All shareholders benefit from the speedy return
of proxies.
We appreciate the time and consideration I am sure you will give this
important matter. If you have questions about the proposal, please call
us at 1-800-225-1581, or call your financial advisor.
Sincerely yours,
John A. Hill, Chairman
PUTNAM MUNICIPAL INCOME FUND
Notice of a Meeting of Shareholders
* This is the formal agenda for your fund's shareholder meeting. It tells
you what matters will be voted on and the time and place of the meeting, in
the event you attend in person.
To the Shareholders of Putnam Municipal Income Fund:
A Meeting of Shareholders of Putnam Municipal Income Fund ("Municipal
Income Fund") will be held on March 10, 2005, at 11:00 a.m., Boston
time, on the 12th floor of One Post Office Square, Boston,
Massachusetts, to consider the following:
Approving an Agreement and Plan of Reorganization and the transactions
contemplated thereby, including the transfer of all of the assets of
Municipal Income Fund to Putnam Tax-Free High Yield Fund ("Tax-Free High
Yield Fund") in exchange for the issuance and delivery of shares of
beneficial interest of Tax-Free High Yield Fund and the assumption by
Tax-Free High Yield Fund of all the liabilities of Municipal Income
Fund, and the distribution of such shares to the shareholders of
Municipal Income Fund in complete liquidation of Municipal Income Fund.
See page A-1.
By Order of the Trustees
Judith Cohen, Clerk
* * *
THE TRUSTEES URGE YOU TO MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN
THE POSTAGE-PAID ENVELOPE PROVIDED OR RECORD YOUR VOTING INSTRUCTIONS BY
AUTOMATED TELEPHONE OR VIA THE INTERNET SO THAT YOU WILL BE REPRESENTED AT
THE MEETING.
________, 2004
Prospectus/Proxy Statement
_______, 2004
This Prospectus/Proxy Statement relates to the proposed merger of Putnam
Municipal Income Fund ("Municipal Income Fund") into Putnam Tax-Free
High Yield Fund ("Tax-Free High Yield Fund"), each located at One Post
Office Square, Boston, MA 02109; 1-617-292-1000. As a result of the
proposed merger, each shareholder of Municipal Income Fund would receive
shares of the corresponding class of Tax-Free High Yield Fund equal in
value at the date of the exchange to the value of the shareholder's
Municipal Income Fund shares, as applicable.
This Prospectus/Proxy Statement is being mailed on or about ________,
2005. It explains concisely what you should know before voting on the
matters described herein or investing in Tax-Free High Yield Fund, a
diversified, open-end management investment company. Please read this
Prospectus/Proxy Statement and keep it for future reference.
The following documents have been filed with the Securities and Exchange
Commission (the "SEC") and are incorporated into this Prospectus/Proxy
Statement by reference:
(i) the prospectus of Tax-Free High Yield Fund, dated November ___, 2004
(the "Tax-Free High Yield Fund Prospectus");
(ii) the prospectus of Municipal Income Fund, dated July 30, 2004 (the
"Municipal Income Fund Prospectus");
(iii) the statement of additional information ("SAI") relating to the
proposed merger, dated _______, 2004;
(iv) the Performance Summary, Independent Auditors' Report and financial
statements included in Municipal Income Fund's Annual Report to
Shareholders for the fiscal year ended March 31, 2004; and
(v) the financial statements included in Municipal Income Fund's
Semiannual Report to Shareholders for the period ended September 30,
2004.
This Prospectus/Proxy Statement is being mailed with a copy of Tax-Free
High Yield Fund Prospectus. Shareholders may obtain free copies of any
of the above, request other information about the funds, or make
shareholder inquiries by contacting their financial advisor, by visiting
the Putnam Investments Web site at www.putnaminvestments.com, or by
calling Putnam toll-free at 1-800-225-1581.
The securities offered by this Prospectus/Proxy Statement have not been
approved or disapproved by the SEC, nor has the SEC passed upon the
accuracy or adequacy of this Prospectus/Proxy Statement. Any
representation to the contrary is a criminal offense.
Shares of Tax-Free High Yield Fund are not deposits or obligations of,
or guaranteed or endorsed by, any financial institution, are not insured
by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.
This document will give you the information you need to vote on the
proposal. Much of the information is required under rules of the SEC;
some of it is technical. If there is anything you don't understand,
please contact us at our toll-free number, 1-800-225-1581, or call your
financial advisor. Like Municipal Income Fund, Tax-Free High Yield Fund
is in the family of funds managed by Putnam Investment Management, LLC
("Putnam Management"). Tax-Free High Yield Fund and Municipal Income
Fund are collectively referred to herein as the "funds," and each is
referred to individually as a "fund."
You may review and copy information about the funds, including the SAI,
at the SEC's public reference room at 450 Fifth Street, NW, Washington,
D.C. You may call the SEC at 1-202-942-8090 for information about the
operation of the public reference room. You may obtain copies of this
information, with payment of a duplication fee, by electronic request at
the following e-mail address: publicinfo@sec.gov, or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102. You may
also access reports and other information about the funds on the EDGAR
database on the SEC's Internet site at http://www.sec.gov.
I. Synopsis
* The responses to the questions that follow provide an overview of key
points typically of concern to shareholders considering a proposed merger
between open-end mutual funds. These responses are qualified in their
entirety by the remainder of the Prospectus/Proxy Statement, which contains
additional information and further details regarding the proposed merger.
1. What is being proposed?
The Trustees of the funds are recommending that shareholders of
Municipal Income Fund approve the proposed merger of Municipal Income
Fund into Tax-Free High Yield Fund and the related transactions
contemplated by the Agreement and Plan of Reorganization among the funds
and Putnam Management dated as of _______, 2004 (the "Agreement"). If
approved by shareholders, all of the assets of Municipal Income Fund
will be transferred to Tax-Free High Yield Fund in exchange for the
issuance and delivery to Municipal Income Fund of shares of Tax-Free
High Yield Fund (the "Merger Shares") with a value equal to the value of
Municipal Income Fund's assets net of liabilities and for the assumption
by Tax-Free High Yield Fund of all of the liabilities of Municipal
Income Fund. Immediately following the transfer, the Merger Shares
received by Municipal Income Fund will be distributed to its
shareholders, pro rata.
2. What will happen to my shares of Municipal Income Fund as a result of
the proposed merger?
Your shares of Municipal Income Fund will, in effect, be exchanged on a
tax-free basis for shares of Tax-Free High Yield Fund with an equal
aggregate net asset value on the date of the merger.
3. Why is the merger being proposed at this time?
Putnam Management proposed the merger of Municipal Income Fund into
Tax-Free High Yield Fund to the funds' Trustees because it offers
shareholders of Municipal Income Fund the opportunity to invest in a
larger fund with similar investment policies and a greater potential to
achieve increased sales and further economies of scale. The proposed
merger will allow the investment team, which currently manages both
funds, to concentrate its efforts and resources more efficiently.
Putnam currently offers four national open-end tax-exempt funds
differentiated by their level of investment in lower-rated bonds. Tax-Free
High Yield Fund and Municipal Income Fund fall on the lower-rated portion
of the credit quality spectrum, with Tax-Free High Yield Fund maintaining a
higher percentage of below investment-grade bonds than Municipal Income
Fund (approximately [38.5]% for Tax-Free High Yield Fund versus [17.5]% for
Municipal Income Fund as of July 31, 2004). Putnam Management believes that
merging Municipal Income Fund into Tax-Free High Yield Fund will result in
a combined fund that may be more attractive to investors than either fund
currently is. Putnam Management expects that, as a result of the proposed
merger, shareholders of Municipal Income Fund will likely see an increase
in the dividends they receive, although there can be no assurance that this
will be the case. As stated above, the funds are managed by the same
investment team with a common investment process and similar objectives.
Both funds are intended for fixed income investors who want high current
income exempt from federal income tax.
For these reasons, Putnam Management recommended that Municipal Income
Fund, which had assets of $772 million as of July 31, 2004, be combined
with Tax-Free High Yield Fund, which had assets of approximately $997
million as of July 31, 2004.
* * *
The Trustees of the Putnam funds, who serve as Trustees of each of the
funds involved in the proposed merger, have carefully considered Putnam
Management's recommendations. Following a review of the anticipated
benefits and costs of the proposed merger to the shareholders of your
fund, the Trustees of your fund, including all of the Trustees who are
not "interested persons" (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) of your fund or Putnam Management
(these Trustees are referred to as "Independent Trustees" throughout
this Prospectus/Proxy Statement), unanimously determined that the
proposed merger is in the best interest of the shareholders of your fund
and recommend that shareholders vote FOR approval of the proposed
merger.
4. How do the investment goals, policies and restrictions of the two
funds compare?
Investment Goals
The investment goals and strategies of the funds are similar. Municipal
Income Fund seeks as high a level of current income exempt from federal
income tax as Putnam Management believes to be consistent with
preservation of capital. Tax-Free High Yield Fund seeks high current
income exempt from federal income tax.
Investment Policies
The funds share substantially identical fundamental investment policies.
Under normal circumstances, each fund invests at least 80% of its net
assets in tax exempt investments. This investment policy cannot be
changed without the approval of the fund's shareholders.
The funds share substantially identical non-fundamental investment
policies, except that Municipal Income Fund invests at least 55% of its
net assets in investment-grade debt investments (i.e., investments that
are rated at least BBB or its equivalent as determined by a nationally
recognized securities rating organization or are unrated investments
that Putnam Management believes to be of comparable quality). Although
Tax-Free High Yield Fund invests in a combination of higher-rated and
lower-rated investments, the fund is not required by its investment
policies to invest any particular percentage of its assets in investment
grade securities (as of July 31, 2004, approximately [59.2]% of its
assets were invested in investment-grade securities). In addition,
Municipal Income Fund may invest up to 10% of its total assets in
investments rated below B or its equivalent, while Tax-Free High Yield
Fund may invest up to 10% of its total assets in debt investments rated
below CC or its equivalent.
5. How do the management fees and other expenses of the funds compare,
and what are they estimated to be following the proposed merger?
The following tables summarize the fees and expenses you may pay when
investing in the funds, expenses that each of the funds incurred for its
most recent fiscal year as well as the pro forma expenses of Tax-Free
High Yield Fund, assuming consummation of the proposed merger. As shown
below, the proposed merger is expected to result in decreased total
expenses for shareholders of Municipal Income Fund. However, there can
be no assurance that the proposed merger will result in expense savings.
Shareholder Fees (fees paid directly from your investment)*
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Class A Class B Class C Class M
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Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of the offering price)
Municipal Income Fund 4.50% NONE NONE 3.25%
Tax-Free High Yield Fund 4.50%** NONE NONE 3.25%**
Maximum Deferred Sales
Charge (Load) (as a percentage
of the original purchase price
or redemption proceeds,
whichever is lower)
Municipal Income Fund NONE*** 5.00%**** 1.00% NONE
Tax-Free High Yield Fund NONE*** 5.00%**** 1.00% NONE
Maximum Redemption Fee*****
(as a percentage of
total redemption
proceeds)
Municipal Income Fund 2.00% 2.00% 2.00% 2.00%
Tax-Free High Yield Fund 2.00% 2.00% 2.00% 2.00%
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Annual Fund Operating Expenses+<>
(expenses that are deducted from fund assets)
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Manage- Total Expense
ment Distribution Other Operating Reimburse- Net
Fees (12b-1) Fees Expenses Expenses ment Expenses
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Municipal
Income Fund
Class A 0.50% 0.25% 0.15% 0.90% 0.01% 0.89%
Class B 0.50% 0.85% 0.15% 1.50% 0.01% 1.49%
Class C 0.50% 1.00% 0.15% 1.65% 0.01% 1.64%
Class M 0.50% 0.50% 0.15% 1.15% 0.01% 1.14%
Tax-Free
High Yield
Fund
Class A 0.59% 0.20% 0.15% 0.94% 0.02% 0.92%
Class B 0.59% 0.85% 0.15% 1.59% 0.02% 1.57%
Class C 0.59% 1.00% 0.15% 1.74% 0.02% 1.72%
Class M 0.59% 0.50% 0.15% 1.24% 0.02% 1.22%
Tax-Free
High Yield
Fund (Pro
forma combined)
Class A 0.50%++ 0.25%+++ 0.15% 0.90% ------- -------
Class B 0.50%++ 0.85% 0.15% 1.50% ------- -------
Class C 0.50%++ 1.00% 0.15% 1.65% ------- -------
Class M 0.50%++ 0.50% 0.15% 1.15% ------- -------
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* Certain investments in class A and class M shares may qualify for
discounts on applicable sales charges. See "How do I buy fund shares?"
in the Tax-Free High Yield Fund Prospectus for details.
** Sales charge does not apply to the Merger Shares.
*** A deferred sales charge of up to 1.00% on class A shares and of 0.40%
on class M shares may be imposed on certain redemptions of shares bought
without an initial sales charge.
**** 5.00% in the first year, declining to 1.00% in the sixth year and
eliminated thereafter.
***** A 2.00% short-term trading fee (also referred to as a "redemption
fee") may apply to any shares that are redeemed (either by selling or
exchanging into another fund) within 5 days of purchase.
+ See the section "Who manages the fund?" in the Tax-Free High Yield Fund
Prospectus for a discussion of regulatory matters and litigation.
++ Reflects Putnam Management's agreement, subject to the completion of the
proposed merger, to decrease the fees payable under the fund's
Management Contract. Effective upon the completion of the proposed
merger, these fees will be paid quarterly at the annual rate equal to
the lesser of (i) 0.50% of the average net asset value of the fund or
(ii) 0.60% of the first $500 million of the average net asset value of
the fund, 0.50% of the next $500 million of such average net asset
value, 0.45% of the next $500 million of such average net asset value,
0.40% of the next $5 billion of such average net asset value, 0.375% of
the next $5 billion of such average net asset value, 0.355% of the next
$5 billion of such average net asset value, 0.34% of the next $5
billion of such average net asset value and 0.33% thereafter.
+++ Distribution (12b-1) Fees shown for class A shares of Tax-Free High
Yield Fund reflect the maximum rate at which such fees may be paid
following the consummation of the proposed merger. Actual distribution
(12b-1) fees will be paid at an annual rate equal to the weighted
average of (i) 0.20% on the net assets of the Tax-Free High Yield Fund
attributable to Class A shares existing immediately prior to the
proposed merger, and (ii) 0.25% on all other net assets of Tax-Free High
Yield Fund attributable to Class A shares.
<> Reflects Putnam Management's agreement, effective January 28, 2004, to
waive fees and reimburse expenses of the fund through March 31, 2005 to
the extent necessary to ensure that the fund's expenses do not exceed
the average expenses of the front-end load funds reviewed by Lipper Inc.
as having the same investment classification or objective as the fund.
The expense reimbursement is based on a comparison of the fund's
expenses with the average annualized operating expenses of the funds
in its Lipper peer group for each calendar quarter during the fund's
last fiscal year, excluding 12b-1 fees and without giving effect to
any expense offset and brokerage service arrangements that may reduce
fund expenses.
Examples
These examples translate the expenses shown in the preceding table into
dollar amounts. By doing this, you can more easily compare the cost of
investing in the funds. The examples make certain assumptions. They
assume that you invest $10,000 in a fund for the time periods shown and
then, except as shown for class B shares and class C shares, redeem all
your shares at the end of those periods. They also assume, as required
by the SEC, a 5% return on your investment each year and that a fund's
operating expenses remain the same. The examples are hypothetical; your
actual costs and returns may be higher or lower.
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1 Year 3 Years 5 Years 10 Years
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Municipal Income Fund
Class A $537 $723 $925 $1,507
Class B $652 $773 $1,018 $1,627*
Class B (no redemption) $152 $473 $818 $1,627*
Class C $267 $519 $896 $1,954
Class C (no redemption) $167 $519 $896 $1,954
Class M $437 $678 $936 $1,676
Tax-Free High Yield Fund
Class A $540 $734 $945 $1,557
Class B $660 $800 $1,064 $1,713*
Class B (no redemption) $160 $500 $864 $1,713*
Class C $275 $546 $942 $2,050
Class C (no redemption) $175 $546 $942 $2,050
Class M $445 $704 $982 $1,775
Tax-Free High Yield Fund
(Pro forma combined)
Class A $538 $724 $926 $1,508
Class B $653 $774 $1,018 $1,628*
Class B (no redemption) $153 $474 $818 $1,628*
Class C $268 $520 $897 $1,955
Class C (no redemption) $168 $520 $897 $1,955
Class M $438 $678 $937 $1,677
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* Reflects the conversion of class B shares to class A shares, which pay
lower 12b-1 fees. Conversion occurs eight years after purchase.
6. How does the investment performance of the funds compare?
Average Annual Total Returns (for periods ending September 30, 2004)
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Past Past Past
1 year 5 years 10 years
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Tax-Free High Yield Fund
Class A (before taxes) 1.61% 3.20% 4.60%
Class A (after taxes on distributions) 1.60% 3.19% 4.59%
Class A (after taxes on distributions and
sale of fund shares) 2.87% 3.55% 4.77%
Class B (before taxes) 0.71% 3.25% 4.48%
Class C (before taxes) 4.54% 3.34% 4.23%
Class M (before taxes) 2.65% 3.15% 4.40%
Municipal Income Fund
Class A (before taxes) -0.24% 4.14% 5.24%
Class A (after taxes on distributions) -0.27% 4.13% 5.23%
Class A (after taxes on distributions and
sale of fund shares) 1.41% 4.28% 5.28%
Class B (before taxes) -1.15% 4.15% 5.10%
Class C (before taxes) 2.78% 4.33% 4.90%
Class M (before taxes) 0.82% 4.13% 5.10%
Lehman Municipal Bond Index
(no deduction for fees, expenses
or taxes) 4.59% 6.77% 6.77%
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The performance information reflects the impact of sales charges. Class
A and class M share performance reflects the current maximum initial
sales charges (which for class A shares reflects a reduction that took
effect after December 31, 2003); class B and class C share performance
reflects the maximum applicable deferred sales charge if shares had been
redeemed on September 30, 2004 and, for class B shares, assumes
conversion to class A shares after eight years. For periods before the
inception of class C shares (February 1, 1999) and class M shares
(December 29, 1994) of Tax-Free High Yield Fund and class C shares
(February 1, 1999) and class M shares (December 1, 1994) of Municipal
Income Fund, performance shown for these classes in the table is based
on the performance of each fund's class A shares, adjusted to reflect
the appropriate sales charge, differences in operating expenses, and the
higher 12b-1 fees paid by the class B, class C and class M shares. Each
fund's performance is compared to the Lehman Municipal Bond Index, an
unmanaged index of long-term fixed-rate investment-grade tax-exempt
bonds. After-tax returns reflect the highest individual federal income
tax rates and do not reflect state and local taxes. Actual after-tax
returns depend on an investor's tax situation and may differ from those
shown. After-tax returns are shown for class A shares only and will vary
for other classes. After-tax returns are not relevant to those investing
through 401(k) plans, IRAs or other tax-deferred arrangements.
Year-to-date performance through September 30, 2004 for the funds' class
A shares was 4.63% for Tax-Free High Yield Fund and 3.39% for Municipal
Income Fund. Unlike the table above, this information does not reflect
the impact of sales charges. If it did, performance would be less than
that shown. Of course, past performance is not an indication of future
performance.
For additional performance information of Tax-Free High Yield Fund,
please see "Fund Summary-- Performance information" in the Tax-Free High
Yield Fund Prospectus, a copy of which was mailed with this
Prospectus/Proxy Statement.
7. Will my dividend be affected by the proposed merger?
Putnam Management expects that, as a result of the proposed merger,
shareholders of Municipal Income Fund will likely see an increase in the
dividends they receive. As of September 30, 2004, the current dividend
rates for class A shares of Municipal Income Fund and Tax-Free High
Yield Fund were 4.67% and 5.23%, respectively, and the estimated
dividend rate for class A shares of Tax-Free High Yield Fund on a pro
forma basis, after giving effect to the proposed merger, would have been
5.02%. As of September 30, 2004, the SEC yields for class A shares of
Municipal Income Fund and Tax-Free High Yield Fund were 4.11% and 4.65%,
respectively.
Tax-Free High Yield Fund will not permit any holder of Municipal Income
Fund shares holding certificates for such shares at the time of the
proposed merger to receive cash dividends or other distributions,
receive certificates for Merger Shares or pledge Merger Shares until
such certificates for Municipal Income Fund shares have been
surrendered, or, in the case of lost certificates, until an adequate
surety bond has been posted.
If a shareholder is not, for the reason above, permitted to receive cash
dividends or other distributions on Merger Shares, Tax-Free High Yield
Fund will pay all such dividends and distributions in additional shares,
notwithstanding any election the shareholder may have made previously to
receive dividends and distributions on Municipal Income Fund shares in
cash.
8. What are the federal income tax consequences of the proposed merger?
For federal income tax purposes, no gain or loss will be recognized by
Municipal Income Fund or its shareholders as a result of the proposed
merger. Certain other tax consequences are discussed below under
"Information about the Proposed Merger-- Federal Income Tax
Consequences."
9. Do the procedures for purchasing, redeeming and exchanging shares of
the two funds differ?
No. The procedures for purchasing and redeeming shares of each fund, and
for exchanging such shares of each fund for shares of other Putnam
funds, are identical.
Shares of both funds may be purchased either through investment dealers
that have sales agreements with Putnam Retail Management Limited
Partnership ("Putnam Retail Management") or directly through Putnam
Retail Management at prices based on net asset value, plus varying sales
charges, depending on the class and number of shares purchased.
Reinvestment of distributions by the funds is made at net asset value
for all classes of shares. Shares of each fund may be redeemed any day
the New York Stock Exchange is open at their net asset value next
determined after receipt by the fund of a properly completed redemption
request either directly by the fund or through an investment dealer.
10. How will I be notified of the outcome of the vote?
If the proposed merger is approved by shareholders, you will receive
confirmation after the reorganization is completed, indicating your new
account number, the number of shares you are receiving and the
procedures for surrendering your certificates, if you have any.
Otherwise, you will be notified in the next annual report of Municipal
Income Fund.
11. Will the number of shares I own change?
Yes, the number of shares you own will change, but the total value of
the shares of Tax-Free High Yield Fund you receive will equal the total
value of the shares of Municipal Income Fund that you hold at the time
of the proposed merger. Even though the net asset value per share of
each fund is different, the total net asset value of a shareholder's
holdings will not change as a result of the merger.
12. What shareholder vote is required to approve the proposed merger?
Approval of the proposed merger will require the "yes" vote of the
majority of the shares of Municipal Income Fund voted at the meeting of
shareholders (the "Meeting").
II. Risk Factors
* What are the risks of Tax-Free High Yield Fund, and how do they compare
with those of Municipal Income Fund?
The risks of an investment in Tax-Free High Yield Fund (the "fund" as
used in the following discussion of main risks) are generally similar to
the risks of an investment in Municipal Income Fund, except that,
because Tax-Free High Yield Fund may invest to a greater extent in below
investment-grade debt, it may be subject to increased credit risk.
The main risks that could adversely affect the value of Tax-Free High
Yield Fund's shares and the total return on your investment include:
* The risk that movements in financial markets will adversely affect the
value of a fund's investments. This risk includes interest rate risk, which
is the risk that the prices of a fund's investments are likely to fall if
interest rates rise. Interest rate risk is generally higher for investments
with longer maturities.
* The risk that the issuers of a fund's investments will not make timely
payments of interest and principal. This credit risk is generally higher
for debt that is below investment-grade quality. Because the fund invests
significantly in junk bonds, this risk is heightened for the fund.
Investors should carefully consider the risks associated with an investment
in the fund.
* The risk that interest the fund receives might be taxable.
You can lose money by investing in the fund. The fund may not achieve
its goal, and is not intended as a complete investment program. An
investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
For a description of additional risks associated with the funds' main
investment strategies, see the Tax-Free High Yield Prospectus.
III. Information about the Proposed Merger
General. The shareholders of Municipal Income Fund are being asked to
approve a proposed merger between Municipal Income Fund and Tax-Free
High Yield Fund pursuant to the Agreement. The Agreement is attached to
this Prospectus/Proxy Statement as Appendix A.
Although the term "merger" is used for ease of reference, the
transaction is structured as a transfer of all of the assets of
Municipal Income Fund to Tax-Free High Yield Fund in exchange for the
assumption by Tax-Free High Yield Fund of all of liabilities of
Municipal Income Fund and for the issuance and delivery to Municipal
Income Fund of shares of Tax-Free High Yield Fund equal in aggregate
value to the net value of the assets transferred to Tax-Free High Yield
Fund.
After receipt of the Merger Shares, Municipal Income Fund will
distribute the Merger Shares to its shareholders, in proportion to their
existing shareholdings, in complete liquidation of Municipal Income
Fund, and the legal existence of Municipal Income Fund will be
terminated. Each shareholder of Municipal Income Fund will receive a
number of full and fractional Merger Shares equal in value at the date
of the exchange to the aggregate value of the shareholder's Municipal
Income Fund shares.
Prior to the date of the transfer, Municipal Income Fund will declare a
distribution to shareholders that will have the effect of distributing
to shareholders all of its remaining investment company taxable income
(computed without regard to the deduction for dividends paid) and net
realized capital gains, if any, through the date of the transfer.
The Trustees have voted unanimously to approve the proposed merger and
to recommend that shareholders also approve the proposed merger. The
actions contemplated by the Agreement and the related matters described
therein will be consummated only if approved by the affirmative vote of
the majority of the shares voted at the Meeting.
The investment restrictions of Municipal Income Fund will be temporarily
amended to the extent necessary to effect the transactions contemplated
by the Agreement. Putnam Management does not expect that Municipal
Income Fund will make any significant dispositions of securities in
connection with the proposed merger.
In the event that the proposed merger does not receive the required
shareholder approval, Municipal Income Fund will continue to be managed
as a separate fund in accordance with its current investment objectives
and policies, and the Trustees may consider such alternatives as may be
in the best interests of Municipal Income Fund's and Tax-Free High Yield
Fund's shareholders.
Trustees' Considerations Relating to the Proposed Merger. The Trustees
of the Putnam funds, who serve as Trustees of each of the funds involved
in the proposed merger, have carefully considered the anticipated
benefits and costs of the proposed merger from the perspective of each
fund. The Contract Committee of the Trustees of the Putnam funds, which
consists solely of Independent Trustees, reviewed the terms of the
proposed merger. The Contract Committee and the Trustees were assisted
in this process by independent legal counsel for the funds and the
Independent Trustees. Following the conclusion of this process, the
Trustees, including all of the Independent Trustees, determined that the
proposed merger of Municipal Income Fund into Tax-Free High Yield Fund
would be in the best interests of each fund and its shareholders, and
that the interests of existing shareholders of each fund would not be
diluted by the proposed merger. The Trustees unanimously approved the
proposed merger and recommended its approval by shareholders of
Municipal Income Fund.
In evaluating the proposed merger, the Trustees first considered the
underlying investment rationale articulated by Putnam Management. The
Trustees noted the similarity of the funds' investment objectives,
policies and restrictions. The Trustees also considered the historical
investment performance of each fund and its current distribution rate,
as well as the expected savings in annual fund operating expenses for
shareholders of Municipal Income Fund, based on Putnam Management's
unaudited estimates of the funds' expense ratios as of July 31, 2004 and
the expected pro forma expense ratios based on combined assets of the
funds as of the same date, as shown in the table below:
- ------------------------------------------------------------------------------
Total (Non-12b-1) Expenses
- ------------------------------------------------------------------------------
Tax-Free High Yield Fund 0.76%
Municipal Income Fund 0.66%
Tax-Free High Yield Fund Pro Forma Combined 0.65%
- ------------------------------------------------------------------------------
The Trustees also considered the tax effects of the proposed merger. In
particular, using data as of July 31, 2004, they reviewed the historical
and pro forma tax attributes of the funds and the effect of a
hypothetical merger occurring as of that date on certain tax losses of
the funds (see "Federal Income Tax Consequences" below). The Trustees
noted that since the funds have similar gain/loss positions, there was
no significant prospect that one fund's shareholders will be placed at a
disadvantage, for example, due to the spreading of their losses (which
are a potential tax benefit) among a larger group of shareholders. The
Trustees also noted that, since Municipal Income Fund does not have
significant capital losses, the impact of the loss limitation rules
governing the use of pre-merger losses by the combined fund is expected
to be minimal.
The Trustees took into account the expected costs of the proposed
merger, including proxy solicitation costs, fees associated with
registering the sale of Tax-Free High Yield Fund's shares to be issued
in the proposed merger, accounting fees and legal fees. The Trustees
weighed these costs (and the estimated portfolio transaction expenses
described below) against the quantifiable expected benefits of the
proposed merger, and considered Putnam Management's agreement to bear
these costs to the extent they exceed certain limits established by the
Trustees. Accordingly, the funds are expected to bear these costs in the
following amounts:
- ------------------------------------------------------------------------------
Tax-Free High Yield Fund $57,498 (less than 0.01% of July 31, 2004 net assets)
Municipal Income Fund $56,742 (less than 0.01% of July 31, 2004 net assets)
- ------------------------------------------------------------------------------
The Trustees also took into account a number of factors, including: (1)
a comparison of the investment objectives and policies of the funds; (2)
the classification and performance rating of each fund by independent
research firms such as Morningstar, Inc. and Lipper Inc.; (3) the
performance history of each fund; (4) the performance history of each
fund as compared to its benchmark indexes; (5) the volatility of each
fund's portfolio relative to the market; (6) the composition of each
fund's management team; (7) the net assets, average duration and average
credit quality of each fund; (8) recent sales trends of each fund; and
(9) the terms of the Agreement.
Agreement and Plan of Reorganization. The proposed merger will be
governed by the Agreement, a copy of which is attached as Appendix A.
The Agreement provides that Tax-Free High Yield Fund will acquire all of
the assets of Municipal Income Fund in exchange for the assumption by
Tax-Free High Yield Fund of all of the liabilities of Municipal Income
Fund and for the issuance of Merger Shares equal in value to the value
of the transferred assets net of assumed liabilities. The shares will be
issued on the next full business day (the "Exchange Date") following the
time as of which the funds' shares are valued for determining net asset
value for the proposed merger (4:00 p.m., Boston time, on March 22,
2005, or such other date as may be agreed upon by the parties (the
"Valuation Time")). The following discussion of the Agreement is
qualified in its entirety by the full text of the Agreement.
Municipal Income Fund will sell all of its assets to Tax-Free High Yield
Fund, and in exchange, Tax-Free High Yield Fund will assume all of the
liabilities of Municipal Income Fund and deliver to Municipal Income
Fund a number of full and fractional Merger Shares of each class having
an aggregate net asset value equal to the value of the assets of
Municipal Income Fund attributable to shares of the corresponding class
of Municipal Income Fund, less the value of the liabilities of Municipal
Income Fund assumed by Tax-Free High Yield Fund attributable to shares
of such class of Municipal Income Fund. Immediately following the
Exchange Date, Municipal Income Fund will distribute, pro rata, to its
shareholders of record as of the close of business on the Exchange Date
the full and fractional Merger Shares received by Municipal Income Fund,
with Merger Shares of each class being distributed to holders of shares
of the corresponding class of Municipal Income Fund. As a result of the
proposed merger, each shareholder of Municipal Income Fund will receive
a number of Merger Shares of each class equal in aggregate value at the
Exchange Date to the value of Municipal Income Fund shares of the
corresponding class held by the shareholder. This distribution will be
accomplished by the establishment of accounts on the share records of
Tax-Free High Yield Fund in the name of such Municipal Income Fund
shareholders, each account representing the respective number of full
and fractional Merger Shares of each class due such shareholder. New
certificates for Merger Shares will be issued only upon written request.
The consummation of the proposed merger is subject to the conditions set
forth in the Agreement. The Agreement may be terminated and the proposed
merger abandoned at any time, before or after approval by shareholders
of Municipal Income Fund, prior to the Exchange Date, by mutual consent
of Tax-Free High Yield Fund and Municipal Income Fund or, if any
condition set forth in the Agreement has not been fulfilled and has not
been waived by the party entitled to its benefits, by such party.
If shareholders of Municipal Income Fund approve the proposed merger,
Municipal Income Fund will liquidate such of its portfolio securities as
Tax-Free High Yield Fund shall indicate it does not wish to acquire. The
Agreement provides that the liquidation will be substantially completed
prior to the Exchange Date, unless otherwise agreed upon by Municipal
Income Fund and Tax-Free High Yield Fund. Municipal Income Fund
shareholders will bear the portfolio trading costs associated with this
liquidation to the extent that it is completed prior to the Exchange
Date. There can be no assurance that such liquidation will be
accomplished prior to the Exchange Date. To the extent the liquidation
is not accomplished prior to the Exchange Date, the costs of the
liquidation will be borne by the shareholders of the combined fund,
including current shareholders of Tax-Free High Yield Fund. Putnam
Management does not expect that Municipal Income Fund will make any
significant dispositions of securities in connection with the proposed
merger.
Except for the trading costs associated with the liquidation described
above, the fees and expenses for the merger and related transactions are
estimated to be $154,248, of which $114,240 will be paid by the funds and the
balance will be paid by Putnam Management. These fees and expenses,
including legal and accounting expenses, portfolio transfer taxes (if
any) or other similar expenses incurred in connection with the
consummation of the proposed merger and related transactions
contemplated by the Agreement, will be allocated ratably between the two
funds in proportion to their net assets as of the Valuation Time, except
that the costs of proxy materials and proxy solicitations will be borne
by Municipal Income Fund. However, to the extent that any payment by
either fund of such fees or expenses would result in the
disqualification of Tax-Free High Yield Fund or Municipal Income Fund as
a "regulated investment company" within the meaning of Section 851 of
the Internal Revenue Code of 1986, as amended (the "Code"), such fees
and expenses will be paid directly by the party incurring them.
Description of the Merger Shares. Merger Shares will be issued to
Municipal Income Fund's shareholders in accordance with the procedures
under the Agreement as described above. The Merger Shares are class A,
class B, class C and class M shares of Tax-Free High Yield Fund.
Municipal Income Fund shareholders receiving Merger Shares will not pay
an initial sales charge on such shares. Each class of Merger Shares has
the same characteristics as shares of the corresponding class of
Municipal Income Fund. Your Merger Shares will be subject to a
contingent deferred sales charge to the same extent that your Municipal
Income Fund shares were so subject. In other words, your Merger Shares
will be treated as having been purchased on the date you purchased your
Municipal Income Fund shares and for the price you originally paid. For
purposes of determining the conversion date of the class B Merger Shares
into class A shares of Tax-Free High Yield Fund, the Merger Shares will
be treated as having been purchased on the date you originally purchased
your Municipal Income Fund shares (so that the conversion date of the
shares will be unchanged by the merger). For more information on the
characteristics of each class of Merger Shares, please see the Tax-Free
High Yield Fund Prospectus, a copy of which was mailed with this
Prospectus/Proxy Statement.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of Tax-Free
High Yield Fund. However, the Agreement and Declaration of Trust of
Putnam Tax-Free Income Trust, of which Tax-Free High Yield Fund is a
series, disclaims shareholder liability for acts or obligations of
Tax-Free High Yield Fund and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or
executed by Tax-Free High Yield Fund or its Trustees. The Agreement and
Declaration of Trust provides for indemnification out of fund property
for all loss and expense of any shareholder held personally liable for
the obligations of Tax-Free High Yield Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which Tax-Free High Yield Fund would be
unable to meet its obligations. The likelihood of such circumstances is
remote. The shareholders of Municipal Income Fund are currently subject
to this same risk of shareholder liability.
Federal Income Tax Consequences. As a condition to each fund's
obligation to consummate the transactions contemplated by the Agreement,
the funds will receive a tax opinion from Ropes & Gray LLP, counsel to
the funds (which opinion would be based on certain factual
representations and certain customary assumptions), to the effect that,
on the basis of the existing provisions of the Code, current
administrative rules and court decisions, for federal income tax
purposes:
(i) the acquisition by Tax-Free High Yield Fund of substantially all of
the assets of Municipal Income Fund solely in exchange for Merger Shares
and the assumption by Tax-Free High Yield Fund of liabilities of
Municipal Income Fund followed by the distribution by Municipal Income
Fund to its shareholders of Merger Shares in complete liquidation of
Municipal Income Fund, all pursuant to the Agreement, constitutes a
reorganization within the meaning of Section 368(a) of the Code, and
Municipal Income Fund and Tax-Free High Yield Fund will each be a "party
to a reorganization" within the meaning of Section 368(b) of the Code;
(ii) under Section 361 of the Code, no gain or loss will be recognized
by Tax-Free High Yield Fund or Municipal Income Fund upon the transfer
of Municipal Income Fund's assets to and the assumption of Municipal
Income Fund's liabilities by Tax-Free High Yield Fund or upon the
distribution of the Merger Shares to Municipal Income Fund's
shareholders in liquidation of Municipal Income Fund;
(iii) under Section 354 of the Code, no gain or loss will be recognized
by shareholders of Municipal Income Fund on the exchange of their shares
of Municipal Income Fund for Merger Shares;
(iv) under Section 358 of the Code, the aggregate tax basis of the
Merger Shares received by Municipal Income Fund's shareholders will be
the same as the aggregate tax basis of Municipal Income Fund shares
exchanged therefor;
(v) under Section 1223(1) of the Code, the holding periods of the Merger
Shares received by the shareholders of Municipal Income Fund will
include the holding periods of Municipal Income Fund shares exchanged
therefor, provided that at the time of the reorganization Municipal
Income Fund shares are held by such shareholders as a capital asset;
(vi) under Section 1032 of the Code, no gain or loss will be recognized
by Tax-Free High Yield Fund upon the receipt of assets of Municipal
Income Fund in exchange for Merger Shares and the assumption by Tax-Free
High Yield Fund of the liabilities of Municipal Income Fund;
(vii) under Section 362(b) of the Code, the tax basis in the hands of
Tax-Free High Yield Fund of the assets of Municipal Income Fund
transferred to Tax-Free High Yield Fund will be the same as the tax
basis of such assets in the hands of Municipal Income Fund immediately
prior to the transfer;
(viii) under Section 1223(2) of the Code, the holding periods of the assets
of Municipal Income Fund in the hands of Tax-Free High Yield Fund will
include the periods during which such assets were held by Municipal Income
Fund; and
(ix) Tax-Free High Yield Fund will succeed to and take into account the
items of Municipal Income Fund described in Section 381(c) of the Code,
subject to the conditions and limitations specified in Sections 381,
382, 383 and 384 of the Code and regulations thereunder.
Ropes & Gray LLP will express no view with respect to the effect of the
reorganization on any transferred asset as to which any unrealized gain
or loss is required to be recognized at the end of a taxable year (or on
the termination or transfer thereof) under federal income tax
principles.
Tax-Free High Yield Fund will file the tax opinion with the SEC shortly
after the completion of the proposed merger. This description of the
federal income tax consequences of the proposed merger is made without
regard to the particular facts and circumstances of any shareholder.
Shareholders are urged to consult their own tax advisors as to the
specific consequences to them of the proposed merger, including the
applicability and effect of state, local and other tax laws.
Capitalization. The following table shows the capitalization of the
funds as of July 31, 2004, and on a pro forma combined basis, giving
effect to the proposed merger as of that date:
- -----------------------------------------------------------------------------------
(Unaudited) Tax-Free
High Yield Fund
Tax-Free High Yield Municipal Income Pro Forma
Fund Fund Combined
- -----------------------------------------------------------------------------------
Net assets (000's omitted)
Class A $798,737 $628,276 $1,426,920*
Class B $180,830 $123,147 $303,958*
Class C $10,600 $12,560 $23,158*
Class M $6,985 $7,521 $14,505*
Shares outstanding (000's omitted)
Class A 64,086 73,635 114,505+
Class B 14,486 14,441 24,352+
Class C 850 1,471 1,857+
Class M 560 882 1,164+
Net asset value per share
Class A $12.46 $8.53 $12.46
Class B $12.48 $8.53 $12.48
Class C $12.47 $8.54 $12.47
Class M $12.46 $8.53 $12.46
- -----------------------------------------------------------------------------------
* Pro forma combined net assets reflect proxy, legal and accounting
merger-related costs of $57,498 for Tax-Free High Yield Fund and $56,742
for Municipal Income Fund.
+ Reflects the issuance of the following shares of Tax-Free High Yield Fund
in a tax-free exchange for the net assets of Municipal Income Fund:
Class A: 50,419,689
Class B: 9,866,861
Class C: 1,007,131
Class M: 603,550
Unaudited pro forma combining financial statements of the funds as of
July 31, 2004, and for the 12-month period then ended, are included in
the SAI. Because the Agreement provides that Tax-Free High Yield Fund
will be the surviving fund following the proposed merger and because
Tax-Free High Yield Fund's investment objectives and policies will
remain unchanged, the pro forma combining financial statements reflect
the transfer of the assets and liabilities of Municipal Income Fund to
Tax-Free High Yield Fund as contemplated by the Agreement.
The Trustees, including the Independent Trustees, unanimously recommend
approval of the proposed merger.
IV. Information about Voting and the Shareholder Meeting
General. This Prospectus/Proxy Statement is furnished in connection with
the proposed merger of Municipal Income Fund into Tax-Free High Yield
Fund and the solicitation of proxies by and on behalf of the Trustees
for use at the Meeting. The Meeting is to be held on March 10, 2005, at
11:00 a.m. at One Post Office Square, 12th Floor, Boston, Massachusetts,
or at such later time as is made necessary by adjournment. The Notice of
the Meeting, the Prospectus/Proxy Statement and the enclosed form of
proxy are being mailed to shareholders on or about [date].
As of September 30, 2004, Municipal Income Fund had the following shares
outstanding:
- ------------------------------------------------------------------------------
Share Class Number of Shares Outstanding
- ------------------------------------------------------------------------------
Class A 72,588,290
Class B 13,631,250
Class C 1,523,260
Class M 870,436
- ------------------------------------------------------------------------------
Only shareholders of record on December 13, 2004 (the "Record Date")
will be entitled to notice of and to vote at the Meeting. Each share is
entitled to one vote, with fractional shares voting proportionally.
The Trustees know of no matters other than those set forth herein to be
brought before the Meeting. If, however, any other matters properly come
before the Meeting, it is the Trustees' intention that proxies will be
voted on such matters in accordance with the judgment of the persons
named in the enclosed form of proxy.
Required Vote. Proxies are being solicited from Municipal Income Fund's
shareholders by its Trustees for the Meeting. Unless revoked, all valid
proxies will be voted in accordance with the specification thereon or,
in the absence of specifications, FOR approval of the Agreement. The
transactions contemplated by the Agreement will be consummated only if
approved by the affirmative vote of the majority of the shares of
Municipal Income Fund voted at the Meeting. Proxies from Tax-Free High
Yield Fund's shareholders are not being solicited because their approval
or consent is not necessary for the proposed merger.
Record Date, Quorum and Method of Tabulation. Shareholders of record of
Municipal Income Fund at the close of business on the Record Date will
be entitled to vote at the Meeting or any adjournment thereof. The
holders of 30% of the shares of Municipal Income Fund outstanding at the
close of business on the Record Date present in person or represented by
proxy will constitute a quorum for the Meeting.
Votes cast by proxy or in person at the meeting will be counted by
persons appointed by Municipal Income Fund as tellers for the Meeting.
The tellers will count the total number of votes cast "for" approval of
the proposal for purposes of determining whether sufficient affirmative
votes have been cast. The tellers will count shares represented by
proxies that reflect abstentions and "broker non-votes" (i.e., shares
held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or the persons entitled to vote and
(ii) the broker or nominee does not have the discretionary voting power
on a particular matter) as shares that are present and entitled to vote
on the matter for purposes of determining the presence of a quorum.
Abstentions and broker non-votes have the effect of a negative vote on
the proposal.
Share Ownership.
At June 30, 2004, the officers and Trustees of Tax-Free High Yield Fund
and Municipal Income Fund as a group owned less than 1% of the outstanding
shares of each class of the fund, and, except as noted below, no person
owned of record or to the knowledge of a fund beneficially 5% or more of
any class of shares of such fund.
Municipal Income Fund
Assuming
Completion
of the Proposed
Class Shareholder name and address Percentage owned Merger*
A Edward D. Jones & Co 17.20%
201 Progress Pkwy
Maryland Heights, MO 63043-3003
B Edward D. Jones & Co 7.10%
201 Progress Pkwy
Maryland Heights, MO 63043-3003
B Merrill, Lynch, Pierce, Fenner & Smith Inc. 5.60%
4800 Deer Lake Dr E
Jacksonville, FL 32246
C Citigroup Global Markets Inc. 6.40%
333 West 34th Street, 3rd floor
New York, NY 10001
M Edward D. Jones & Co 20.00%
201 Progress Pkwy
Maryland Heights, MO 63043-3003
M Pershing LLC 6.40%
P.O. Box 2052
Jersey City, NJ 07303-2052
M Citigroup Global Markets Inc. 6.20%
333 West 34th Street, 3rd floor
New York, NY 10001
M Peggy L. Seaman Trust 5.80%
U/A Dtd 11/19/1997
11833 Bailey Dr. NE
Lowell, MI 49331-9481
M LPL Financial Services 5.00%
9785 Towne Center Drive
San Diego, CA 92121-1968
Tax-Free High Yield Fund
[Insert Table]
* Percentage owned assuming completion of proposed merger on ____, 2004.
Solicitation of Proxies. In addition to soliciting proxies by mail, the
Trustees of the funds and employees of Putnam Management, Putnam
Fiduciary Trust Company and Putnam Retail Management may solicit proxies
in person or by telephone. Municipal Income Fund may arrange to have a
proxy solicitation firm call you to record your voting instructions by
telephone. If you wish to speak to a representative, call
1-800-735-3428. The procedure for solicitation of proxies by telephone
is designed to authenticate shareholders' identities, to allow them to
authorize the voting of their shares in accordance with their
instructions and to confirm that their instructions have been properly
recorded. Municipal Income Fund has been advised by counsel that these
procedures are consistent with the requirements of applicable law. If
these procedures were subject to a successful legal challenge, such
votes would not be counted at the Meeting. Municipal Income Fund is
unaware of any such challenge at this time. Shareholders would be called
at the phone number Putnam Management has in its records for their
accounts, and would be asked for their Social Security number or other
identifying information. The shareholders would then be given an
opportunity to authorize the proxies to vote their shares at the meeting
in accordance with their instructions. To ensure that shareholders'
instructions have been recorded correctly, they will also receive a
confirmation of their instructions in the mail. A special toll-free
number will be available in case the information contained in the
confirmation is incorrect.
Shareholders of Municipal Income Fund have the opportunity to submit
their voting instructions via the Internet by utilizing a program
provided by a third-party vendor hired by Putnam Management, or by
"touch-tone" telephone voting. The giving of such a proxy will not
affect your right to vote in person should you decide to attend the
Meeting. To vote via the Internet or by automated telephone, you will
need the 14-digit "control" number that appears on your proxy card. To
use the Internet, please access the Internet address listed on your
proxy card. To record your voting instructions by automated telephone,
please call the toll-free number listed on your proxy card. The Internet
and automated telephone voting procedures are designed to authenticate
shareholder identities, to allow shareholders to give their voting
instructions, and to confirm that shareholders' instructions have been
recorded properly. Shareholders voting via the Internet should
understand that there may be costs associated with Internet access, such
as usage charges from Internet access providers and telephone companies,
that must be borne by the shareholders.
Municipal Income Fund's Trustees have adopted a general policy of
maintaining confidentiality in the voting of proxies. Consistent with
that policy, your fund may solicit proxies from shareholders who have
not voted their shares or who have abstained from voting.
Persons holding shares as nominees will, upon request, be reimbursed for
their reasonable expenses in soliciting instructions from their
principals. Municipal Income Fund has retained at its own expense _____
to aid in the solicitation of instructions for nominee and registered
accounts, for a fee not to exceed $____ plus reasonable out-of-pocket
expenses for mailing and phone costs. Subject to Putnam Management's
agreement to limit such expenses, the expenses of the preparation of
proxy statements and related materials, including printing and delivery
costs, are borne by the fund.
Revocation of Proxies. Proxies, including proxies given by telephone or
over the Internet, may be revoked at any time before they are voted
either (i) by a written revocation received by the Clerk of Municipal
Income Fund; (ii) by properly executing a later-dated proxy; (iii) by
recording later-dated voting instructions via the Internet or automated
telephone; or (iv) by attending the Meeting and voting in person.
Adjournment. If sufficient votes in favor of the proposal set forth in
the Notice of the Meeting are not received by the time scheduled for the
Meeting, the persons named as proxies may propose adjournments of the
Meeting for a period or periods of not more than 60 days in the
aggregate to permit further solicitation of proxies. Any adjournment
will require the affirmative vote of a majority of the votes cast on the
question in person or by proxy at the session of the Meeting to be
adjourned. The persons named as proxies will vote in favor of such
adjournment those proxies that they are entitled to vote in favor of the
proposal. They will vote against adjournment those proxies required to
be voted against the proposal.
Appendix A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as
of _____, 2004 in Boston, Massachusetts, among Putnam Tax-Free Income
Trust (the "Trust"), a Massachusetts business trust, on behalf of its
Putnam Tax-Free High Yield Fund series ("Acquiring Fund"), Putnam
Municipal Income Fund, a Massachusetts business trust ("Acquired Fund"),
and Putnam Investment Management, LLC, a Delaware limited liability
company.
PLAN OF REORGANIZATION
(a) Acquired Fund will sell, assign, convey, transfer and deliver to
Acquiring Fund on the Exchange Date (as defined in Section 6) all of its
properties and assets existing at the Valuation Time (as defined in
Section 3(d)). In consideration therefor, Acquiring Fund shall, on the
Exchange Date, assume all of the liabilities of Acquired Fund existing
at the Valuation Time and deliver to Acquired Fund (i) a number of full
and fractional Class A shares of beneficial interest of Acquiring Fund
(the "Class A Merger Shares") having an aggregate net asset value equal
to the value of the assets of Acquired Fund attributable to Class A
shares of Acquired Fund transferred to Acquiring Fund on such date less
the value of the liabilities of Acquired Fund attributable to Class A
shares of Acquired Fund assumed by Acquiring Fund on such date; (ii) a
number of full and fractional Class B shares of beneficial interest of
Acquiring Fund (the "Class B Merger Shares") having an aggregate net
asset value equal to the value of the assets of Acquired Fund
attributable to Class B shares of Acquired Fund transferred to Acquiring
Fund on such date less the value of the liabilities of Acquired Fund
attributable to Class B shares of Acquired Fund assumed by Acquiring
Fund on such date; (iii) a number of full and fractional Class C shares
of beneficial interest of Acquiring Fund (the "Class C Merger Shares")
having an aggregate net asset value equal to the value of the assets of
Acquired Fund attributable to Class C shares of Acquired Fund
transferred to Acquiring Fund on such date less the value of the
liabilities of Acquired Fund attributable to Class C shares of Acquired
Fund assumed by Acquiring Fund on such date; and (iv) a number of full
and fractional Class M shares of beneficial interest of Acquiring Fund
(the "Class M Merger Shares") having an aggregate net asset value equal
to the value of the assets of Acquired Fund attributable to Class M
shares of Acquired Fund transferred to Acquiring Fund on such date less
the value of the liabilities of Acquired Fund attributable to Class M
shares of Acquired Fund assumed by Acquiring Fund on such date. The
Class A Merger Shares, the Class B Merger Shares, the Class C Merger
Shares, and the Class M Merger Shares shall be referred to collectively
as the "Merger Shares." It is intended that the reorganization described
in this Plan shall be a reorganization within the meaning of Section 368
of the Internal Revenue Code of 1986, as amended (the "Code"). Prior to
the Exchange Date, Acquired Fund will declare and pay to its
shareholders a dividend and/or other distribution in an amount such that
it will have distributed all of its net investment income and capital
gains as described in Section 8(l) hereof.
(b) Upon consummation of the transactions described in paragraph (a) of
this Agreement, Acquired Fund shall distribute in complete liquidation
to its Class A, Class B, Class C and Class M shareholders of record as
of the Exchange Date Class A, Class B, Class C and Class M Merger
Shares, each shareholder being entitled to receive that proportion of
such Class A, Class B, Class C or Class M Merger Shares that the number
of Class A, Class B, Class C and Class M shares of beneficial interest
of Acquired Fund held by such shareholder bears to the number of such
Class A, Class B, Class C or Class M shares of Acquired Fund outstanding
on such date. Certificates representing the Merger Shares will be issued
only if the shareholder so requests.
AGREEMENT
Acquiring Fund and Acquired Fund agree as follows:
1. Representations and warranties of Acquiring Fund.
Acquiring Fund represents and warrants to and agrees with Acquired Fund
that:
(a) Acquiring Fund is a series of the Trust, a business trust duly
established and validly existing under the laws of The Commonwealth of
Massachusetts, and has power to own all of its properties and assets and
to carry out its obligations under this Agreement. The Trust is not
required to qualify as a foreign association in any jurisdiction. The
Trust has all necessary federal, state and local authorizations to carry
on its business as now being conducted and to carry out this Agreement.
(b) The Trust is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company,
and such registration has not been revoked or rescinded and is in full
force and effect.
(c) A statement of assets and liabilities, statement of operations,
statement of changes in net assets and schedule of investments
(indicating their market values) of Acquiring Fund for the fiscal year
ended July 31, 2004, such statements and schedule having been audited by
PricewaterhouseCoopers LLP, independent registered public accounting
firm, have been furnished to Acquired Fund. Such statements of assets
and liabilities and schedules of investments fairly present the
financial position of Acquiring Fund as of the dates thereof and such
statements of operations and changes in net assets fairly reflect the
results of its operations and changes in net assets for the periods
covered thereby in conformity with generally accepted accounting
principles.
(d) The prospectus and statement of additional information dated
November ___, 2004, previously furnished to Acquired Fund, as modified by
any amendment or supplement thereto or any superseding prospectus or
statement of additional information in respect thereof in effect prior
to the Exchange Date, which will be furnished to Acquired Fund
(collectively, the "Acquiring Fund Prospectus") do not, as of the date
hereof, and will not, as of the Exchange Date, contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided however, that Acquiring Fund makes no
representation or warranty as to any information in the Acquiring Fund
Prospectus that does not specifically relate to Acquiring Fund.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Acquiring Fund, threatened against
Acquiring Fund which assert liability or may, if successfully prosecuted
to their conclusion, result in liability on the part of Acquiring Fund,
other than as have been disclosed in the Prospectus (as defined below)
or otherwise disclosed in writing to Acquired Fund.
(f) Acquiring Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on
its statement of assets and liabilities as of July 31, 2004 and those
incurred in the ordinary course of Acquiring Fund's business as an
investment company since such date.
(g) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Acquiring
Fund of the transactions contemplated by this Agreement, except such as
may be required under the Securities Act of 1933, as amended (the "1933
Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the 1940 Act, state securities or blue sky laws (which term as used
herein shall include the laws of the District of Columbia and of Puerto
Rico) or the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"H-S-R Act").
(h) The registration statement and any amendment thereto (including any
post-effective amendment) (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") by Acquiring Fund
on Form N-14 relating to the Merger Shares issuable hereunder, and the
proxy statement of Acquired Fund included therein (the "Proxy
Statement"), on the effective date of the Registration Statement (i)
will comply in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time
of the shareholders' meeting referred to in Section 7(a) and at the
Exchange Date, the prospectus contained in the Registration Statement
(the "Prospectus"), as amended or supplemented by any amendments or
supplements filed or requested to be filed with the Commission by
Acquired Fund, will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided
however, that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the
Registration Statement, the Prospectus or the Proxy Statement made in
reliance upon and in conformity with information furnished by Acquired
Fund for use in the Registration Statement, the Prospectus or the Proxy
Statement.
(i) There are no material contracts outstanding to which Acquiring Fund
is a party, other than as disclosed in the Registration Statement, the
Prospectus, or the Proxy Statement.
(j) All of the issued and outstanding shares of beneficial interest of
Acquiring Fund have been offered for sale and sold in conformity with
all applicable federal securities laws.
(k) Acquiring Fund is and will at all times through the Exchange Date
qualify for taxation as a "regulated investment company" under Sections
851 and 852 of the Code.
(l) Acquiring Fund has filed or will file all federal and state tax
returns which, to the knowledge of Acquiring Fund's officers, are
required to be filed by Acquiring Fund and has paid or will pay all
federal and state taxes shown to be due on said returns or on any
assessments received by Acquiring Fund. All tax liabilities of Acquiring
Fund have been adequately provided for on its books, and to the
knowledge of Acquiring Fund, no tax deficiency or liability of Acquiring
Fund has been asserted, and no question with respect thereto has been
raised, by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid. As of the Exchange
Date, Acquiring Fund is not under audit by the Internal Revenue Service
or by any state or local tax authority for taxes in excess of those
already paid.
(m) The issuance of the Merger Shares pursuant to this Agreement will be
in compliance with all applicable federal securities laws.
(n) The Merger Shares to be issued to Acquired Fund have been duly
authorized and, when issued and delivered pursuant to this Agreement,
will be legally and validly issued and will be fully paid and
nonassessable by Acquiring Fund, and no shareholder of Acquiring Fund
will have any preemptive right of subscription or purchase in respect
thereof.
2. Representations and warranties of Acquired Fund.
Acquired Fund represents and warrants to and agrees with Acquiring Fund
that:
(a) Acquired Fund is a business trust duly established and validly
existing under the laws of The Commonwealth of Massachusetts, and has
power to own all of its properties and assets and to carry out its
obligations under this Agreement. Acquired Fund is not required to
qualify as a foreign association in any jurisdiction. Acquired Fund has
all necessary federal, state and local authorizations to carry on its
business as now being conducted and to carry out this Agreement.
(b) Acquired Fund is registered under the 1940 Act as an open-end
management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) A statement of assets and liabilities, statement of operations,
statement of changes in net assets and schedule of investments
(indicating their market values) of Acquired Fund for the fiscal year
ended March 30, 2004, such statements and schedule having been audited
by KPMG LLP, independent accountants, and an unaudited statement of
assets and liabilities, statement of operations, statement of changes in
net assets and schedule of investments (indicating their market values)
of Acquired Fund for the six months ended September 30, 2004, have been
furnished to Acquiring Fund. Such statements of assets and liabilities
and schedules of investments fairly present the financial position of
Acquired Fund as of September 30, 2004, and such statements of
operations and changes in net assets fairly reflect the results of its
operations and changes in net assets for the period covered thereby in
conformity with generally accepted accounting principles.
(d) The prospectus and statement of additional information dated July
30, 2004, previously furnished to Acquiring Fund, together with any
amendment or supplement thereto or any superseding prospectus or
statement of additional information in respect thereof in effect prior
to the Exchange Date, which will be furnished to Acquiring Fund
(collectively the "Acquired Fund Prospectus"), do not, as of the date
hereof, and will not, as of the Exchange Date, contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided however, that Acquired Fund makes no representation
or warranty as to any information in the Acquired Fund Prospectus that
does not specifically relate to Acquired Fund.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Acquired Fund, threatened against
Acquired Fund which assert liability or may, if successfully prosecuted
to their conclusion, result in liability on the part of Acquired Fund,
other than as have been disclosed in the Registration Statement, the
Acquired Fund Prospectus or otherwise disclosed in writing to the
Acquiring Fund.
(f) Acquired Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on
its statement of assets and liabilities as of September 30, 2004 and
those incurred in the ordinary course of Acquired Fund's business as an
investment company since such date. Prior to the Exchange Date, Acquired
Fund will advise Acquiring Fund of all material liabilities, contingent
or otherwise, incurred by it subsequent to September 30, 2004, whether
or not incurred in the ordinary course of business.
(g) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Acquired Fund
of the transactions contemplated by this Agreement, except such as may
be required under the 1933 Act, the 1934 Act, the 1940 Act, state
securities or blue sky laws, or the H-S-R Act.
(h) The Registration Statement, the Prospectus and the Proxy Statement,
on the Effective Date of the Registration Statement and insofar as they
do not relate to Acquiring Fund (i) will comply in all material respects
with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and
the rules and regulations thereunder and (ii) will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and at the time of the shareholders' meeting
referred to in Section 7(a) below and on the Exchange Date, the
Prospectus, as amended or supplemented by any amendments or supplements
filed or requested to be filed with the Commission by Acquiring Fund,
will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided however, that the
representations and warranties in this subsection shall apply only to
statements of fact relating to Acquired Fund contained in the
Registration Statement, the Prospectus or the Proxy Statement, or
omissions to state in any thereof a material fact relating to Acquired
Fund, as such Registration Statement, Prospectus and Proxy Statement
shall be furnished to Acquired Fund in definitive form as soon as
practicable following effectiveness of the Registration Statement and
before any public distribution of the Prospectuses or Proxy Statements.
(i) There are no material contracts outstanding to which Acquired Fund
is a party, other than as will be disclosed in the Prospectus or the
Proxy Statement.
(j) All of the issued and outstanding shares of beneficial interest of
Acquired Fund have been offered for sale and sold in conformity with all
applicable federal securities laws.
(k) Acquired Fund is and will at all times through the Exchange Date
qualify for taxation as a "regulated investment company" under Sections
851 and 852 of the Code.
(l) Acquired Fund has filed or will file all federal and state tax
returns which, to the knowledge of Acquired Fund's officers, are
required to be filed by Acquired Fund and has paid or will pay all
federal and state taxes shown to be due on said returns or on any
assessments received by Acquired Fund. All tax liabilities of Acquired
Fund have been adequately provided for on its books, and to the
knowledge of Acquired Fund, no tax deficiency or liability of Acquired
Fund has been asserted, and no question with respect thereto has been
raised, by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid. As of the Exchange
Date, Acquired Fund is not under audit by the Internal Revenue Service
or by any state or local tax authority for taxes in excess of those
already paid.
(m) At both the Valuation Time and the Exchange Date, Acquired Fund will
have full right, power and authority to sell, assign, transfer and
deliver the Investments and any other assets and liabilities of Acquired
Fund to be transferred to Acquiring Fund pursuant to this Agreement. At
the Exchange Date, subject only to the delivery of the Investments and
any such other assets and liabilities as contemplated by this Agreement,
Acquiring Fund will acquire the Investments and any such other assets
and liabilities subject to no encumbrances, liens or security interests
whatsoever and without any restrictions upon the transfer thereof
(except for such restrictions as previously disclosed to Acquiring Fund
by Acquired Fund). As used in this Agreement, the term "Investments"
shall mean Acquired Fund's investments shown on the schedule of its
investments as of September 30, 2004 referred to in Section 2(c) hereof,
as supplemented with such changes as Acquired Fund shall make, and
changes resulting from stock dividends, stock splits, mergers and
similar corporate actions.
(n) No registration under the 1933 Act of any of the Investments would
be required if they were, as of the time of such transfer, the subject
of a public distribution by either of Acquiring Fund or Acquired Fund,
except as previously disclosed to Acquiring Fund by Acquired Fund.
(o) At the Exchange Date, Acquired Fund will have sold such of its
assets, if any, as may be necessary to ensure that, after giving effect
to the acquisition of the assets of Acquired Fund pursuant to this
Agreement, Acquiring Fund will remain in compliance with its investment
restrictions as set forth in the Registration Statement.
3. Reorganization.
(a) Subject to the requisite approval of the shareholders of Acquired
Fund and to the other terms and conditions contained herein (including
Acquired Fund's obligation to distribute to its shareholders all of its
net investment income and capital gains as described in Section 8(l)
hereof), Acquired Fund agrees to sell, assign, convey, transfer and
deliver to Acquiring Fund, and Acquiring Fund agrees to acquire from
Acquired Fund, on the Exchange Date all of the Investments and all of
the cash and other properties and assets of Acquired Fund, whether
accrued or contingent (including cash received by Acquired Fund upon the
liquidation by Acquired Fund of any investments purchased by Acquired
Fund after September 30, 2004 and designated by Acquiring Fund as being
unsuitable for it to acquire), in exchange for that number of Merger
Shares provided for in Section 4 and the assumption by Acquiring Fund of
all of the liabilities of Acquired Fund, whether accrued or contingent,
existing at the Valuation Time. Pursuant to this Agreement, Acquired
Fund will, as soon as practicable after the Exchange Date, distribute
all of the Class A, Class B, Class C and Class M Merger Shares received
by it to the Class A, Class B, Class C and Class M shareholders,
respectively, of Acquired Fund, in complete liquidation of Acquired
Fund.
(b) As soon as practicable following the requisite approval of the
shareholders of Acquired Fund, Acquired Fund will, at its expense,
liquidate such of its portfolio securities as Acquiring Fund shall
indicate it does not wish to acquire. Such liquidation will be
substantially completed prior to the Exchange Date, unless otherwise
agreed by Acquired Fund and Acquiring Fund.
(c) Acquired Fund will pay or cause to be paid to Acquiring Fund any
interest, cash or such dividends, rights and other payments received by
it on or after the Exchange Date with respect to the Investments and
other properties and assets of Acquired Fund, whether accrued or
contingent, received by it on or after the Exchange Date. Any such
distribution shall be deemed included in the assets transferred to
Acquiring Fund at the Exchange Date and shall not be separately valued
unless the securities in respect of which such distribution is made
shall have gone "ex" such distribution prior to the Valuation Time, in
which case any such distribution which remains unpaid at the Exchange
Date shall be included in the determination of the value of the assets
of Acquired Fund acquired by Acquiring Fund.
(d) The Valuation Time shall be 4:00 p.m. Boston time on March 22, 2005,
or such earlier or later day as may be mutually agreed upon in writing
by the parties hereto (the "Valuation Time").
4. Exchange date; valuation time.
On the Exchange Date, Acquiring Fund will deliver to Acquired Fund (i) a
number of full and fractional Class A Merger Shares having an aggregate
net asset value equal to the value of assets of Acquired Fund
attributable to Class A shares of Acquired Fund transferred to Acquiring
Fund on such date less the value of the liabilities of Acquired Fund
attributable to the Class A shares of Acquired Fund assumed by Acquiring
Fund on that date; (ii) a number of full and fractional Class B Merger
Shares having an aggregate net asset value equal to the value of the
assets of Acquired Fund attributable to Class B shares of Acquired Fund
transferred to Acquiring Fund on such date less the value of the
liabilities of Acquired Fund attributable to Class B shares of Acquired
Fund assumed by Acquiring Fund on that date; (iii) a number of full and
fractional Class C Merger Shares having an aggregate net asset value
equal to the value of the assets of Acquired Fund attributable to Class
C shares of Acquired Fund transferred to Acquiring Fund on such date
less the value of the liabilities of Acquired Fund attributable to Class
C shares of Acquired Fund assumed by Acquiring Fund on that date, and
(iv) a number of full and fractional Class M Merger Shares having an
aggregate net asset value equal to the value of the assets of Acquired
Fund attributable to Class M shares of Acquired Fund transferred to
Acquiring Fund on such date less the value of the liabilities of
Acquired Fund attributable to Class M.
(a) The net asset value of the Merger Shares to be delivered to Acquired
Fund, the value of the assets attributable to the Class A, Class B,
Class C and Class M shares of Acquired Fund and the value of the
liabilities attributable to the Class A, Class B, Class C and Class M
shares of Acquired Fund to be assumed by Acquiring Fund shall in each
case be determined as of the Valuation Time.
(b) The net asset value of the Class A, Class B, Class C and Class M
Merger Shares, and the value of the assets and liabilities of the Class
A, Class B, Class C and Class M shares of Acquired Fund shall be
determined by Acquiring Fund, in cooperation with Acquired Fund,
pursuant to procedures customarily used by Acquiring Fund in determining
the fair market value of Acquiring Fund's assets and liabilities.
(c) No adjustment shall be made in the net asset value of either
Acquired Fund or Acquiring Fund to take into account differences in
realized and unrealized gains and losses.
(d) Reserved.
(e) Acquiring Fund shall issue the Merger Shares to Acquired Fund in
four certificates registered in the name of Acquired Fund, one for Class
A Merger Shares, one for Class B Merger Shares, one for Class C Merger
Shares and one for Class M Merger Shares (excluding any fractional
shares). Acquired Fund shall distribute the Class A Merger Shares to the
Class A shareholders of Acquired Fund by redelivering such certificates
to Acquiring Fund's transfer agent which will as soon as practicable set
up open accounts for each Class A shareholder of Acquired Fund in
accordance with written instructions furnished by Acquired Fund.
Acquired Fund shall distribute the Class B Merger Shares to the Class B
shareholders of Acquired Fund by redelivering such certificates to
Acquiring Fund's transfer agent which will as soon as practicable set up
open accounts for each Class B shareholder of Acquired Fund in
accordance with written instructions furnished by Acquired Fund.
Acquired Fund shall distribute the Class C Merger Shares to the Class C
shareholders of Acquired Fund by redelivering such certificates to
Acquiring Fund's transfer agent which will as soon as practicable set up
open accounts for each Class C shareholder of Acquired Fund in
accordance with written instructions furnished by Acquired Fund.
Acquired Fund shall distribute the Class M Merger Shares to the Class M
shareholders of Acquired Fund by redelivering such certificates to
Acquiring Fund's transfer agent which will as soon as practicable set up
open accounts for each Class M shareholder of Acquired Fund in
accordance with written instructions furnished by Acquired Fund. With
respect to any Acquired Fund shareholder holding share certificates as
of the Exchange Date, Acquiring Fund will not permit such shareholder to
receive dividends and other distributions on the Merger Shares (although
such dividends and other distributions shall be credited to the account
of such shareholder), receive certificates representing the Merger
Shares, or pledge such Merger Shares until such shareholder has
surrendered his or her outstanding Acquired Fund certificates or, in the
event of lost, stolen, or destroyed certificates, posted adequate bond.
In the event that a shareholder shall not be permitted to receive
dividends and other distributions on the Merger Shares as provided in
the preceding sentence, Acquiring Fund shall pay any such dividends or
distributions in additional shares, notwithstanding any election such
shareholder shall have made previously with respect to the payment, in
cash or otherwise, of dividends and distributions on shares of Acquired
Fund. Acquired Fund will, at its expense, request the shareholders of
Acquired Fund to surrender their outstanding Acquired Fund certificates,
or post adequate bond, as the case may be.
(f) Acquiring Fund shall assume all liabilities of Acquired Fund,
whether accrued or contingent, in connection with the acquisition of
assets and subsequent dissolution of Acquired Fund or otherwise.
5. Expenses, fees, etc.
(a) All fees and expenses, including legal and accounting expenses,
portfolio transfer taxes (if any) or other similar expenses incurred in
connection with the consummation by Acquired Fund and Acquiring Fund of
the transactions contemplated by this Agreement (together with the costs
specified in (i) below, "Expenses") will be allocated ratably between
Acquiring Fund and Acquired Fund in proportion to their net assets as of
the Valuation Time, except that (i) the costs of proxy materials and
proxy solicitation will be borne by Acquired Fund, and (ii) the costs of
liquidating such of Acquired Fund's portfolio securities as Acquiring
Fund shall indicate it does not wish to acquire prior to the Exchange
Date shall be borne by Acquired Fund; provided however, that the
Expenses to be borne by the Acquired Fund will not exceed $56,742, the
Expenses to be borne by the Acquiring Fund will not exceed $540,591, and
the remainder of any such Expenses will be borne by Putnam Investment
Management, LLC; and provided further that such Expenses will in any
event be paid by the party directly incurring such expenses if and to
the extent that the payment by the other party of such Expenses would
result in the disqualification of Acquiring Fund or Acquired Fund, as
the case may be, as a "regulated investment company" within the meaning
of Section 851 of the Code.
(b) In the event the transactions contemplated by this Agreement are not
consummated by reason of Acquiring Fund's being either unwilling or
unable to go forward (other than by reason of the nonfulfillment or
failure of any condition to Acquiring Fund's obligations referred to in
Section 8), or by reason of the nonfulfillment or failure of any
condition to Acquired Fund's obligations referred to in Section 9,
Acquiring Fund shall pay directly all reasonable fees and expenses
incurred by Acquired Fund in connection with such transactions,
including, without limitation, legal, accounting and filing fees.
(c) In the event the transactions contemplated by this Agreement are not
consummated by reason of Acquired Fund's being either unwilling or
unable to go forward (other than by reason of the nonfulfillment or
failure of any condition to Acquired Fund's obligations referred to in
Section 9), or by reason of the nonfulfillment or failure of any
condition to Acquiring Fund's obligations referred to in Section 8,
Acquired Fund shall pay directly all reasonable fees and expenses
incurred by Acquiring Fund in connection with such transactions,
including without limitation legal, accounting and filing fees.
(d) In the event the transactions contemplated by this Agreement are not
consummated for any reason other than (i) Acquiring Fund's or Acquired
Fund's being either unwilling or unable to go forward or (ii) the
nonfulfillment or failure of any condition to Acquiring Fund's or
Acquired Fund's obligations referred to in Section 8 or Section 9 of
this Agreement, then each of Acquiring Fund and Acquired Fund shall bear
all of its own expenses incurred in connection with such transactions.
(e) Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not
consummated, no party shall be liable to the other party for any damages
resulting therefrom, including without limitation consequential damages,
except as specifically set forth above.
6. Exchange date.
Delivery of the assets of Acquired Fund to be transferred, assumption of
the liabilities of Acquired Fund to be assumed and the delivery of the
Merger Shares to be issued shall be made at the offices of Ropes & Gray
LLP, One International Place, Boston, Massachusetts, at 7:30 A.M. on the
next full business day following the Valuation Time, or at such other
time and date agreed to by Acquiring Fund and Acquired Fund, the date
and time upon which such delivery is to take place being referred to
herein as the "Exchange Date."
7. Meeting of shareholders; dissolution.
(a) Acquired Fund agrees to call a meeting of its shareholders as soon
as is practicable after the effective date of the Registration Statement
for, among other things, the purpose of considering the matters
contemplated by this Agreement.
(b) Acquired Fund agrees that the liquidation and dissolution of
Acquired Fund will be effected in the manner provided in the Agreement
and Declaration of Trust of Acquired Fund in accordance with applicable
law and that on and after the Exchange Date, Acquired Fund shall not
conduct any business except in connection with its liquidation and
dissolution.
(c) Acquiring Fund has, after the preparation and delivery to Acquiring
Fund by Acquired Fund of a preliminary version of the Proxy Statement
which was satisfactory to Acquiring Fund and to Ropes & Gray LLP for
inclusion in the Registration Statement, filed the Registration
Statement with the Commission. Each of Acquired Fund and Acquiring Fund
will cooperate with the other, and each will furnish to the other the
information relating to itself required by the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder set forth in
the Registration Statement, including the Prospectus and the Proxy
Statement.
8. Conditions to Acquiring Fund's obligations.
The obligations of Acquiring Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the affirmative vote of
(i) at least a majority of the Trustees of Acquired Fund (including a
majority of those Trustees who are not "interested persons" of Acquired
Fund, as defined in Section 2(a)(19) of the 1940 Act); (ii) at least a
majority of the Trustees of Acquiring Fund (including a majority of
those Trustees who are not "interested persons" of Acquiring Fund, as
defined in Section 2(a)(19) of the 1940 Act); and (iii) a majority of
the shares of Acquired Fund voted at a duly constituted meeting.
(b) That Acquired Fund shall have furnished to Acquiring Fund a statement
of Acquired Fund's net assets, with values determined as provided in
Section 4 of this Agreement, together with a list of Investments with their
respective tax costs, all as of the Valuation Time, certified on Acquired
Fund's behalf by Acquired Fund's President (or any Vice President) and
Treasurer (or any Assistant Treasurer), and a certificate of both such
officers, dated the Exchange Date, to the effect that as of the Valuation
Time and as of the Effective Date there has been no material adverse change
in the financial position of Acquired Fund since September 30, 2004, other
than changes in the Investments and other assets and properties since that
date or changes in the market value of the Investments and other assets of
Acquired Fund, changes due to net redemptions or changes due to dividends
paid or losses from operations.
(c) That Acquired Fund shall have furnished to Acquiring Fund a
statement, dated the Exchange Date, signed on behalf of Acquired Fund by
Acquired Fund's President (or any Vice President) and Treasurer (or any
Assistant Treasurer) certifying that as of the Valuation Time and as of
the Exchange Date all representations and warranties of Acquired Fund
made in this Agreement are true and correct in all material respects as
if made at and as of such dates, and that Acquired Fund has complied
with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied at or prior to each of such dates.
(d) That Acquired Fund shall have delivered to Acquiring Fund an agreed
upon procedures letter from KPMG LLP dated the Exchange Date, setting
forth findings of KPMG LLP pursuant to its performance of the agreed
upon procedures set forth therein relating to management's assertions
that (i) for the short taxable period from September 30, 2004 to the
Exchange Date, Acquired Fund qualified as a regulated investment company
under the Code, (ii) as of the Exchange Date, has no liability other
than liabilities stated for federal or state income taxes and (iii) as
of the Exchange Date, has no liability for federal excise tax purposes
under section 4982 of the Code.
(e) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement.
(f) That Acquiring Fund shall have received an opinion of Ropes & Gray
LLP, in form satisfactory to Acquiring Fund and dated the Exchange Date,
to the effect that (i) Acquired Fund is a business trust duly
established and validly existing under the laws of The Commonwealth of
Massachusetts, and, to the knowledge of such counsel, is not required to
qualify to do business as a foreign association in any jurisdiction
except as may be required by state securities or blue sky laws, (ii)
this Agreement has been duly authorized, executed, and delivered by
Acquired Fund and, assuming that the Registration Statement, the
Prospectus and the Proxy Statement comply with the 1933 Act, the 1934
Act and the 1940 Act and assuming due authorization, execution and
delivery of this Agreement by Acquiring Fund, is a valid and binding
obligation of Acquired Fund, (iii) Acquired Fund has power to sell,
assign, convey, transfer and deliver the assets contemplated hereby and,
upon consummation of the transactions contemplated hereby in accordance
with the terms of this Agreement, Acquired Fund will have duly sold,
assigned, conveyed, transferred and delivered such assets to Acquiring
Fund, (iv) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, violate
Acquired Fund's Agreement and Declaration of Trust, as amended, or
Bylaws or any provision of any agreement known to such counsel to which
Acquired Fund is a party or by which it is bound, it being understood
that with respect to investment restrictions as contained in Acquired
Fund's Agreement and Declaration of Trust, Bylaws, then current
prospectus or statement of additional information or the Registration
Statement, such counsel may rely upon a certificate of an officer of
Acquired Fund's whose responsibility it is to advise Acquired Fund with
respect to such matters, and (v) no consent, approval, authorization or
order of any court or governmental authority is required for the
consummation by Acquired Fund of the transactions contemplated hereby,
except such as have been obtained under the 1933 Act, the 1934 Act, the
1940 Act and such as may be required under state securities or blue sky
laws and the H-S-R Act, and (vi) such other matters as Acquiring Fund
may reasonably deem necessary or desirable.
(g) That Acquiring Fund shall have received an opinion of Ropes & Gray LLP
dated the Exchange Date (which opinion would be based upon certain factual
representations and subject to certain qualifications), to the effect that,
on the basis of the existing provisions of the Code, current administrative
rules and court decisions, for federal income tax purposes: (i) the
acquisition by Acquiring Fund of substantially all of the assets of
Acquired Fund solely in exchange for Merger Shares and the assumption by
Acquiring Fund of liabilities of Acquired Fund followed by the distribution
of Acquired Fund to its shareholders of Merger Shares in complete
liquidation of Acquired Fund, all pursuant to the plan of reorganization,
constitutes a reorganization within the meaning of Section 368(a) of the
Code and Acquired Fund and Acquiring Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code, (ii) no
gain or loss will be recognized by Acquiring Fund or its shareholders upon
receipt of the Investments transferred to Acquiring Fund pursuant to this
Agreement in exchange for the Merger Shares, (iii) the basis to Acquiring
Fund of the Investments will be the same as the basis of the Investments in
the hands of Acquired Fund immediately prior to such exchange, (iv)
Acquiring Fund's holding periods with respect to the Investments will
include the respective periods for which the Investments were held by
Acquired Fund; and (v) Acquiring Fund will succeed to and take into account
the items of Acquired Fund described in Section 381(c) of the Code, subject
to the conditions and limitations specified in Sections 381, 382, 383 and
384 of the Code and Regulations thereunder. Ropes & Gray LLP will express
no view with respect to the effect of the reorganization on any transferred
asset as to which any unrealized gain or loss is required to be recognized
at the end of a taxable year (or on the termination or transfer thereof)
under federal income tax principles.
(h) That the assets of Acquired Fund to be acquired by Acquiring Fund
will include no assets which Acquiring Fund, by reason of charter
limitations or of investment restrictions disclosed in the Registration
Statement in effect on the Exchange Date, may not properly acquire.
(i) That the Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of Acquiring Fund, threatened by
the Commission.
(j) That Acquiring Fund shall have received from the Commission, any
relevant state securities administrator, the Federal Trade Commission
(the "FTC") and the Department of Justice (the "Department") such order
or orders as Ropes & Gray LLP deems reasonably necessary or desirable
under the 1933 Act, the 1934 Act, the 1940 Act, any applicable state
securities or blue sky laws and the H-S-R Act in connection with the
transactions contemplated hereby, and that all such orders shall be in
full force and effect.
(k) That all proceedings taken by Acquired Fund in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto shall be satisfactory in form and substance to Acquiring Fund
and Ropes & Gray LLP.
(l) That, prior to the Exchange Date, Acquired Fund shall have declared
a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to the shareholders of
Acquired Fund (i) all of the excess of (X) Acquired Fund's investment
income excludable from gross income under Section 103 of the Code over
(Y) Acquired Fund's deductions disallowed under Sections 265 and 171 of
the Code, (ii) all of Acquired Fund's investment company taxable income
(as defined in Section 852 of the Code) for its taxable years ending on
or after March 30, 2004, and on or prior to the Exchange Date (computed
in each case without regard to any deduction for dividends paid), and
(iii) all of its net capital gain realized after reduction by any
capital loss carryover in each of its taxable years ending on or after
March 30, 2004, and on or prior to the Exchange Date.
(m) That Acquired Fund's custodian shall have delivered to Acquiring
Fund a certificate identifying all of the assets of Acquired Fund held
by such custodian as of the Valuation Time.
(n) That Acquired Fund's transfer agent shall have provided to Acquiring
Fund (i) the originals or true copies of all of the records of Acquired
Fund in the possession of such transfer agent as of the Exchange Date,
(ii) a certificate setting forth the number of shares of Acquired Fund
outstanding as of the Valuation Time, and (iii) the name and address of
each holder of record of any such shares and the number of shares held
of record by each such shareholder.
(o) That all of the issued and outstanding shares of beneficial interest
of Acquired Fund shall have been offered for sale and sold in conformity
with all applicable state securities or blue sky laws and, to the extent
that any audit of the records of Acquired Fund or its transfer agent by
Acquiring Fund or its agents shall have revealed otherwise, either (i)
Acquired Fund shall have taken all actions that in the opinion of
Acquiring Fund or its counsel are necessary to remedy any prior failure
on the part of Acquired Fund to have offered for sale and sold such
shares in conformity with such laws or (ii) Acquired Fund shall have
furnished (or caused to be furnished) surety, or deposited (or caused to
be deposited) assets in escrow, for the benefit of Acquiring Fund in
amounts sufficient and upon terms satisfactory, in the opinion of
Acquiring Fund or its counsel, to indemnify Acquiring Fund against any
expense, loss, claim, damage or liability whatsoever that may be
asserted or threatened by reason of such failure on the part of Acquired
Fund to have offered and sold such shares in conformity with such laws.
(p) That Acquiring Fund shall have received from KPMG LLP an agreed upon
procedures letter addressed to Acquiring Fund dated as of the Exchange
Date satisfactory in form and substance to Acquiring Fund setting forth
the findings of KPMG LLP pursuant to its performance of the agreed upon
procedures set forth therein relating to management's assertion that as
of the Valuation Time the value of the assets of Acquired Fund to be
exchanged for the Merger Shares has been determined in accordance with
the provisions of Article 10, Section 5 of Acquiring Fund's Bylaws
pursuant to the procedures customarily utilized by Acquiring Fund in
valuing its assets and issuing its shares.
(q) That Acquired Fund shall have executed and delivered to Acquiring
Fund an instrument of transfer dated as of the Exchange Date pursuant to
which Acquired Fund will assign, transfer and convey all of the assets
and other property to Acquiring Fund at the Valuation Time in connection
with the transactions contemplated by this Agreement.
9. Conditions to Acquired Fund's obligations.
The obligations of Acquired Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the affirmative vote of
(i) at least a majority of the Trustees of Acquired Fund (including a
majority of those Trustees who are not "interested persons" of Acquired
Fund, as defined in Section 2(a)(19) of the 1940 Act); (ii) at least a
majority of the Trustees of Acquiring Fund (including a majority of
those Trustees who are not "interested persons" of Acquiring Fund, as
defined in Section 2(a)(19) of the 1940 Act); and (iii) a majority of
the shares of the Acquired Fund voted at a duly constituted meeting.
(b) That Acquiring Fund shall have furnished to Acquired Fund a
statement of Acquiring Fund's net assets, together with a list of
portfolio holdings with values determined as provided in Section 4 of
this Agreement, all as of the Valuation Time, certified on behalf of
Acquiring Fund by Acquiring Fund's President (or any Vice President) and
Treasurer (or any Assistant Treasurer), and a certificate of both such
officers, dated the Exchange Date, to the effect that as of the
Valuation Time and as of the Exchange Date there has been no material
adverse change in the financial position of Acquiring Fund since
November 30, 2004, other than changes in its portfolio securities since
that date, changes in the market value of its portfolio securities,
changes due to net redemptions or changes due to dividends paid or
losses from operations.
(c) That Acquiring Fund shall have executed and delivered to Acquired
Fund an Assumption of Liabilities dated as of the Exchange Date pursuant
to which Acquiring Fund will assume all of the liabilities of Acquired
Fund existing at the Valuation Time in connection with the transactions
contemplated by this Agreement.
(d) That Acquiring Fund shall have furnished to Acquired Fund a
statement, dated the Exchange Date, signed on behalf of Acquiring Fund
by Acquiring Fund's President (or any Vice President) and Treasurer (or
any Assistant Treasurer) certifying that as of the Valuation Time and as
of the Exchange Date all representations and warranties of Acquiring
Fund made in this Agreement are true and correct in all material
respects as if made at and as of such dates, and that Acquiring Fund has
complied with all of the agreements and satisfied all of the conditions
on its part to be performed or satisfied at or prior to each of such
dates.
(e) That there shall not be any material litigation pending or
threatened with respect to the matters contemplated by this Agreement.
(f) That Acquired Fund shall have received an opinion of Ropes & Gray
LLP, in form satisfactory to Acquired Fund and dated the Exchange Date,
to the effect that (i) Acquiring Fund is a series of the Trust, a
business trust duly established and validly existing in conformity with
the laws of The Commonwealth of Massachusetts, and, to the knowledge of
such counsel, is not required to qualify to do business as a foreign
association in any jurisdiction except as may be required by state
securities or blue sky laws, (ii) this Agreement has been duly
authorized, executed and delivered by the Trust, on behalf of the
Acquiring Fund, and, assuming that the Prospectus, the Registration
Statement and the Proxy Statement comply with the 1933 Act, the 1934 Act
and the 1940 Act and assuming due authorization, execution and delivery
of this Agreement by Acquired Fund, is a valid and binding obligation of
Acquiring Fund, (iii) the Merger Shares to be delivered to Acquired Fund
as provided for by this Agreement are duly authorized and upon such
delivery will be validly issued and will be fully paid and nonassessable
by Acquiring Fund and no shareholder of Acquiring Fund has any
preemptive right to subscription or purchase in respect thereof, (iv)
the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, violate
the Trust's Agreement and Declaration of Trust, as amended, or Bylaws,
or any provision of any agreement known to such counsel to which
Acquiring Fund is a party or by which it is bound, it being understood
that with respect to investment restrictions as contained in the Trust's
Agreement and Declaration of Trust, Bylaws, then current prospectus or
statement of additional information or the Registration Statement, such
counsel may rely upon a certificate of an officer of Acquiring Fund
whose responsibility it is to advise Acquiring Fund with respect to such
matters, (v) no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as
may be required under state securities or blue sky laws and the H-S-R
Act, and (vi) the Registration Statement has become effective under the
1933 Act, and to the best of the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or
are pending or contemplated under the 1933 Act.
(g) That Acquired Fund shall have received an opinion of Ropes & Gray LLP
dated the Exchange Date (which opinion would be based upon certain factual
representations and subject to certain qualifications), to the effect that,
on the basis of the existing provisions of the Code, current administrative
rules and court decisions, for federal income tax purposes: (i) the
acquisition by Acquiring Fund of substantially all of the assets of
Acquired Fund solely in exchange for Merger Shares and the assumption by
Acquiring Fund of liabilities of Acquired Fund followed by the distribution
of Acquired Fund to its shareholders of Merger Shares in complete
liquidation of Acquired Fund, all pursuant to the plan of reorganization,
constitutes a reorganization within the meaning of Section 368(a) of the
Code and Acquired Fund and Acquiring Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code, (ii) no
gain or loss will be recognized by Acquired Fund upon the transfer of the
Investments to Acquiring Fund and the assumption by Acquiring Fund of the
liabilities of Acquired Fund, or upon the distribution of the Merger Shares
by Acquired Fund to its shareholders, pursuant to this Agreement, (iii) no
gain or loss will be recognized by the Acquired Fund shareholders on the
exchange of their shares of the Acquired Fund for Merger Shares; (iv) the
aggregate basis of the Merger Shares a Acquired Fund shareholder receives
in connection with the transaction will be the same as the aggregate basis
of his or her Acquired Fund shares exchanged therefor, and (v) a Acquired
Fund shareholder's holding period for his or her Merger Shares will be
determined by including the period for which he or she held Acquired Fund
shares exchanged therefor, provided that the shareholder held the Acquired
Fund's shares as a capital asset. Ropes & Gray LLP will express no view
with respect to the effect of the reorganization on any transferred asset
as to which any unrealized gain or loss is required to be recognized at the
end of a taxable year (or on the termination or transfer thereof) under
federal income tax principles.
(h) That all proceedings taken by or on behalf of Acquiring Fund in
connection with the transactions contemplated by this Agreement and all
documents incidental thereto shall be satisfactory in form and substance
to Acquired Fund and Ropes & Gray LLP.
(i) That the Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of Acquiring Fund, threatened by
the Commission.
(j) That Acquired Fund shall have received from the Commission, any
relevant state securities administrator, the FTC and the Department such
order or orders as Ropes & Gray LLP deems reasonably necessary or
desirable under the 1933 Act, the 1934 Act, the 1940 Act, any applicable
state securities or blue sky laws and the H-S-R Act in connection with
the transactions contemplated hereby, and that all such orders shall be
in full force and effect.
10. Indemnification.
(a) Acquired Fund will indemnify and hold harmless, out of the assets of
Acquired Fund but no other assets, Acquiring Fund, its trustees and its
officers (for purposes of this subparagraph, the "Indemnified Parties")
against any and all expenses, losses, claims, damages and liabilities at
any time imposed upon or reasonably incurred by any one or more of the
Indemnified Parties in connection with, arising out of, or resulting
from any claim, action, suit or proceeding in which any one or more of
the Indemnified Parties may be involved or with which any one or more of
the Indemnified Parties may be threatened by reason of any untrue
statement or alleged untrue statement of a material fact relating to
Acquired Fund contained in the Registration Statement, the Prospectus,
the Proxy Statement or any amendment or supplement to any of the
foregoing, or arising out of or based upon the omission or alleged
omission to state in any of the foregoing a material fact relating to
Acquired Fund required to be stated therein or necessary to make the
statements relating to Acquired Fund therein not misleading, including,
without limitation, any amounts paid by any one or more of the
Indemnified Parties in a reasonable compromise or settlement of any such
claim, action, suit or proceeding, or threatened claim, action, suit or
proceeding made with the consent of Acquired Fund. The Indemnified
Parties will notify Acquired Fund in writing within ten days after the
receipt by any one or more of the Indemnified Parties of any notice of
legal process or any suit brought against or claim made against such
Indemnified Party as to any matters covered by this Section 10(a).
Acquired Fund shall be entitled to participate at its own expense in the
defense of any claim, action, suit or proceeding covered by this Section
10(a), or, if it so elects, to assume at its expense by counsel
satisfactory to the Indemnified Parties the defense of any such claim,
action, suit or proceeding, and if Acquired Fund elects to assume such
defense, the Indemnified Parties shall be entitled to participate in the
defense of any such claim, action, suit or proceeding at their expense.
Acquired Fund's obligation under this Section 10(a) to indemnify and
hold harmless the Indemnified Parties shall constitute a guarantee of
payment so that Acquired Fund will pay in the first instance any
expenses, losses, claims, damages and liabilities required to be paid by
it under this Section 10(a) without the necessity of the Indemnified
Parties' first paying the same.
(b) Acquiring Fund will indemnify and hold harmless, out of the assets
of Acquiring Fund but no other assets, Acquired Fund, its trustees and
its officers (for purposes of this subparagraph, the "Indemnified
Parties") against any and all expenses, losses, claims, damages and
liabilities at any time imposed upon or reasonably incurred by any one
or more of the Indemnified Parties in connection with, arising out of,
or resulting from any claim, action, suit or proceeding in which any one
or more of the Indemnified Parties may be involved or with which any one
or more of the Indemnified Parties may be threatened by reason of any
untrue statement or alleged untrue statement of a material fact relating
to Acquiring Fund contained in the Registration Statement, the
Prospectus, the Proxy Statements, or any amendment or supplement to any
thereof, or arising out of, or based upon, the omission or alleged
omission to state in any of the foregoing a material fact relating to
Acquiring Fund required to be stated therein or necessary to make the
statements relating to Acquiring Fund therein not misleading, including
without limitation any amounts paid by any one or more of the
Indemnified Parties in a reasonable compromise or settlement of any such
claim, action, suit or proceeding, or threatened claim, action, suit or
proceeding made with the consent of Acquiring Fund. The Indemnified
Parties will notify Acquiring Fund in writing within ten days after the
receipt by any one or more of the Indemnified Parties of any notice of
legal process or any suit brought against or claim made against such
Indemnified Party as to any matters covered by this Section 10(b).
Acquiring Fund shall be entitled to participate at its own expense in
the defense of any claim, action, suit or proceeding covered by this
Section 10(b), or, if it so elects, to assume at its expense by counsel
satisfactory to the Indemnified Parties the defense of any such claim,
action, suit or proceeding, and, if Acquiring Fund elects to assume such
defense, the Indemnified Parties shall be entitled to participate in the
defense of any such claim, action, suit or proceeding at their own
expense. Acquiring Fund's obligation under this Section 10(b) to
indemnify and hold harmless the Indemnified Parties shall constitute a
guarantee of payment so that Acquiring Fund will pay in the first
instance any expenses, losses, claims, damages and liabilities required
to be paid by it under this Section 10(b) without the necessity of the
Indemnified Parties' first paying the same.
11. No broker, etc.
Each of Acquired Fund and Acquiring Fund represents that there is no
person who has dealt with it who by reason of such dealings is entitled
to any broker's or finder's or other similar fee or commission arising
out of the transactions contemplated by this Agreement.
12. Termination.
Acquired Fund and the Trust may, by mutual consent of their trustees,
terminate this Agreement, and Acquired Fund or Acquiring Fund, after
consultation with counsel and by consent of their trustees or an officer
authorized by such trustees, may waive any condition to their respective
obligations hereunder. If the transactions contemplated by this
Agreement have not been substantially completed by December 31, 2005,
this Agreement shall automatically terminate on that date unless a later
date is agreed to by Acquired Fund and the Trust.
13. Rule 145.
Pursuant to Rule 145 under the 1933 Act, Acquiring Fund will, in
connection with the issuance of any Merger Shares to any person who at
the time of the transaction contemplated hereby is deemed to be an
affiliate of a party to the transaction pursuant to Rule 145(c), cause
to be affixed upon the certificates issued to such person (if any) a
legend as follows:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO
PUTNAM TAX-FREE HIGH YIELD FUND OR ITS PRINCIPAL UNDERWRITER UNLESS (i)
A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (ii) IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO PUTNAM TAX-FREE HIGH YIELD FUND SUCH
REGISTRATION IS NOT REQUIRED."
and, further, Acquiring Fund will issue stop transfer instructions to
Acquiring Fund's transfer agent with respect to such shares. Acquired
Fund will provide Acquiring Fund on the Exchange Date with the name of
any Acquired Fund shareholder who is to the knowledge of Acquired Fund
an affiliate of Acquired Fund on such date.
14. Covenants, etc. deemed material.
All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement
shall be deemed to have been material and relied upon by each of the
parties, notwithstanding any investigation made by them or on their
behalf.
15. Sole agreement; amendments.
This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the subject matter hereof,
constitutes the only understanding with respect to such subject matter,
may not be changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by the
laws of The Commonwealth of Massachusetts.
16. Agreement and declaration of trust.
Copies of the Agreements and Declarations of Trust of Acquired Fund and
the Trust are on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this instrument is
executed by the Trustees or officers of each trust, respectively, as
Trustees or officers and not individually and that the obligations of
this instrument are not binding upon any of the Trustees, officers or
shareholders of Acquired Fund or the Trust individually but are binding
only upon the assets and property of Acquired Fund and Acquiring Fund,
respectively.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
PUTNAM TAX-FREE INCOME TRUST,
on behalf of its Putnam Tax-Free High Yield
Fund series
By: _________________________
Name:
Title:
PUTNAM MUNICIPAL INCOME FUND
By: _______________________
Name:
Title:
PUTNAM INVESTMENT MANAGEMENT, LLC
By: ________________________
Name:
Title:
- ------------
Table of contents
I. Synopsis 6
II. Risk Factors 12
III. Information about the Proposed Merger 13
IV. Information about Voting and the Shareholder Meeting 19
Appendix A - Agreement and Plan of Reorganization A-1
[PUTNAM INVESTMENTS LOGO]
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
PUTNAM INVESTMENTS
P.O. BOX 9132
HINGHAM, MA 02043-9132
Your vote is important. For your convenience, you can vote your Proxy
in any of these three ways:
1
TELEPHONE
Call us toll-free at
1-888-221-0697
* Enter the 14-digit control number printed on your proxy card.
* Follow the automated telephone directions.
* There is no need for you to return your proxy card.
2
INTERNET
Go to
https://www.proxyweb.com/Putnam
* Enter the 14-digit control number printed on your proxy card.
* Follow the instructions on the site.
* There is no need for you to return your proxy card.
3
MAIL
Mail in the proxy card attached below:
* Please sign and date your proxy card.
* Detach the card from this proxy form.
* Return the card in the postage-paid envelope provided.
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING
This is your PROXY CARD.
To vote by mail, please record your voting instructions on this card,
sign it below, and return it promptly in the envelope provided. Your
vote is important.
This proxy is solicited on behalf of the Trustees of the Fund.
Proxy for a meeting of shareholders to be held on March 10, 2005, for
Putnam Municipal Income Fund.
The undersigned shareholder hereby appoints [John A. Hill] and [Robert E.
Patterson], and each of them separately, Proxies, with power of
substitution, and hereby authorizes them to represent such shareholder and
to vote, as designated on the reverse side, at the meeting of shareholders
of Putnam Municipal Income Fund on March 10, 2005 at 11:00 a.m., Boston
time, and at any adjournments thereof, all of the shares of the fund that
the undersigned shareholder would be entitled to vote if personally present.
PLEASE BE SURE TO SIGN AND DATE THIS PROXY.
- -------------------------------------------------
Shareholder/Co-owner sign(s) here Date
Please sign your name exactly as it appears on this card. If you are a
joint owner, each owner should sign, When signing as executor,
administrator, attorney, trustee, or guardian, or as custodian for a minor,
please give your full title as such. If you are signing for a corporation,
please sign the full corporate name and indicate the signer's office. If
you are a partner, sign in the partnership name.
Has your address changed?
Please use this form to notify us of any change in address or telephone
number or to provide us with your comments. Detach this form from the proxy
card and return it with your signed card in the enclosed envelope.
Name
- ------------------------------------------------------------
Street
- ------------------------------------------------------------
City State Zip
- ------------------------------------------------------------
Telephone
- ------------------------------------------------------------
Do you have any comments?
- ------------------------------------------------------------
- ------------------------------------------------------------
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING
DEAR SHAREHOLDER:
Your vote is important. Please help us to eliminate the expense of
follow-up mailings by recording your voting instructions via the
Internet or Automated Telephone or by signing and returning this proxy
card. A postage-paid envelope is enclosed for your convenience.
Thank you!
If you complete and sign the proxy, we'll vote it exactly as you tell
us. The Proxies are authorized to vote in their discretion upon any
matters as may properly come before the meeting or any adjournments of
the meeting. If you simply sign the proxy, or fail to provide your
voting instructions on the proposal, the Proxies will vote in the same
manner as the Trustees recommend.
Please vote by filling in the appropriate box below.
THE TRUSTEES RECOMMEND A VOTE FOR PROPOSAL 1.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
1. Approval of an Agreement and Plan of Reorganization and the transactions
contemplated thereby, including the transfer of all of the assets of Putnam
Municipal Income Fund to Putnam Tax-Free High Yield Fund in exchange for the
issuance and delivery of shares of beneficial interest of Putnam Tax-Free
High Yield Fund and the assumption by Putnam Tax-Free High Yield Fund of the
liabilities of Putnam Municipal Income Fund, and the distribution of such
shares to the shareholders of Putnam Municipal Income Fund in complete
liquidation of Putnam Municipal Income Fund.
Note: If you have any questions on the proposal, please call 1-800-225-1581
PLEASE SIGN AND DATE ON THE REVERSE SIDE.
PUTNAM TAX-FREE HIGH YIELD FUND
A SERIES OF PUTNAM TAX-FREE INCOME TRUST
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
_________, 2004
This Statement of Additional Information ("SAI") contains material that may
be of interest to investors but that is not included in the
Prospectus/Proxy Statement of Putnam Tax-Free High Yield Fund ("Tax-Free
High Yield Fund") dated ________, 2004 (the "Prospectus/Proxy Statement")
relating to the sale of all or substantially all of the assets of Putnam
Municipal Income Fund ("Municipal Income Fund") to Tax-Free High Yield
Fund. Tax-Free High Yield Fund's Statement of Additional Information dated
November ___, 2004 is attached to this SAI as Appendix A. This SAI is not a
prospectus and is authorized for distribution only when it accompanies or
follows delivery of the Prospectus/Proxy Statement. This SAI should be read
in conjunction with the Prospectus/Proxy Statement. Investors may obtain a
free copy of the Prospectus/Proxy Statement by writing Putnam Investor
Services, One Post Office Square, Boston, MA 02109, or by calling
1-800-225-1581.
TABLE OF CONTENTS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS 1
APPENDIX A A-1
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS AND FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, 125 High Street, Boston, Massachusetts 02110,
is Tax-Free High Yield Fund's independent registered public accounting
firm. KPMG LLP, 99 High Street, Boston, Massachusetts 02110, is Municipal
Income Fund's independent registered public accounting firm. Both firms
provide audit services, tax return review and other tax consulting services
and assistance and consultation in connection with the review of various
Securities and Exchange Commission filings. The following documents are
incorporated by reference into this SAI: (i) Independent Auditors' Report,
financial highlights and financial statements included in the Municipal
Income Fund's Annual Report for the fiscal year ended March 31, 2004, (ii)
Report of Independent Registered Public Accounting Firm and financial
statements included in Tax-Free High Yield Fund's Annual Report for the
fiscal year ended July 31, 2004, and (iii) the financial statements
included in Municipal Income Fund's Semiannual Report for the six months
ended September 30, 2004. The financial highlights for Tax-Free High Yield
Fund included in the Prospectus/Proxy Statement, the audited financial
statements for Tax-Free High Yield Fund incorporated by reference into this
SAI and the audited financial statements for Municipal Income Fund
incorporated by reference into the Prospectus/Proxy Statement and this SAI
have been so included and incorporated in reliance upon the reports of
PricewaterhouseCoopers LLP and KPMG LLP, given on their authority as
experts in auditing and accounting.
Putnam Municipal Income Fund
and
Putnam Tax-Free High Yield Fund
Proforma Combining Financial Statements
(Unaudited)
The accompanying unaudited proforma combining investment portfolio and
statement of assets and liabilities assumes that the proposed exchange
described in the next paragraph occurred as of July 31, 2004 and the
unaudited proforma combining statement of operations for the 12 months
ended July 31, 2004 presents the results of operations of Putnam
Tax-Free High Yield Fund as if the combination with Putnam Municipal
Income Fund had been consummated at August 1, 2003. The proforma results
of operations are not necessarily indicative of future operations or the
actual results that would have occurred had the combination been
consummated at August 1, 2003. These historical statements have been
derived from Putnam Tax-Free High Yield Fund's and Putnam Municipal
Income Fund's books and records utilized in calculating daily net asset
value at July 31, 2004, and for the 12 month period then ended. The
preparation of these statements is in conformity with accounting
principles generally accepted in the United States of America and
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities in the financial statements
and the reported amounts of increases and decreases in net assets from
operations during the reporting period. Actual results could differ from
those estimates.
The proforma statements give effect to the proposed transfer of all of the
assets of Putnam Municipal Income Fund to Putnam Tax-Free High Yield Fund
in exchange for the assumption by Putnam Tax-Free High Yield Fund of all of
the liabilities of Putnam Municipal Income Fund and for a number of Putnam
Tax-Free High Yield Fund's shares equal in value to the value of the net
assets of Putnam Municipal Income Fund transferred to Putnam Tax-Free High
Yield Fund. Under generally accepted accounting principles, the historical
cost of investment securities will be carried forward to the surviving
entity and the results of operations of Putnam Tax-Free High Yield Fund for
pre-combination periods will not be restated. The proforma statement of
operations does not reflect the expenses of either fund in carrying out its
obligations under the Agreement and Plan of Reorganization among Tax-Free
High Yield Fund, Municipal Income Fund and Putnam Investment Management,
LLC ("Putnam Management"), dated _____, 2004 (the "Agreement").
The unaudited proforma combining statements should be read in conjunction
with the separate financial statements of Putnam Tax-Free High Yield Fund
and Putnam Municipal Income Fund incorporated by reference in this SAI.
Putnam Tax-Free High Yield Fund
Notes to Proforma Combining Statements
(Unaudited)
July 31, 2004
Security Valuation
Tax-exempt bonds and notes are valued at fair value on the basis of
valuations provided by an independent pricing service, approved by the
Trustees. Such services use information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in determining
value. Other investments are valued at fair value following procedures
approved by the Trustees. Such valuations and procedures are reviewed
periodically by the Trustees.
Federal taxes
It is the policy of each fund to distribute all of its income within the
prescribed time and otherwise comply with the provisions of the Internal
Revenue Code of 1986 (the "Code") applicable to regulated investment
companies.
Proforma Adjustments
(A) Change in management contract for Tax-Free High Yield Fund
(B) Elimination and reduction of duplicative expenses as a result of the
proposed merger.
(C) $52,248 relates to estimated proxy costs, which will be borne
by Municipal Income Fund. The remaining $102,000 consists of
$75,000 of estimated legal costs and $27,000 of estimated
accounting costs. These are merger-related costs which will be
allocated ratably between the two funds prior to consummation of
the proposed merger. As set forth in the Agreement, Putnam
Management will bear merger-related costs to the extent that they
exceed certain limits specified for each fund. As of July 31,
2004, the costs that Putnam Management is expected to bear based
on this Agreement are estimated to be $40,008.
(D) Issuance of shares of beneficial interest of Tax-Free High Yield Fund to
the holders of shares of beneficial interest of Putnam Municipal Income
Fund.
The Proforma Combining Investment Portfolio of Putnam Tax-Free High Yield Fund
and Putnam Municipal Income Fund
July 31, 2004 (unaudited)
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FRB -- Floating Rate Bonds
FSA -- Financial Security Assurance
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
MBIA -- MBIA Insurance Company
U.S. Govt. Coll. -- U.S. Government Collateralized
VRDN -- Variable Rate Demand Notes
Putnam Putnam Proforma
Tax-Free High Yield Fund Municipal Income Fund Combined
Municipal Bonds and Notes (a) 98.2% 97.9% 98.1%
- -------------------------------------------------------------------------------------------------------------------------------
Principal Principal Principal
amount Value amount Value amount Value
- -------------------------------------------------------------------------------------------------------------------------------
Alabama 0.6% 1.6% 1.1%
- -------------------------------------------------------------------------------------------------------------------------------
Anniston, Indl. Dev. Rev. Bonds
(Hoover Group, Inc.), 8 1/2s, 9/1/10 $1,420,000 $781,000 $-- $-- $1,420,000 $781,000
Jackson Cnty., Hlth. Care Auth. Rev.
Bonds, 5.7s, 5/1/19 5,000,000 4,543,750 4,640,000 4,216,600 9,640,000 8,760,350
Jefferson Cnty., Swr. Rev. Bonds,
FGIC, 5 3/4s, 2/1/38 -- -- 7,500,000 8,418,750 7,500,000 8,418,750
Phoenix City, Indl. Dev. Board Rev.
Bonds (Mead Coated Board), Ser. A,
5.3s, 4/1/27 1,000,000 917,500 -- -- 1,000,000 917,500
-------------- -------------- --------------
6,242,250 12,635,350 18,877,600
Arizona 2.0% 1.4% 1.7%
- -------------------------------------------------------------------------------------------------------------------------------
AZ State Hlth. Fac. Auth. Rev. Bonds
(Bethesda Foundation), Ser. A, 6.4s,
8/15/27 1,500,000 1,438,125 -- -- 1,500,000 1,438,125
Casa Grande, Indl. Dev. Auth. Rev.
Bonds (Casa Grande Regl. Med. Ctr.),
Ser. A
7 5/8s, 12/1/29 4,000,000 4,145,000 3,300,000 3,419,625 7,300,000 7,564,625
7 1/4s, 12/1/19 500,000 511,250 -- -- 500,000 511,250
Cochise Cnty., Indl. Dev. Auth. Rev.
Bonds
(Sierra Vista Regl. Hlth. Ctr.), 7
3/4s, 12/1/30 3,425,000 3,733,250 -- -- 3,425,000 3,733,250
(Sierra Vista Cmnty. Hosp.), 6.45s,
12/1/17 -- -- 2,800,000 2,908,500 2,800,000 2,908,500
(Sierra Vista Regl. Hlth. Ctr.), Ser.
A, 6.2s, 12/1/21 1,000,000 995,000 -- -- 1,000,000 995,000
Maricopa Cnty., Poll. Control Rev.
Bonds (Pub. Service- Palo Verde), Ser.
A, 4s, 1/1/38 -- -- 2,000,000 2,017,500 2,000,000 2,017,500
Navajo Cnty., Indl. Dev. Rev. Bonds
(Stone Container Corp.), 7.2s, 6/1/27 -- -- 2,500,000 2,534,375 2,500,000 2,534,375
Pima Cnty., Indl. Dev. Auth. Hlth.
Care Fac. Rev. Bonds, Ser. A, 8 1/2s,
11/15/32 5,280,000 4,653,000 -- -- 5,280,000 4,653,000
Scottsdale, Indl. Dev. Auth. Rev.
Bonds (Westminster Village 1st.
Mtge.), Ser. A, U.S. Govt. Coll.
8 1/4s, 6/1/15 1,500,000 1,611,375 -- -- 1,500,000 1,611,375
8s, 6/1/11 2,300,000 2,466,083 -- -- 2,300,000 2,466,083
-------------- -------------- --------------
19,553,083 10,880,000 30,433,083
Arkansas 1.1% 1.0% 1.1%
- -------------------------------------------------------------------------------------------------------------------------------
AR State Hosp. Dev. Fin. Auth. Rev.
Bonds (Washington Regl. Med. Ctr.), 7
3/8s, 2/1/29 6,600,000 7,243,500 3,900,000 4,280,250 10,500,000 11,523,750
Northwest Regl. Arpt. Auth. Rev.
Bonds, 7 5/8s, 2/1/27 3,650,000 3,932,875 3,415,000 3,679,663 7,065,000 7,612,538
-------------- -------------- --------------
11,176,375 7,959,913 19,136,288
California 8.4% 17.3% 12.3%
- -------------------------------------------------------------------------------------------------------------------------------
ABAG Fin. Auth. COP (American Baptist
Homes), Ser. A, 5.85s, 10/1/27 3,000,000 2,778,750 -- -- 3,000,000 2,778,750
Anaheim, Pub. Fin. Auth. Lease 144A
Rev. Bonds (Pub. Impts.), Ser. A, FSA,
6s, 9/1/24 -- -- 5,000,000 5,650,000 5,000,000 5,650,000
Association of Bay Area Governments
(ABAG) Fin. Auth. for Nonprofit Corps.
Rev. Bonds (San Diego Hosp. Assn.),
Ser. C, 5 3/8s, 3/1/21 -- -- 425,000 423,406 425,000 423,406
CA Rev. Bonds
(Adventist Hlth. Syst.), Ser. A, 5s,
3/1/33 -- -- 2,500,000 2,387,500 2,500,000 2,387,500
(Stanford Hosp. & Clinics), Ser. A,
5s, 11/15/23 -- -- 2,500,000 2,453,125 2,500,000 2,453,125
CA State G.O. Bonds
FGIC, 5 1/2s, 3/1/11 -- -- 10,000,000 11,200,000 10,000,000 11,200,000
5.1s, 2/1/34 -- -- 2,000,000 1,972,500 2,000,000 1,972,500
CA State Dept. of Wtr. Resources Rev.
Bonds, Ser. A
AMBAC, 5 1/2s, 5/1/13 -- -- 18,000,000 20,137,500 18,000,000 20,137,500
5 1/2s, 5/1/11 -- -- 7,000,000 7,761,250 7,000,000 7,761,250
5 3/8s, 5/1/22 7,500,000 7,818,750 -- -- 7,500,000 7,818,750
5 1/8s, 5/1/18 -- -- 2,000,000 2,095,000 2,000,000 2,095,000
CA State Econ. Recvy. G.O. Bonds, Ser.
A, MBIA, 5s, 7/1/12 -- -- 1,000,000 1,092,500 1,000,000 1,092,500
CA State Econ. Recvy. G.O. Bonds, Ser.
A, 5s, 7/1/17 -- -- 3,650,000 3,805,125 3,650,000 3,805,125
CA State Econ. Recvy. VRDN, 1 s,
7/1/23 -- -- 6,000,000 6,000,000 6,000,000 6,000,000
CA State Pub. Wks. Board Lease Rev.
Bonds (Dept. of Corrections-State
Prisons), Ser. A, AMBAC, 5s, 12/1/19 -- -- 4,240,000 4,531,500 4,240,000 4,531,500
CA Statewide Cmnty. Dev. Auth. Apt.
Dev. Rev. Bonds (Irvine Apt. Cmntys.),
Ser. A-3, 5.1s, 5/15/25 4,300,000 4,498,875 -- -- 4,300,000 4,498,875
CA Statewide Cmnty. Dev. Auth.
Multi-Fam. Rev. Bonds (Hsg. Equity
Res.), Ser. B, 5.2s, 12/1/29 1,000,000 1,052,500 -- -- 1,000,000 1,052,500
CA Statewide Cmnty. Dev. Auth. Special
Tax Rev. Bonds (Citrus Garden Apt.
Project - D1), 5 1/4s, 7/1/22 1,000,000 1,013,750 -- -- 1,000,000 1,013,750
Capistrano, Unified School Dist.
Cmnty. Fac. Special Tax (No 98-2
Ladera), 5.7s, 9/1/20 1,500,000 1,520,625 -- -- 1,500,000 1,520,625
Capistrano, Unified School Dist.
Cmnty. Fac. Special Tax Bonds
(Ladera), Ser. 98-2, 5 3/4s, 9/1/29 1,750,000 1,750,000 -- -- 1,750,000 1,750,000
Chula Vista, Cmnty. Fac. Dist. Special
Tax (No. 07-I Otay Ranch Village
Eleven), 5.8s, 9/1/28 1,100,000 1,108,250 900,000 906,750 2,000,000 2,015,000
Chula Vista, Cmnty. Fac. Dist. Special
Tax Rev. Bonds (No. 08-1 Otay Ranch
Village Six), 6s, 9/1/33 2,855,000 2,819,313 -- -- 2,855,000 2,819,313
Corona, COP (Vista Hosp. Syst.), zero
%, 7/1/29 (In default) (NON) 18,000,000 360,000 13,900,000 278,000 31,900,000 638,000
Elk Grove CA Special Tax Rev. Bonds
(Poppy Ridge Cmnty. Facs. - No 03-01),
6s, 9/1/34 3,000,000 3,011,250 -- -- 3,000,000 3,011,250
Folsom, Special Tax Rev. Bonds (Cmnty.
Facs. Dist. No. 10), 5 7/8s, 9/1/28 1,750,000 1,756,563 -- -- 1,750,000 1,756,563
Foothill/Eastern Corridor Agcy. Rev.
Bonds (CA Toll Roads), 5 3/4s, 1/15/40 300,000 298,875 -- -- 300,000 298,875
Gilroy, Rev. Bonds (Bonfante Gardens
Park), 8s, 11/1/25 7,835,000 5,533,469 2,960,000 2,090,500 10,795,000 7,623,969
Golden State Tobacco Securitization
Corp. Rev. Bonds, Ser. B, 5 5/8s,
6/1/38 6,000,000 6,067,500 5,000,000 5,056,250 11,000,000 11,123,750
Irvine, Impt. Board Act of 1915
Special Assmt. Bonds (Assmt. Dist. No.
00-18-GRP 3), 5.55s, 9/2/26 1,000,000 987,500 -- -- 1,000,000 987,500
LA Tax Alloc. Rev. Bonds (No. 5 & 6),
MBIA, 5 1/4s, 2/1/19 -- -- 1,400,000 1,536,500 1,400,000 1,536,500
Lancaster, Fin. Auth. Tax Alloc. Rev.
Bonds (No. 5 & 6), MBIA, 5s, 2/1/16 -- -- 1,215,000 1,310,681 1,215,000 1,310,681
Los Angeles, Regl. Arpt. Impt. Corp.
Lease Rev. Bonds, Ser. C, 7 1/2s,
12/1/24 3,500,000 2,983,750 -- -- 3,500,000 2,983,750
Orange Cnty., Cmnty. Fac. Dist.
Special Tax (No. 03-1 Ladera Ranch),
Ser. A, 5.4s, 8/15/21 -- -- 1,240,000 1,241,550 1,240,000 1,241,550
Orange Cnty., Cmnty. Fac. Dist.
Special Tax (No. 03-1 Ladera Ranch),
Ser. A, 5.4s, 8/15/22 1,520,000 1,518,100 -- -- 1,520,000 1,518,100
Orange Cnty., Cmnty. Fac. Dist.
Special Tax Rev. Bonds (Ladera Ranch -
No. 02-1), Ser. A, 5.55s, 8/15/33 1,625,000 1,618,906 1,250,000 1,245,313 2,875,000 2,864,219
Orange Cnty., Local Trans. Auth. Sales
Tax IFB, 11.102s, 2/14/11 -- -- 5,600,000 7,175,000 5,600,000 7,175,000
Orange Cnty., Local Trans. Auth. Sales
Tax Rev. Bonds, AMBAC, 6.2s, 2/14/11 -- -- 4,000,000 4,580,000 4,000,000 4,580,000
Rancho Mirage, JT Powers Fin. Auth.
Rev. Bonds (Eisenhower Med. Ctr.), 5
7/8s, 7/1/26 -- -- 1,700,000 1,748,875 1,700,000 1,748,875
Redondo Beach, Redev. Agcy. Multi-Fam.
Hsg. Rev. Bonds (Heritage Point)
Ser. B, 8 1/2s, 9/1/23 2,895,000 2,943,983 -- -- 2,895,000 2,943,983
Ser. A, 6 1/2s, 9/1/23 4,690,000 4,770,011 -- -- 4,690,000 4,770,011
Roseville, Cmnty. Fac. Special Tax
Bonds (Dist. 1), 6s, 9/1/33 1,500,000 1,524,375 -- -- 1,500,000 1,524,375
Sacramento, Special Tax Rev. Bonds
(North Natomas Cmnty. Fac.), Ser. 4-A,
6s, 9/1/28 700,000 712,250 -- -- 700,000 712,250
San Joaquin Hills, Trans. Corridor
Agcy. Rev. Bonds, Ser. A, 5 1/2s,
1/15/28 1,500,000 1,365,000 -- -- 1,500,000 1,365,000
San Joaquin Hills, Trans. Corridor
Agcy. Toll Rd. Rev. Bonds, 7.55s,
1/1/10 -- -- 10,000,000 11,837,500 10,000,000 11,837,500
Santaluz Cmnty., Facs. Dist. No. 2
Special Tax Rev. Bonds (Impt. Area No.
1), Ser. B, 6 3/8s, 9/1/30 4,970,000 5,075,613 2,000,000 2,042,500 6,970,000 7,118,113
Southern CA Pub. Pwr. Auth. IFB
(Transmission), 9.84s, 7/1/12 350,000 352,247 -- -- 350,000 352,247
Sunnyvale, Special Tax Rev. Bonds
(Cmnty. Fac. Dist. No. 1), 7 3/4s,
8/1/32 4,560,000 4,588,500 2,220,000 2,233,875 6,780,000 6,822,375
U. of CA, Rev. Bonds (Multi-Purpose
Projects), Ser. Q, FSA, 5s, 9/1/11 -- -- 6,560,000 7,199,600 6,560,000 7,199,600
Vallejo, COP (Marine World Foundation)
7.2s, 2/1/26 10,500,000 10,526,250 -- -- 10,500,000 10,526,250
7s, 2/1/17 -- -- 11,840,000 11,869,600 11,840,000 11,869,600
Valley Hlth. Syst. COP, 6 7/8s,
5/15/23 3,825,000 3,203,438 -- -- 3,825,000 3,203,438
Valley Hlth. Syst. Hosp. Rev. Bonds,
Ser. A, 6 1/2s, 5/15/25 -- -- 2,050,000 1,701,500 2,050,000 1,701,500
-------------- -------------- --------------
83,558,393 133,563,400 217,121,793
Colorado 0.7% 0.9% 0.8%
- -------------------------------------------------------------------------------------------------------------------------------
CO Hlth. Fac. Auth. Rev. Bonds
(Evangelical Lutheran), 5.9s, 10/1/27 5,000,000 5,062,500 -- -- 5,000,000 5,062,500
CO Springs, Hosp. Rev. Bonds
6 3/8s, 12/15/30 (Prerefunded) 745,000 879,100 -- -- 745,000 879,100
6 3/8s, 12/15/30 755,000 805,019 -- -- 755,000 805,019
Denver, City & Cnty. Arpt. Rev. Bonds,
Ser. A, 7 1/2s, 11/15/23 -- -- 3,310,000 3,421,845 3,310,000 3,421,845
Larimer Cnty., G.O. Bonds (Poudre
Impt. - School Dist. No. 1), 7s,
12/15/16 -- -- 3,000,000 3,768,750 3,000,000 3,768,750
-------------- -------------- --------------
6,746,619 7,190,595 13,937,214
Connecticut 3.2% 3.0% 3.1%
- -------------------------------------------------------------------------------------------------------------------------------
CT State Dev. Auth. Rev. Bonds
(East Hills Woods), Ser. A, 7 3/4s,
11/1/17 4,183,644 3,294,620 1,349,013 1,062,348 5,532,657 4,356,968
(Elm Park Baptist), 5s, 12/1/13 -- -- 1,000,000 1,012,500 1,000,000 1,012,500
(East Hills Woods), Ser. B, zero %,
3/1/21 457,428 24,015 147,496 7,744 604,924 31,759
CT State Dev. Auth. 1st. Mtg. Gross
Rev. Hlth. Care Rev. Bonds (The Elm
Street Park Baptist, Inc. Project),
5.85s, 12/1/33 2,000,000 2,027,500 -- -- 2,000,000 2,027,500
CT State Dev. Auth. Poll. Control Rev.
Bonds (Western MA), Ser. A, 5.85s,
9/1/28 6,000,000 6,262,500 6,000,000 6,262,500 12,000,000 12,525,000
CT State Hlth. & Edl. Fac. Auth. FRB,
Ser. U, 0.96s, 7/1/33 10,000,000 10,000,000 10,000,000 10,000,000 20,000,000 20,000,000
CT State Hlth. & Edl. Fac. Auth. VRDN
(Yale U.), Ser. U2, 1.12s, 7/1/33 10,000,000 10,000,000 5,000,000 5,000,000 15,000,000 15,000,000
-------------- -------------- --------------
31,608,635 23,345,092 54,953,727
District of Columbia 2.4% 5.8% 3.9%
- -------------------------------------------------------------------------------------------------------------------------------
DC G.O. Bonds, Ser. A, 6 3/8s, 6/1/26 17,000,000 18,700,000 31,750,000 34,925,000 48,750,000 53,625,000
DC Rev. Bonds (American Geophysical
Union)
5 7/8s, 9/1/23 -- -- 4,200,000 4,220,538 4,200,000 4,220,538
5 3/4s, 9/1/13 -- -- 3,095,000 3,111,373 3,095,000 3,111,373
DC Tobacco Settlement Fin. Corp. Rev.
Bonds, 6 1/2s, 5/15/33 5,500,000 4,805,625 3,000,000 2,621,250 8,500,000 7,426,875
-------------- -------------- --------------
23,505,625 44,878,161 68,383,786
Florida 5.1% 3.3% 4.3%
- -------------------------------------------------------------------------------------------------------------------------------
Brevard Cnty., Hlth. Fac. Auth. Rev.
Bonds (Courtenay Springs), 7 3/4s,
11/15/24 9,260,000 9,613,639 -- -- 9,260,000 9,613,639
Cap. Trust Agcy. Multi-Fam. Rev. Bonds
(American Opportunity-Senior), Ser. A,
5 7/8s, 12/1/38 3,105,000 2,891,531 -- -- 3,105,000 2,891,531
Cap. Trust Agcy. Rev. Bonds (Seminole
Tribe Convention), Ser. A, 10s,
10/1/33 5,000,000 6,050,000 2,500,000 3,025,000 7,500,000 9,075,000
CFM Cmnty. Dev. Dist. Rev. Bonds -- --
Ser. A, 6 1/4s, 5/1/35 3,000,000 3,022,500 1,000,000 1,007,500 4,000,000 4,030,000
(Cap. Impt.), Ser. B, 5 7/8s, 5/1/14 -- -- 500,000 505,000 500,000 505,000
Escambia Cnty., Hlth. Fac. Auth. Rev.
Bonds (Baptist Hosp. & Baptist Manor),
5 1/8s, 10/1/19 -- -- 1,650,000 1,612,875 1,650,000 1,612,875
Fishhawk, Cmnty. Dev. Dist. II Rev.
Bonds, Ser. B -- --
5 1/8s, 11/1/09 2,500,000 2,506,250 -- -- 2,500,000 2,506,250
5s, 11/1/07 1,780,000 1,784,450 -- -- 1,780,000 1,784,450
FL State Fin. Dept. Gen. Svcs. IFB
(Rites-PA 414A), FSA, 9.16s, 7/1/11
(Acquired 9/2/98, cost $ 6,687,794)
(RES) 5,180,000 6,798,750 -- -- 5,180,000 6,798,750
Halifax, Hosp. Med. Ctr. Rev. Bonds,
Ser. A, 7 1/4s, 10/1/29 1,000,000 1,072,500 -- -- 1,000,000 1,072,500
Heritage Harbor, South Cmnty. Dev.
Dist. Special Assmt. Rev. Bonds (Cap.
Impt.), Ser. B, 5.4s, 11/1/08 -- -- 975,000 988,406 975,000 988,406
Highlands Cnty., Hlth. Fac. Auth. Rev.
Bonds (Adventist Sunbelt), Ser. A, 6s,
11/15/31 -- -- 3,000,000 3,146,250 3,000,000 3,146,250
Lee Cnty., Indl. Dev. Auth. Hlth. Care
Fac. Rev. Bonds (Shell Point Village
Project), Ser. A, 5 1/2s, 11/15/29 3,300,000 3,093,750 1,050,000 984,375 4,350,000 4,078,125
Leesburg, Hosp. Rev. Bonds (Regl. Med.
Ctr.), Ser. A, 5s, 7/1/17 -- -- 1,635,000 1,639,088 1,635,000 1,639,088
Miami Beach, Hlth. Fac. Auth. Hosp.
Rev. Bonds (Mount Sinai Med. Ctr.),
Ser. A, 6.7s, 11/15/19 -- -- 2,000,000 2,047,500 2,000,000 2,047,500
Middle Village Cmnty. Dev. Dist.
Special Assmt., Ser. A, 6s, 5/1/35 2,000,000 2,010,000 -- -- 2,000,000 2,010,000
Orange Cnty., Hlth. Fac. Auth. IFB,
9.915s, 10/1/14 (acquired 4/19/95,
cost $6,129,272)(RES) -- -- 4,750,000 7,208,125 4,750,000 7,208,125
Orange Cnty., Hlth. Fac. Auth. Rev.
Bonds -- --
(Orlando Regl. Hlth. Care), 5 3/4s,
12/1/32 1,400,000 1,424,500 1,300,000 1,322,750 2,700,000 2,747,250
(Adventist Hlth. Syst.), 5 5/8s,
11/15/32 3,750,000 3,801,563 -- -- 3,750,000 3,801,563
St. Johns Cnty., Hlth. Care Indl. Dev.
Auth. Rev. Bonds (Glenmoor St. Johns
Project), Ser. A, 8s, 1/1/30 1,800,000 1,719,000 1,050,000 1,002,750 2,850,000 2,721,750
Verandah, West Cmnty. Dev. Dist. Rev.
Bonds (Cap. Impt.) -- --
Ser. A, 6 5/8s, 5/1/33 990,000 1,011,038 -- -- 990,000 1,011,038
Ser. B, 5 1/4s, 5/1/08 -- -- 920,000 923,450 920,000 923,450
Westchester Cmnty. Dev. Dist. No. 1
Special Assmt. (Cmnty.
Infrastructure), 6 1/8s, 5/1/35 2,250,000 2,266,875 -- -- 2,250,000 2,266,875
World Commerce Cmnty. Dev. Dist.
Special Assmt., Ser. A-1
6 1/2s, 5/1/36 1,250,000 1,250,000 -- -- 1,250,000 1,250,000
6 1/4s, 5/1/22 1,000,000 988,750 -- -- 1,000,000 988,750
-------------- -------------- --------------
51,305,096 25,413,069 76,718,165
Georgia 3.9% 1.0% 2.6%
- -------------------------------------------------------------------------------------------------------------------------------
Atlanta, Waste Wtr. VRDN, Ser. C, FSA,
1.10s, 11/1/41 6,165,000 6,165,000 -- -- 6,165,000 6,165,000
Burke Cnty., Poll. Control Dev. Auth.
Mandatory Put Bonds (GA Power Co.),
4.45s, 12/1/08 8,000,000 8,340,000 4,000,000 4,170,000 12,000,000 12,510,000
Effingham Cnty., Indl. Dev. Auth. Rev.
Bonds (Pacific Corp.), 6 1/2s, 6/1/31 3,400,000 3,455,250 -- -- 3,400,000 3,455,250
Forsyth Cnty., Hosp. Auth. Rev. Bonds
(GA Baptist Hlth. Care Syst.), U.S.
Govt. Coll., 6 3/8s, 10/1/28 6,000,000 7,230,000 -- -- 6,000,000 7,230,000
Forsyth Cnty., Indl. Dev. Auth. Rev.
Bonds (Hoover Group, Inc.), 8 1/2s,
12/1/05 4,370,000 2,403,500 -- -- 4,370,000 2,403,500
Fulton Cnty., Res. Care Fac. Rev.
Bonds (Canterbury Court), Class A, 6
1/8s, 2/15/34 800,000 792,000 -- -- 800,000 792,000
Rockdale Cnty., Dev. Auth. Solid Waste
Disp. Rev. Bonds (Visay Paper, Inc.)
7 1/2s, 1/1/26 6,875,000 7,101,188 1,600,000 1,652,640 8,475,000 8,753,828
7.4s, 1/1/16 -- -- 1,800,000 1,859,112 1,800,000 1,859,112
Savannah, Econ. Dev. Auth. Poll.
Control Rev. Bonds (Stone Container
Corp.), 8 1/8s, 7/1/15 3,160,000 3,269,146 -- -- 3,160,000 3,269,146
-------------- -------------- --------------
38,756,084 7,681,752 46,437,836
Illinois 1.5% 2.4% 1.9%
- -------------------------------------------------------------------------------------------------------------------------------
Chicago, Special Assmt. Bonds (Lake
Shore East), 6 3/4s, 12/1/32 1,500,000 1,541,250 -- -- 1,500,000 1,541,250
Chicago, O'Hare Intl. Arpt. Special
Fac. Rev. Bonds (American Airlines,
Inc.), 8.2s, 12/1/24 -- -- 3,745,000 2,883,650 3,745,000 2,883,650
Chicago, Waste Wtr. Rev. Bonds, MBIA,
5 1/2s, 1/1/19 -- -- 4,385,000 4,971,494 4,385,000 4,971,494
IL Dev. Fin. Auth. Rev. Bonds (Mercy
Hsg. Corp.), 7s, 8/1/24 1,025,000 1,045,500 1,700,000 1,734,000 2,725,000 2,779,500
IL Hlth. Fac. Auth. Rev. Bonds
(Cmnty. Rehab. Providers Fac.), 8
1/4s, 8/1/12 740,000 666,000 575,000 517,500 1,315,000 1,183,500
(Cmnty. Rehab. Providers Fac.), Ser.
A, 7 7/8s, 7/1/20 (Prerefunded) 4,105,000 4,420,346 2,470,000 2,659,745 6,575,000 7,080,091
(Cmnty. Rehab. Providers Fac.), Ser.
A, 7 7/8s, 7/1/20 610,000 488,000 415,000 332,000 1,025,000 820,000
(Hindsdale Hosp.), Ser. A, 6.95s,
11/15/13 -- -- 4,790,000 5,520,475 4,790,000 5,520,475
(St. Benedict), Ser. 03A-1, 6.9s,
11/15/33 1,000,000 992,500 -- -- 1,000,000 992,500
(Elmhurst Memorial Hlth. Care), 5
5/8s, 1/1/28 6,000,000 6,090,000 -- -- 6,000,000 6,090,000
-------------- -------------- --------------
15,243,596 18,618,864 33,862,460
Indiana 1.4% 1.1% 1.3%
- -------------------------------------------------------------------------------------------------------------------------------
Indianapolis, Arpt. Auth. Rev. Bonds
(Federal Express Corp.), 5.1s, 1/15/17 6,500,000 6,581,250 5,500,000 5,568,750 12,000,000 12,150,000
Plainfield, Indl. Econ. Dev. Rev.
Bonds (Earl M. Jorgensen Co.), 8 1/2s,
9/1/04 900,000 900,999 -- -- 900,000 900,999
Rockport, Poll. Control Mandatory Put
Bonds (Indiana Michigan Pwr. Co.),
Ser. C, 2 5/8s, 10/1/06 2,200,000 2,180,750 -- -- 2,200,000 2,180,750
Rockport, Poll. Control Rev. Bonds
(Indiana-Michigan Pwr.), Ser. A, 4.9s,
6/1/25 4,000,000 4,155,000 3,000,000 3,116,250 7,000,000 7,271,250
-------------- -------------- --------------
13,817,999 8,685,000 22,502,999
Iowa 1.7% 1.2% 1.5%
- -------------------------------------------------------------------------------------------------------------------------------
Hills, Hlth. Care, VRDN (Mercy Hosp.)
1.95s, 8/1/32 -- -- 1,985,000 1,985,000 1,985,000 1,985,000
IA Fin. Auth. Hlth. Care Fac. Rev.
Bonds (Care Initiatives)
9 1/4s, 7/1/25 13,860,000 16,250,850 6,355,000 7,451,238 20,215,000 23,702,088
9.15s, 7/1/09 775,000 884,469 -- -- 775,000 884,469
Marion Hlth. Care Fac. Rev. Bonds
(First Mtg.), Ser. IA, 1.76s, 1/1/29 105,000 95,288 -- -- 105,000 95,288
-------------- -------------- --------------
17,230,607 9,436,238 26,666,845
Kansas 0.4% 0.0% 0.2%
- -------------------------------------------------------------------------------------------------------------------------------
Lenexa, Hlth. Care Rev. Bonds
(LakeView Village)
Ser. C, 6 7/8s, 5/15/32 2,250,000 2,328,750 -- -- 2,250,000 2,328,750
Ser. B, 6 1/4s, 5/15/26 1,200,000 1,201,500 -- -- 1,200,000 1,201,500
-------------- -------------- --------------
3,530,250 -- 3,530,250
Kentucky 0.8% 0.4% 0.6%
- -------------------------------------------------------------------------------------------------------------------------------
Kentucky Econ. Dev. Fin. Auth. Rev.
Bonds (First Mtg.), Ser. IA, 6 1/2s,
1/1/29 610,000 553,575 -- -- 610,000 553,575
KY Econ. Dev. Fin. Auth. Hlth. Syst.
Rev. Bonds (Norton Healthcare, Inc.),
Ser. A -- --
6 5/8s, 10/1/28 3,250,000 3,384,063 3,000,000 3,123,750 6,250,000 6,507,813
6 1/8s, 10/1/10 3,740,000 3,973,750 -- -- 3,740,000 3,973,750
-------------- -------------- --------------
7,911,388 3,123,750 11,035,138
Louisiana 2.8% 2.8% 2.8%
- -------------------------------------------------------------------------------------------------------------------------------
LA Hlth. Ed. Auth. Rev. Bonds (Lambert
House), Ser. A, 6.2s, 1/1/28 3,000,000 2,928,750 -- -- 3,000,000 2,928,750
LA Local Govt. Env. Fac. Cmnty. Dev.
Auth. Rev. Bonds (St. James Place),
Ser. A, 8s, 11/1/19 5,335,000 3,481,088 5,700,000 3,719,250 11,035,000 7,200,338
LA Pub. Fac. Auth. Hosp. Rev. Bonds
(Lake Charles Memorial Hosp.), 8 5/8s,
12/1/30 4,420,000 3,315,000 2,850,000 2,137,500 7,270,000 5,452,500
(Franciscan Missionaries), FSA, 5
3/4s, 7/1/18 -- -- 5,000,000 5,737,500 5,000,000 5,737,500
Port of New Orleans, Indl. Dev. Rev.
Bonds (Continental Grain Co.), 7 1/2s,
7/1/13 6,000,000 6,134,040 2,000,000 2,044,680 8,000,000 8,178,720
St. Charles Parish, Poll. Control Rev.
Bonds, Ser. A, 4.9s, 6/1/30 3,000,000 3,055,590 3,000,000 3,055,590 6,000,000 6,111,180
Tangipahoa Parish Hosp. Svcs. Rev.
Bonds (North Oaks Med. Ctr. Project),
Ser. A, 5s, 2/1/25 -- -- 900,000 862,875 900,000 862,875
W. Feliciana Parish, Poll. Control
Rev. Bonds (Entergy Gulf States), Ser.
B, 6.6s, 9/1/28 -- -- 4,000,000 4,080,000 4,000,000 4,080,000
W. Feliciana Parish, Solid Waste Disp.
Rev. Bonds (Kaiser Aluminum), 7.7s,
12/1/14 9,000,000 9,146,610 -- -- 9,000,000 9,146,610
-------------- -------------- --------------
28,061,078 21,637,395 49,698,473
Maine 0.4% 0.0% 0.4%
- -------------------------------------------------------------------------------------------------------------------------------
Rumford, Solid Waste Disp. Rev. Bonds
(Boise Cascade Corp.), 6 7/8s, 10/1/26 3,500,000 3,574,375 2,000,000 2,042,500 5,500,000 5,616,875
Maryland 1.3% 0.6% 1.0%
- -------------------------------------------------------------------------------------------------------------------------------
Howard Cnty., Rev. Bonds, Ser. A, U.S.
Govt. Coll., 8s, 5/15/29 5,000,000 6,318,750 -- -- 5,000,000 6,318,750
MD State Hlth. & Higher Edl. Fac.
Auth. Rev. Bonds
(Mercy Ridge), Ser. A, 6s, 4/1/35 2,000,000 2,000,000 -- -- 2,000,000 2,000,000
(Medstar Health), 5 1/2s, 8/15/33 1,500,000 1,462,500 -- -- 1,500,000 1,462,500
(Medstar Hlth.), 5 3/8s, 8/15/24 -- -- 2,000,000 1,925,000 2,000,000 1,925,000
MD State Trans. Auth. VRDN
(Baltimore/Washington Arpt.), Class A,
1.2s, 7/1/13 -- -- 1,000,000 1,000,000 1,000,000 1,000,000
Westminster, Econ. Dev Rev. Bonds
(Carroll Lutheran Village), Ser. A, 6
s, 5/1/24 -- -- 2,000,000 2,005,000 2,000,000 2,005,000
Westminster, Econ. Dev Rev. Bonds
(Carroll Lutheran Village), Ser. A, 6
1/4s, 5/1/34 3,400,000 3,417,000 -- -- 3,400,000 3,417,000
-------------- -------------- --------------
13,198,250 4,930,000 18,128,250
Massachusetts 4.4% 3.6% 4.0%
- -------------------------------------------------------------------------------------------------------------------------------
MA Dev. Fin. Agcy. Rev. Bonds (Semass
Syst.), Ser. A, MBIA, 5 5/8s, 1/1/12 -- -- 1,975,000 2,192,250 1,975,000 2,192,250
MA State Dev. Fin. Agcy. Rev. Bonds
(Lasell College), 6 3/4s, 7/1/31 1,890,000 1,875,825 3,380,000 3,354,650 5,270,000 5,230,475
MA State Hlth. & Edl. Fac. Auth. IFB
(Boston U.), Ser. L, AMBAC, 10.296s,
7/1/25 5,600,000 5,632,704 -- -- 5,600,000 5,632,704
MA State Hlth. & Edl. Fac. Auth. Rev.
Bonds
(Civic Investments), Ser. A, 9s,
12/15/15 5,750,000 6,533,438 2,500,000 2,840,625 8,250,000 9,374,063
(Jordan Hosp.), Ser. E, 6 3/4s,
10/1/33 4,000,000 4,015,000 2,000,000 2,007,500 6,000,000 6,022,500
(Winchester Hosp.), Ser. E, 6 3/4s,
7/1/30 4,900,000 5,763,625 -- -- 4,900,000 5,763,625
(UMass Memorial), Ser. C, 6 5/8s,
7/1/32 5,850,000 6,040,125 3,900,000 4,026,750 9,750,000 10,066,875
(Berkshire Hlth. Syst.), Ser. E, 6
1/4s, 10/1/31 2,200,000 2,238,500 2,200,000 2,238,500 4,400,000 4,477,000
(Hlth. Care Syst. Covenant Hlth.),
Ser. E, 6s, 7/1/31 4,500,000 4,612,500 2,700,000 2,767,500 7,200,000 7,380,000
(Caritas Christi Oblig. Group), Ser.
A, 5 1/4s, 7/1/08 2,630,000 2,771,363 -- -- 2,630,000 2,771,363
MA State Indl. Fin. Agcy. R (TNG
Marina Bay LLC Project), 7 1/2s,
12/1/27 1,855,000 1,871,231 -- -- 1,855,000 1,871,231
MA State Indl. Fin. Agcy. Rev. Bonds
(Evanswood Bethzatha Corp.), 8s,
1/15/27 (In default) (NON) 2,378,153 2,973 -- -- 2,378,153 2,973
(1st Mtge. Stone Institution &
Newton), 7.9s, 1/1/24 750,000 767,820 -- -- 750,000 767,820
(1st. Mtge. Evanswood Bethzatha-A), 7
7/8s, 1/15/20 (In default) (NON) 1,664,711 2,081 -- -- 1,664,711 2,081
(Sr. Living Fac. Forge Hill), 7s,
4/1/17 1,765,000 1,745,144 -- -- 1,765,000 1,745,144
MA State Residual Certificate FRB,
Ser. 314, 10.14s, 8/1/11 -- -- 6,565,000 8,312,931 6,565,000 8,312,931
-------------- -------------- --------------
43,872,329 27,740,706 71,613,035
Michigan 6.6% 1.6% 4.5%
- -------------------------------------------------------------------------------------------------------------------------------
Ann Arbor, Econ. Dev. Corp. Ltd.
Oblig. Rev. Bonds (Glacier Hills,
Inc.), State & Local Govt. Coll., 8
3/8s, 1/15/19 2,251,000 2,934,741 297,000 387,214 2,548,000 3,321,955
Delta Cnty., Econ. Dev. Corp. Rev.
Bonds, Ser. A, 6 1/4s, 4/15/27 2,000,000 2,072,500 -- -- 2,000,000 2,072,500
Detroit, Swr. Disp. VRDN, Ser. B, FSA,
1.10s, 7/1/33 7,600,000 7,600,000 -- -- 7,600,000 7,600,000
Dickinson Cnty., Econ. Dev. Corp. Rev.
Bonds, 5 3/4s, 6/1/16 10,000,000 10,575,000 5,000,000 5,287,500 15,000,000 15,862,500
Flint, Hosp. Bldg. Auth. Rev. Bonds
(Hurley Med. Ctr.), 6s, 7/1/20 1,500,000 1,477,500 1,000,000 985,000 2,500,000 2,462,500
Garden City, Hosp. Fin. Auth. Rev.
Bonds (Garden City Hosp. OB Group),
Ser. A
5 3/4s, 9/1/17 3,000,000 2,797,500 -- -- 3,000,000 2,797,500
5 5/8s, 9/1/10 2,000,000 1,937,500 -- -- 2,000,000 1,937,500
Macomb Cnty., Hosp. Fin. Auth. Rev.
Bonds (Mt. Clemens Gen. Hosp.), Ser.
B, 5 7/8s, 11/15/34 4,600,000 4,209,000 500,000 457,500 5,100,000 4,666,500
MI State Hosp. Fin. Auth. Rev. Bonds
(Oakwood Hosp.), Ser. A, 5 3/4s,
4/1/32 -- -- 2,500,000 2,534,375 2,500,000 2,534,375
MI State Strategic Fund Ltd. Oblig.
Rev. Bonds (Detroit Edison Co.), MBIA,
6.4s, 9/1/25 15,000,000 16,006,950 -- -- 15,000,000 16,006,950
MI State Strategic Fund Solid Waste
Disp. Rev. Bonds
(Genesee Pwr. Station), 7 1/2s, 1/1/21 2,650,000 2,298,875 1,000,000 867,500 3,650,000 3,166,375
(SD Warren Co.), Ser. C, 7 3/8s,
1/15/22 3,500,000 3,622,500 2,000,000 2,070,000 5,500,000 5,692,500
Midland Cnty., Econ. Dev. Corp. Rev.
Bonds, 6 3/4s, 7/23/09 5,000,000 5,187,500 -- -- 5,000,000 5,187,500
Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth.), 6s, 1/1/39 5,495,000 4,025,088 -- -- 5,495,000 4,025,088
Wayne Charter Cnty., Special Arpt.
Fac. Rev. Bonds (Northwest Airlines,
Inc.), 6s, 12/1/29 2,000,000 1,435,000 -- -- 2,000,000 1,435,000
-------------- -------------- --------------
66,179,654 12,589,089 78,768,743
Minnesota 0.5% 0.5% 0.5%
- -------------------------------------------------------------------------------------------------------------------------------
Chaska, Indl. Dev. Rev. Bonds
(Lifecore Biomedical, Inc. Project),
10 1/4s, 9/1/20 2,600,000 2,661,932 -- -- 2,600,000 2,661,932
Minneapolis, Rev. Bonds (Walker
Methodist Sr. Svcs.), Ser. A, 6s,
11/15/28 2,075,000 1,579,594 -- -- 2,075,000 1,579,594
Sauk Rapids Hlth. Care & Hsg. Fac.
Rev. Bonds (Good Shepherd Lutheran
Home), 6s, 1/1/34 800,000 790,000 -- -- 800,000 790,000
St. Paul, Hsg. & Hosp. Redev. Auth.
Rev. Bonds (Healtheast), Ser. A, 6
5/8s, 11/1/17 -- -- 4,100,000 4,125,625 4,100,000 4,125,625
-------------- -------------- --------------
5,031,526 4,125,625 9,157,151
Mississippi 0.2% 0.5% 0.3%
- -------------------------------------------------------------------------------------------------------------------------------
Jackson Cnty., VRDN, 1.10s, 12/1/16 1,500,000 1,500,000 -- -- 1,500,000 1,500,000
Mississippi Bus. Fin. Corp. Poll.
Control Rev. Bonds (Syst. Energy
Resources, Inc.), 5 7/8s, 4/1/22 -- -- 4,000,000 4,020,000 4,000,000 4,020,000
-------------- -------------- --------------
1,500,000 4,020,000 5,520,000
Missouri 3.4% 1.3% 2.5%
- -------------------------------------------------------------------------------------------------------------------------------
Cape Girardeau Cnty., Indl. Dev. Auth.
Hlth. Care Fac. Rev. Bonds (St.
Francis Med. Ctr.), Ser. A
5 1/2s, 6/1/32 -- -- 3,000,000 3,011,250 3,000,000 3,011,250
5 1/2s, 6/1/27 3,250,000 3,270,313 -- -- 3,250,000 3,270,313
Kansas City, Indl. Dev. Auth. Hlth.
Fac. Rev. Bonds (First Mtg. Bishop
Spencer), Ser. A, 6 1/4s, 1/1/24 2,000,000 1,972,500 -- -- 2,000,000 1,972,500
MO State Hlth. & Edl. Fac. Auth. Rev.
Bonds (BJC Hlth. Syst.), 5 1/4s,
5/15/32 -- -- 2,500,000 2,512,500 2,500,000 2,512,500
MO State Hlth. & Edl. Fac. Auth. VRDN
(Cox Hlth. Syst.), AMBAC, 1.15s,
6/1/22 18,810,000 18,810,000 4,295,000 4,295,000 23,105,000 23,105,000
St. Louis Arpt. Rev. Bonds (Lambert
St. Louis Intl.), Ser. A, FSA
5 1/4s, 7/1/11 4,150,000 4,575,375 -- -- 4,150,000 4,575,375
5 1/4s, 7/1/10 4,495,000 4,938,881 -- -- 4,495,000 4,938,881
-------------- -------------- --------------
33,567,069 9,818,750 43,385,819
Montana 0.1% 0.5% 0.2%
- -------------------------------------------------------------------------------------------------------------------------------
Forsyth, Poll. Control Mandatory Put
Bonds (Avista Corp.), AMBAC, 5s,
10/1/32 -- -- 3,325,000 3,536,969 3,325,000 3,536,969
MT State Board Inv. Exempt Fac. Rev.
Bonds (Still Water Mining Project),
8s, 7/1/20 750,000 777,188 -- -- 750,000 777,188
-------------- -------------- --------------
777,188 3,536,969 4,314,157
Nebraska 0.0% 0.0% 0.0%
- -------------------------------------------------------------------------------------------------------------------------------
Kearney, Indl. Dev. Rev. Bonds
(Great Platte River), 8s, 9/1/12 142,042 121,091 -- -- 142,042 121,091
(Brookhaven), zero %, 9/1/12 1,582,934 7,915 -- -- 1,582,934 7,915
-------------- -------------- --------------
129,006 -- 129,006
Nevada 2.0% 1.5% 1.7%
- -------------------------------------------------------------------------------------------------------------------------------
Clark Cnty., Rev. Bonds, Ser. B, FGIC,
5 1/4s, 7/1/20 -- -- 2,000,000 2,095,000 2,000,000 2,095,000
Clark Cnty., Arpt. Rev. Bonds, Ser. B,
FGIC, 5 1/4s, 7/1/19 -- -- 3,745,000 3,950,975 3,745,000 3,950,975
Clark Cnty., Impt. Dist. Special
Assmt. (Dist. No. 142), 6 3/8s, 8/1/23 -- -- 1,000,000 997,500 1,000,000 997,500
Clark Cnty., Indl. Dev. Rev. Bonds
(Southwest Gas Corp. Project), Ser. C,
5.45s, 3/1/38 5,350,000 5,691,063 -- -- 5,350,000 5,691,063
Clark Cnty., Local Impt. Dist. Special
Assmt. Bonds (No. 142), 6.1s, 8/1/18 1,500,000 1,501,875 -- -- 1,500,000 1,501,875
Henderson, Local Impt. Dist. Special
Assmt. Bonds (No. T-14) 0 --
5.8s, 3/1/23 3,735,000 3,777,019 700,000 707,875 4,435,000 4,484,894
5.55s, 3/1/17 2,640,000 2,669,700 -- -- 2,640,000 2,669,700
4s, 3/1/08 -- -- 2,250,000 2,244,375 2,250,000 2,244,375
Las Vegas, Local Impt. Board Special
Assmt. (Dist. No. 607), 5.9s, 6/1/18 -- -- 200,000 202,250 200,000 202,250
Las Vegas, Local Impt. Board Special
Assmt. (Dist. No. 607), 5.9s, 6/1/17 1,500,000 1,524,375 -- -- 1,500,000 1,524,375
Las Vegas, Local Impt. Board Special
Assmt. ( Special Impt. Dist. No. 607),
6s, 6/1/19 -- -- 1,000,000 1,015,000 1,000,000 1,015,000
Las Vegas, Special Impt. Dist. Rev.
Bonds (No. 809 - Summerlin Area),
5.65s, 6/1/23 810,000 790,763 -- -- 810,000 790,763
Washoe Cnty., Wtr. Fac. Mandatory Put
Bonds (Sierra Pacific Pwr. Co.), 5s,
7/1/09 3,500,000 3,491,250 -- -- 3,500,000 3,491,250
-------------- -------------- --------------
19,446,045 11,212,975 30,659,020
New Hampshire 2.0% 2.0% 2.0%
- -------------------------------------------------------------------------------------------------------------------------------
NH Higher Ed. & Hlth. Fac. Auth. Rev.
Bonds
(Havenwood-Heritage Heights), 7.35s,
1/1/18 5,900,000 6,099,125 -- -- 5,900,000 6,099,125
(Havenwood-Heritage Heights), 7.1s,
1/1/06 -- -- 880,000 896,500 880,000 896,500
(Riverwoods at Exeter), Ser. A, 6
1/2s, 3/1/23 1,000,000 995,000 -- -- 1,000,000 995,000
(Rivermead at Peterborough), 5 3/4s,
7/1/28 3,000,000 2,733,750 3,000,000 2,733,750 6,000,000 5,467,500
NH Hlth. & Ed. Fac. Auth. Rev. Bonds
(Huntington at Nashua), Ser. A, 6
7/8s, 5/1/33 2,200,000 2,202,750 -- -- 2,200,000 2,202,750
NH State Bus. Fin. Auth. Rev. Bonds
(Alice Peck Day Hlth. Syst.), Ser. A,
7s, 10/1/29 2,500,000 2,478,125 500,000 495,625 3,000,000 2,973,750
(Franklin Regl. Hosp. Assn.), Ser. A,
6.05s, 9/1/29 2,505,000 2,307,731 1,850,000 1,704,313 4,355,000 4,012,044
(Proctor Academy), Ser. A, 5.6s,
6/1/28 3,550,000 3,589,938 -- -- 3,550,000 3,589,938
NH State Bus. Fin. Auth. Poll. Control
Rev. Bonds
(Pub. Svc. Co.), Ser. D, 6s, 5/1/21 -- -- 7,000,000 7,280,000 7,000,000 7,280,000
3 1/2s, 7/1/27 -- -- 2,600,000 2,577,250 2,600,000 2,577,250
NH State Bus. Fin. Auth. Poll. Control
& Solid Waste Rev. Bonds (Crown Paper
Co.), 7 3/4s, 1/1/22 (In default)
(NON) 8,551,027 10,689 -- -- 8,551,027 10,689
-------------- -------------- --------------
20,417,108 15,687,438 36,104,546
New Jersey 4.5% 3.1% 3.9%
- -------------------------------------------------------------------------------------------------------------------------------
Camden Cnty., Impt. Auth. Rev. Bonds,
8.4s, 4/1/24 (In default) (NON) 5,000,000 4,150,000 -- -- 5,000,000 4,150,000
NJ Econ. Dev. Auth. Rev. Bonds
(Winchester Gardens), Ser. A, 8 5/8s,
11/1/25 7,000,000 8,128,750 -- -- 7,000,000 8,128,750
(Cranes Mill), Ser. A, 7 1/2s, 2/1/27 2,100,000 2,189,250 -- -- 2,100,000 2,189,250
(Cedar Crest Village, Inc.), Ser. A,
7s, 11/15/16 900,000 913,500 -- -- 900,000 913,500
(Newark Arpt. Marriot Hotel), 7s,
10/1/14 7,000,000 7,175,000 4,400,000 4,510,000 11,400,000 11,685,000
(1st Mtge.-Cranes Hill), Ser. A, 7s,
2/1/10 -- -- 2,405,000 2,483,163 2,405,000 2,483,163
(First Mtge. Presbyterian), Ser. A, 6
3/8s, 11/1/31 500,000 503,125 -- -- 500,000 503,125
(United Methodist Homes), Ser. A-1, 6
1/4s, 7/1/33 3,000,000 2,943,750 -- -- 3,000,000 2,943,750
(First Mtge. Presbyterian), Ser. A, 6
1/4s, 11/1/20 500,000 503,125 -- -- 500,000 503,125
NJ Econ. Dev. Auth. Assisted Living
Rev. Bonds (Meridian Assisted Living),
6 3/4s, 8/1/30 5,125,000 4,606,094 3,775,000 3,392,781 8,900,000 7,998,875
NJ Econ. Dev. Auth. Special Fac. Rev.
Bonds (Continental Airlines, Inc.), 6
1/4s, 9/15/29 -- -- 900,000 658,125 900,000 658,125
NJ Hlth. Care Fac. Fin. Auth. Rev.
Bonds
(Columbus Regl. Hosp.), Ser. A, 7
1/2s, 7/1/21 2,000,000 1,812,500 -- -- 2,000,000 1,812,500
(Gen. Hosp. Ctr.-Passaic Inc.), FSA, 6
3/4s, 7/1/19 -- -- 6,000,000 7,372,500 6,000,000 7,372,500
(South Jersey Hosp.), 6s, 7/1/12 5,000,000 5,525,000 -- -- 5,000,000 5,525,000
NJ State Ed. Fac. Auth. Rev. Bonds
(Stevens Inst. of Tech.), Ser. C, 5
1/8s, 7/1/22 -- -- 1,500,000 1,515,000 1,500,000 1,515,000
NJ State Tpk. Auth. Rev. Bonds, Ser.
C, MBIA, 6 1/2s, 1/1/16 -- -- 1,970,000 2,359,075 1,970,000 2,359,075
Tobacco Settlement Fin. Corp. Rev.
Bonds
6 3/4s, 6/1/39 2,000,000 1,797,500 -- -- 2,000,000 1,797,500
6 1/4s, 6/1/43 0 -- 1,535,000 1,256,781 1,535,000 1,256,781
(Asset Backed Bonds), 6s, 6/1/37 6,260,000 5,047,125 -- -- 6,260,000 5,047,125
-------------- -------------- --------------
45,294,719 23,547,425 68,842,144
New Mexico 0.8% 0.2% 0.5%
- -------------------------------------------------------------------------------------------------------------------------------
Farmington, Poll. Control Mandatory
Put Bonds (Pub. Svc. San Juan), Class
B, 2.1s, 4/1/33 -- -- 1,740,000 1,716,075 1,740,000 1,716,075
Farmington, Poll. Control Rev. Bonds
(Tucson Elec. Pwr. Co. San Juan), Ser.
A, 6.95s, 10/1/20 5,500,000 5,747,500 -- -- 5,500,000 5,747,500
Farmington, Poll. Control VRDN (AZ
Pub. Svc. Co.), Ser. A, 1.15s, 5/1/24 2,150,000 2,150,000 -- -- 2,150,000 2,150,000
-------------- -------------- --------------
7,897,500 1,716,075 9,613,575
New York 7.7% 9.5% 8.5%
- -------------------------------------------------------------------------------------------------------------------------------
Albany, Indl. Dev. Agcy. Rev. Bonds
(Charitable Leadership), Ser. A, 5
3/4s, 7/1/26 -- -- 2,000,000 2,040,000 2,000,000 2,040,000
Colonie, Indl. Dev. Agcy. Rev. Bonds
(Cap. Compost & Waste), Ser. A, 3
3/8s, 6/1/21 (In default) (NON) 2,250,000 258,750 -- -- 2,250,000 258,750
Huntington, Hsg. Auth. Rev. Bonds
(Gurwin Jewish Sr. Residence), Ser. A,
6s, 5/1/39 1,250,000 1,129,688 -- -- 1,250,000 1,129,688
Long Island, Pwr. Auth. NY Elec. Syst.
IFB
9.471s, 12/1/24 -- -- 3,500,000 3,836,875 3,500,000 3,836,875
Ser. 66, MBIA, 8.95s, 4/1/10 (acquired
11/3/98, cost $11,298,800)(RES) -- -- 10,000,000 11,775,000 10,000,000 11,775,000
Metro. Trans. Auth. Rev. Bonds, FGIC,
5 1/2s, 7/1/15 -- -- 9,580,000 10,849,350 9,580,000 10,849,350
Nassau Cnty., Indl. Dev. Agcy. Rev.
Bonds (North Shore Hlth. Syst. Project
D), 5 1/4s, 11/1/07 1,575,000 1,673,438 -- -- 1,575,000 1,673,438
NY City, G.O. Bonds
Ser. B, FGIC, 6s, 8/1/06 12,560,000 13,469,344 -- -- 12,560,000 13,469,344
Ser. C, 5 1/2s, 8/1/13 8,000,000 8,770,000 -- -- 8,000,000 8,770,000
Ser. C, 5 1/2s, 8/1/12 -- -- 7,500,000 8,259,375 7,500,000 8,259,375
NY City, Indl. Dev. Agcy. Rev. Bonds
(Paper Inc.), 7.8s, 1/1/16 4,000,000 4,180,000 -- -- 4,000,000 4,180,000
(British Airways), 7 5/8s, 12/1/32 2,075,000 2,025,719 -- -- 2,075,000 2,025,719
(Brooklyn Navy Yard Cogen. Partners),
5.65s, 10/1/28 3,250,000 2,937,188 -- -- 3,250,000 2,937,188
NY City, Indl. Dev. Agcy. Civic Fac.
Rev. Bonds (Brooklyn Polytech. U.
Project J), 6 1/8s, 11/1/30 500,000 448,125 -- -- 500,000 448,125
NY City, Indl. Dev. Agcy. Special
Arpt. Fac. Rev. Bonds (Airis JFK I
LLC), Ser. A, 5 1/2s, 7/1/28 5,400,000 5,204,250 -- -- 5,400,000 5,204,250
NY City, Indl. Dev. Agcy. Special Fac.
Rev. Bonds (British Airways), 5 1/4s,
12/1/32 3,325,000 2,352,438 -- -- 3,325,000 2,352,438
NY City, State Dorm. Auth. Lease Rev.
Bonds (Court Fac.), 6s, 5/15/39 -- -- 2,800,000 2,978,500 2,800,000 2,978,500
NY State Dorm. Auth. Rev. Bonds
(Lenox Hill Hosp.), 5 3/4s, 7/1/12 1,785,000 1,963,500 -- -- 1,785,000 1,963,500
(Personal Income Tax), FGIC, 5 1/2s,
3/15/12 -- -- 10,785,000 12,133,117 10,785,000 12,133,117
(NY U.), Ser. B, MBIA, 5s, 7/1/11 -- -- 4,350,000 4,779,563 4,350,000 4,779,563
NY State Energy Research & Dev. Auth.
Poll. Control Rev. Bonds (Lilco), Ser.
B, 5.15s, 3/1/16 -- -- 5,000,000 5,068,750 5,000,000 5,068,750
NY State Env. Fac. Corp. Poll. Control
FRB (PA 198), MBIA, 10.393s, 6/15/10
(acquired 10/22/97, cost $13,449,963 ,
$6,012,500 and $19,462,463)(RES) 11,185,000 14,498,556 5,000,000 6,481,250 16,185,000 20,979,806
Oneida Cnty., Indl. Dev. Agcy. Rev.
Bonds (St. Elizabeth Med.), Ser. A, 5
7/8s, 12/1/29 -- -- 1,500,000 1,310,625 1,500,000 1,310,625
Onondaga Cnty., Indl. Dev. Agcy. Rev.
Bonds (Solvay Paperboard, LLC), 7s,
11/1/30 (acquired 12/9/98, cost
$5,000,000, $3,900,000 and
$8,900,000)(RES) 5,000,000 5,218,750 3,900,000 4,070,625 8,900,000 9,289,375
Port Auth. NY & NJ Rev. Bonds (Kennedy
Intl. Arpt. - 4th Installment), 6
3/4s, 10/1/11 2,500,000 2,628,125 -- -- 2,500,000 2,628,125
Suffolk Cnty., Indl. Dev. Agcy. Rev.
Bonds (Peconic Landings), Ser. A, 8s,
10/1/20 5,000,000 5,112,500 -- -- 5,000,000 5,112,500
Suffolk Cnty., Indl. Dev. Agcy. Civic
Fac. Rev. Bonds
(Southampton Hosp. Assn.), Ser. B, 7
5/8s, 1/1/30 3,800,000 3,804,750 -- -- 3,800,000 3,804,750
(Gurwin Jewish-Phase II), 6.7s, 5/1/39 1,000,000 1,007,500 -- -- 1,000,000 1,007,500
-------------- -------------- --------------
76,682,621 73,583,030 150,265,651
North Carolina 2.4% 2.9% 2.6%
- -------------------------------------------------------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Syst. IFB
MBIA, 10.672s, 1/1/22 -- -- 5,000,000 6,781,250 5,000,000 6,781,250
FGIC, 10.148s, 1/1/25 -- -- 3,000,000 3,971,250 3,000,000 3,971,250
NC Eastern Muni. Pwr. Agcy. Syst. Rev.
Bonds
AMBAC, 6s, 1/1/18 -- -- 5,250,000 6,195,000 5,250,000 6,195,000
Ser. C, 5 3/8s, 1/1/17 7,500,000 7,828,125 -- -- 7,500,000 7,828,125
Ser. C, 5 3/8s, 1/1/16 1,000,000 1,046,250 -- -- 1,000,000 1,046,250
Ser. C, 5.3s, 1/1/15 2,000,000 2,095,000 -- -- 2,000,000 2,095,000
NC Med. Care Comm. Retirement Fac.
Rev. Bonds (1st Mtge. -Givens Estates
Project), Ser. A, 6 1/2s, 7/1/32 4,500,000 4,556,250 -- -- 4,500,000 4,556,250
NC State Muni. Pwr. Agcy. Rev. Bonds
(No. 1, Catawba Elec.)
Ser. B, 6 1/2s, 1/1/20 4,000,000 4,420,000 5,000,000 5,525,000 9,000,000 9,945,000
Ser. A, 5 1/2s, 1/1/13 4,000,000 4,325,000 -- -- 4,000,000 4,325,000
-------------- -------------- --------------
24,270,625 22,472,500 46,743,125
Ohio 2.4% 3.5% 2.9%
- -------------------------------------------------------------------------------------------------------------------------------
Cleveland-Cuyahoga Cnty., Port. Auth.
Rev. Bonds (Rock & Roll Hall of Fame),
FSA, 3.6s, 12/1/14 -- -- 1,500,000 1,500,285 1,500,000 1,500,285
Cuyahoga Cnty., Rev. Bonds, Ser. A,
6s, 1/1/15 -- -- 4,500,000 5,006,250 4,500,000 5,006,250
Marion Cnty., Hlth. Care Fac. Rev.
Bonds (United Church Homes)
6 3/8s, 11/15/10 900,000 913,500 2,010,000 2,040,150 2,910,000 2,953,650
6.3s, 11/15/15 750,000 757,500 -- -- 750,000 757,500
OH State Bldg. Auth. Rev. Bonds
(Administration Bldg.), Ser. A, 5s,
10/1/18 -- -- 3,910,000 4,071,288 3,910,000 4,071,288
OH State Env. Impt. Rev. Bonds (USX
Corp.), 5 5/8s, 5/1/29 1,000,000 1,002,500 -- -- 1,000,000 1,002,500
OH State Higher Edl. Fac. FRB (Kenyon
College Project)
4.95s, 7/1/37 2,500,000 2,565,625 -- -- 2,500,000 2,565,625
4.85s, 7/1/37 5,000,000 5,150,000 -- -- 5,000,000 5,150,000
4.7s, 7/1/37 -- -- 5,000,000 5,118,750 5,000,000 5,118,750
OH State Higher Edl. Fac. Rev. Bonds
(Case Western Reserve U.)
5 1/2s, 10/1/22 -- -- 3,000,000 3,221,250 3,000,000 3,221,250
5 1/2s, 10/1/21 -- -- 2,000,000 2,157,500 2,000,000 2,157,500
OH State Solid Waste Mandatory Put
Bonds, 4.85s, 11/1/22 6,500,000 6,743,750 -- -- 6,500,000 6,743,750
OH State Wtr. Dev. Auth. Poll. Control
Fac. Mandatory Put Bonds (Cleveland
Elec.), Class A, 1 1/4s, 10/1/30 -- -- 750,000 746,250 750,000 746,250
OH State Wtr. Dev. Auth. Poll. Control
Fac. Rev. Bonds, 6.1s, 8/1/20 6,000,000 6,067,500 -- -- 6,000,000 6,067,500
OH State Wtr. Dev. Auth. Solid Waste
Disp. Rev. Bonds
(North Star Broken Hill Steel), 6.45s,
9/1/20 -- -- 3,000,000 3,117,780 3,000,000 3,117,780
(Bay Shore Power Co.), Ser. A, 5 7/8s,
9/1/20 700,000 652,750 -- -- 700,000 652,750
-------------- -------------- --------------
23,853,125 26,979,503 50,832,628
Oklahoma 0.5% 0.0% 0.3%
- -------------------------------------------------------------------------------------------------------------------------------
OK Dev. Fin. Auth. Rev. Bonds
(Continuing Care Retirement), Ser. A,
8s, 2/1/32 385,000 355,644 -- -- 385,000 355,644
(Hillcrest Hlth. Care), Ser. A, 5
5/8s, 8/15/29 3,075,000 3,113,438 -- -- 3,075,000 3,113,438
Ottawa Cnty., Fin. Auth. Indl. Rev.
Bonds (Doane Products Co.), 7 1/4s,
6/1/17 2,350,000 1,941,688 -- -- 2,350,000 1,941,688
-------------- -------------- --------------
5,410,770 -- 5,410,770
Oregon 0.5% 0.0% 0.4%
- -------------------------------------------------------------------------------------------------------------------------------
Multnomah Cnty., Hosp. Fac. Auth. Rev.
Bonds (Terwilliger Plaza Project), 6
1/2s, 12/1/29 5,450,000 5,436,375 3,950,000 3,940,125 9,400,000 9,376,500
Pennsylvania 5.8% 6.9% 6.3%
- -------------------------------------------------------------------------------------------------------------------------------
Allegheny Cnty., Hosp. Dev. Auth. Rev.
Bonds (Hlth. Syst.), Ser. B, 9 1/4s,
11/15/15 6,500,000 7,353,125 -- -- 6,500,000 7,353,125
Allegheny Cnty., Indl. Dev. Auth. Rev.
Bonds (Env. Imports), 4 3/4s, 12/1/32 -- -- 5,000,000 5,275,000 5,000,000 5,275,000
Allentown, Hosp. Auth. Rev. Bonds
(Sacred Heart Hosp.), Ser. A
6 3/4s, 11/15/14 1,150,000 1,152,875 500,000 501,250 1,650,000 1,654,125
6 1/2s, 11/15/08 -- -- 1,000,000 1,011,250 1,000,000 1,011,250
Beaver Cnty., Indl. Dev. Auth. Poll.
Control Mandatory Put Bonds (Cleveland
Elec.), 1 1/4s, 10/1/30 -- -- 2,850,000 2,817,938 2,850,000 2,817,938
Carbon Cnty., Indl. Dev. Auth. Rev.
Bonds (Panther Creek Partners), 6.65s,
5/1/10 7,925,000 8,549,094 1,695,000 1,828,481 9,620,000 10,377,575
Chester Cnty., Hlth. & Ed. Fac. Auth.
Rev. Bonds (Jenners Pond, Inc.)
7 5/8s, 7/1/34 1,700,000 1,719,125 -- -- 1,700,000 1,719,125
7 1/4s, 7/1/24 -- -- 1,725,000 1,735,781 1,725,000 1,735,781
Dauphin Cnty., Gen. Auth. Rev. Bonds
(Office & Pkg.), Ser. A, 6s, 1/15/25 3,750,000 1,743,750 2,500,000 1,162,500 6,250,000 2,906,250
Dauphin Cnty., Hosp. Rev. Bonds
(Northwestern Med. Ctr.), 8 5/8s,
10/15/13 -- -- 3,155,000 3,435,006 3,155,000 3,435,006
Lancaster Cnty., Hosp. Auth. Rev.
Bonds (Gen. Hosp.), 5 1/2s, 3/15/26 1,500,000 1,498,125 -- -- 1,500,000 1,498,125
Lebanon Cnty., Hlth. Fac. Auth. Rev.
Bonds (Good Samaritan Hosp.), 6s,
11/15/35 -- -- 650,000 651,625 650,000 651,625
Lehigh Cnty., Gen. Purpose Auth. Rev.
Bonds
(St. Luke's Hosp. - Bethlehem), 5
3/8s, 8/15/33 2,250,000 2,089,688 3,000,000 2,786,250 5,250,000 4,875,938
(Lehigh Valley Hosp. Hlth. Network),
Ser. A, 5 1/4s, 7/1/32 2,860,000 2,763,475 1,000,000 966,250 3,860,000 3,729,725
Lehigh Cnty., Indl. Dev. Auth. Poll.
Control Rev. Bonds (PA Pwr. & Lt.
Co.), Ser. B, MBIA, 6.4s, 9/1/29 -- -- 3,000,000 3,071,340 3,000,000 3,071,340
New Morgan, Indl. Dev. Auth. Solid
Waste Disp. Rev. Bonds (New Morgan
Landfill Co., Inc.), 6 1/2s, 4/1/19 1,750,000 1,719,375 -- -- 1,750,000 1,719,375
PA Convention Ctr. Auth. Rev. Bonds,
Ser. A, 6 3/4s, 9/1/19 -- -- 750,000 767,153 750,000 767,153
PA Econ. Dev. Fin. Auth. Rev. Bonds
(Amtrak Project), Ser. A, 6 3/8s,
11/1/41 2,000,000 2,050,000 -- -- 2,000,000 2,050,000
PA Econ. Dev. Fin. Auth. Resource
Recvy. Rev. Bonds (Colver), Ser. D,
7.15s, 12/1/18 -- -- 2,000,000 2,069,720 2,000,000 2,069,720
PA State Econ. Dev. Fin. Auth.
Resource Recvy. Rev. Bonds
(Colver Proj.), Ser. E, 8.05s, 12/1/15 9,000,000 9,286,020 4,000,000 4,127,120 13,000,000 13,413,140
(Northhampton), Ser. B, 6 3/4s, 1/1/07 -- -- 3,590,000 3,742,575 3,590,000 3,742,575
(Northampton Generating), Ser. A, 6
1/2s, 1/1/13 -- -- 3,000,000 3,041,250 3,000,000 3,041,250
PA State Higher Edl. Fac. Auth. Rev.
Bonds
(Widener U.), 5.4s, 7/15/36 1,500,000 1,496,250 -- -- 1,500,000 1,496,250
(Philadelphia College of Osteopathic
Med.), 5s, 12/1/13 1,345,000 1,422,338 -- -- 1,345,000 1,422,338
(Philadelphia College of Osteopathic
Medicine), 5s, 12/1/06 -- -- 945,000 995,794 945,000 995,794
Philadelphia, Gas Wks. FRB, FSA, 2
3/8s, 8/1/21 -- -- 6,000,000 6,000,000 6,000,000 6,000,000
Philadelphia, Gas Wks. IFB, FSA,
8.554s, 8/1/21 (acquired 1/24/94, cost
$5,621,520)(RES) -- -- 6,000,000 6,262,500 6,000,000 6,262,500
Philadelphia, Hosp. & Higher Ed. Fac.
Auth. Rev. Bonds
(Graduate Hlth. Syst. Oblig. Group), 7
1/4s, 7/1/18 (In default) (NON) 4,858,731 6,073 -- -- 4,858,731 6,073
(Jeanses Hosp. Project), 5 7/8s,
7/1/17 3,000,000 3,000,000 -- -- 3,000,000 3,000,000
Scranton, G.O. Bonds, Ser. C
7.1s, 9/1/31 3,060,000 3,756,150 -- -- 3,060,000 3,756,150
7s, 9/1/22 1,000,000 1,221,250 -- -- 1,000,000 1,221,250
Washington Cnty., Indl. Dev. Auth.
Hlth. Care Fac. Rev. Bonds (1st Mtg.
AHF/Central), 7 3/4s, 1/1/29 -- -- 1,245,000 1,171,856 1,245,000 1,171,856
West Cornwall, Tpk. Muni. Auth. Rev.
Bonds (Elizabethtown College), 6s,
12/15/27 2,500,000 2,559,375 -- -- 2,500,000 2,559,375
West Shore, Area Hosp. Auth. Rev.
Bonds (Holy Spirit Hosp.), 6 1/4s,
1/1/32 2,600,000 2,639,000 -- -- 2,600,000 2,639,000
York Cnty., Indl. Dev. Auth. Rev.
Bonds (PSEG Power, LLC), Ser. A, 5
1/2s, 9/1/20 2,000,000 2,020,000 -- -- 2,000,000 2,020,000
-------------- -------------- --------------
58,045,088 53,420,639 111,465,727
Puerto Rico 0.8% 1.2% 1.0%
- -------------------------------------------------------------------------------------------------------------------------------
Cmnwlth. of PR, G.O. Bonds, MBIA,
9.936s, 1/1/18 (acquired 6/12/95, cost
$8,912,590)(RES) -- -- 8,500,000 9,421,400 8,500,000 9,421,400
PR Indl. Tourist Edl. Med. & Env.
Control Fac. Rev. Bonds (Cogen.
Fac.-AES), 6 5/8s, 6/1/26 7,400,000 7,686,750 -- -- 7,400,000 7,686,750
-------------- -------------- --------------
7,686,750 9,421,400 17,108,150
Rhode Island 0.1% 0.3% 0.1%
- -------------------------------------------------------------------------------------------------------------------------------
Tobacco Settlement Fin. Corp. Rev.
Bonds, Ser. A, 6 1/4s, 6/1/42 710,000 584,863 600,000 494,250 1,310,000 1,079,113
South Carolina 2.7% 3.3% 3.0%
- -------------------------------------------------------------------------------------------------------------------------------
Charleston Cnty., Indl. Dev. Rev.
Bonds (Hoover Group, Inc.), 8 1/2s,
11/1/02 -- -- 3,910,000 2,150,500 3,910,000 2,150,500
Connector 2000 Assn., Inc. SC Toll
Road Rev. Bonds (SR-Southern
Connector), Ser. A, 5 3/8s, 1/1/38 1,645,000 1,071,306 -- -- 1,645,000 1,071,306
Florence Cnty., Indl. Dev. Auth. Rev.
Bonds (Stone Container Corp.), 7 3/8s,
2/1/07 2,120,000 2,155,510 970,000 986,248 3,090,000 3,141,758
Lexington Cnty. Rev. Bonds, 5 1/2s,
11/1/32 2,275,000 2,289,219 1,350,000 1,358,438 3,625,000 3,647,657
Piedmont, Muni. Elec. Pwr. Agcy. Rev.
Bonds, Ser. A, FGIC
6 1/2s, 1/1/16 -- -- 5,490,000 6,649,763 5,490,000 6,649,763
6 1/2s, 1/1/16 -- -- 630,000 753,638 630,000 753,638
Richland Cnty. Rev. Bonds (Intl. Paper
Co. Project), Ser. A, 4 1/4s, 10/1/07 -- -- 3,000,000 3,093,750 3,000,000 3,093,750
SC Hosp. Auth. Rev. Bonds (Med. U.),
Ser. A, 6 1/2s, 8/15/32 4,000,000 4,170,000 1,750,000 1,824,375 5,750,000 5,994,375
SC Jobs Econ. Dev. Auth. Rev. Bonds
(Palmetto Hlth.), Ser. C, 6 3/8s,
8/1/34 -- -- 3,000,000 3,097,500 3,000,000 3,097,500
SC Jobs Econ. Dev. Auth. Hosp. Fac.
Rev. Bonds (Palmetto Hlth. Alliance)
Ser. A, 7 3/8s, 12/15/21 3,800,000 4,645,500 -- -- 3,800,000 4,645,500
Ser. C, 6s, 8/1/20 5,000,000 5,125,000 -- -- 5,000,000 5,125,000
SC Tobacco Settlement Rev. Mgt. Rev.
Bonds, Ser. B
6 3/8s, 5/15/30 9,000,000 7,683,750 -- -- 9,000,000 7,683,750
6 3/8s, 5/15/28 -- -- 6,000,000 5,205,000 6,000,000 5,205,000
-------------- -------------- --------------
27,140,285 25,119,212 52,259,497
South Dakota 0.1% 0.5% 0.3%
- -------------------------------------------------------------------------------------------------------------------------------
SD Edl. Enhancement Funding Corp. Rev.
Bonds, Ser. B, 6 1/2s, 6/1/32 1,650,000 1,433,438 1,900,000 1,650,625 3,550,000 3,084,063
Tennessee 1.5% 0.9% 1.2%
- -------------------------------------------------------------------------------------------------------------------------------
Elizabethton, Hlth. & Edl. Fac. Board
Rev. Bonds (Hosp. Ref. & Impt.), Ser.
B, 8s, 7/1/33 1,000,000 1,177,500 3,000,000 3,532,500 4,000,000 4,710,000
Johnson City, Hlth. & Edl. Fac. Board
Hosp. Rev. Bonds (Mountain States
Hlth.), Ser. A, 7 1/2s, 7/1/33 6,500,000 7,531,875 -- -- 6,500,000 7,531,875
Johnson City, Hlth. & Edl. Fac. Hosp.
Board Rev. Bonds (Mountain States
Hlth.), Ser. A, 7 1/2s, 7/1/25 -- -- 3,000,000 3,476,250 3,000,000 3,476,250
Memphis-Shelby Cnty., Arpt. Auth. Rev.
Bonds (Federal Express Corp.) 0 --
5.05s, 9/1/12 4,000,000 4,215,000 -- -- 4,000,000 4,215,000
4 1/2s, 7/1/14 2,000,000 1,967,500 -- -- 2,000,000 1,967,500
-------------- -------------- --------------
14,891,875 7,008,750 21,900,625
Texas 4.5% 5.2% 4.80%
- -------------------------------------------------------------------------------------------------------------------------------
Abilene, Hlth. Fac. Dev. Corp. Rev.
Bonds (Sears Methodist Retirement),
Ser. A
7s, 11/15/33 -- -- 2,500,000 2,550,000 2,500,000 2,550,000
5.9s, 11/15/25 6,850,000 6,293,438 -- -- 6,850,000 6,293,438
Alliance, Arpt. Auth. Rev. Bonds
(Federal Express Corp.), 6 3/8s,
4/1/21 -- -- 1,500,000 1,561,875 1,500,000 1,561,875
Bexar Cnty., Hsg. Fin. Auth. Corp.
Rev. Bonds (American Opty-Waterford),
Ser. A1, 7s, 12/1/36 -- -- 5,000,000 5,025,000 5,000,000 5,025,000
Crawford Ed. Fac. Rev. Bonds (U. St.
Thomas), 5 3/8s, 10/1/27 3,985,000 3,820,619 -- -- 3,985,000 3,820,619
Dallas-Fort Worth, Intl. Arpt. Fac.
Impt. Rev. Bonds (American Airlines,
Inc.), 8 1/4s, 11/1/36 2,500,000 1,843,750 -- -- 2,500,000 1,843,750
Dallas-Fort Worth, Intl. Arpt. Fac.
Impt. Corp. Rev. Bonds (American
Airlines, Inc.)
7 1/4s, 11/1/30 -- -- 2,000,000 1,320,000 2,000,000 1,320,000
6 3/8s, 5/1/35 3,000,000 1,878,750 -- -- 3,000,000 1,878,750
Georgetown, Hlth. Fac. Dev. Corp. Rev.
Bonds, 6 1/4s, 8/15/29 500,000 474,375 3,600,000 3,415,500 4,100,000 3,889,875
Harris Cnty., Hlth. Fac. Dev. Corp.
Hosp. Rev. Bonds (Memorial Hermann
Hlth. Care Syst.), Class A, 5 1/4s,
12/1/17 -- -- 1,500,000 1,563,750 1,500,000 1,563,750
Houston, Arpt. Syst. Rev. Bonds
(Continental Airlines, Inc.), Ser. E,
6 3/4s, 7/1/29 -- -- 5,000,000 3,862,500 5,000,000 3,862,500
(Special Fac. - Continental Airlines,
Inc.), Ser. E, 6 3/4s, 7/1/21 7,000,000 5,635,000 -- -- 7,000,000 5,635,000
(Continental Airlines, Inc.), Ser. C,
5.7s, 7/15/29 3,000,000 1,983,750 -- -- 3,000,000 1,983,750
Lufkin, Hlth. Fac. Dev. Corp. Rev.
Bonds (Memorial Hlth. Syst. of East
TX), 5.7s, 2/15/28 5,500,000 5,273,125 -- -- 5,500,000 5,273,125
Matagorda Cnty., Navigation Dist. TX
Poll. Control Mandatory Put Bonds
(American Electric Power), 2.15s,
5/1/30 -- -- 1,500,000 1,499,670 1,500,000 1,499,670
Round Rock, Hotel Occupancy Tax Rev.
Bonds (Convention Ctr. Complex),
5.85s, 12/1/24 5,265,000 5,021,494 -- -- 5,265,000 5,021,494
Sam Rayburn Muni. Pwr. Agcy. Rev.
Bonds, 6s, 10/1/21 4,500,000 4,691,250 3,500,000 3,648,750 8,000,000 8,340,000
Tarrant Cnty., Hlth. Fac. Dev. (TX
Hlth. Resource Sys.), Ser. A, MBIA, 5
3/4s, 2/15/12 -- -- 4,000,000 4,525,000 4,000,000 4,525,000
Tomball, Hosp. Auth. Rev. Bonds
(Tomball Regl. Hosp.)
6 1/8s, 7/1/23 6,250,000 6,329,563 2,500,000 2,531,825 8,750,000 8,861,388
6s, 7/1/25 2,095,000 2,097,619 1,650,000 1,652,063 3,745,000 3,749,682
TX State IFB, Ser. B, 11.051s, 9/30/11 -- -- 3,500,000 4,615,625 3,500,000 4,615,625
Ysleta, Indpt. School Dist. G.O.
Bonds, PSFG, 5s, 8/15/07 -- -- 2,315,000 2,488,625 2,315,000 2,488,625
-------------- -------------- --------------
45,342,733 40,260,183 85,602,916
Utah 1.2% 0.3% 0.8%
- -------------------------------------------------------------------------------------------------------------------------------
Carbon Cnty., Solid Waste Disp. Rev.
Bonds (Laidlaw Env.), Ser. A
7 1/2s, 2/1/10 1,000,000 1,024,910 -- -- 1,000,000 1,024,910
7.45s, 7/1/17 600,000 621,000 -- -- 600,000 621,000
Tooele Cnty., Harbor & Term. Dist.
Port Fac. Rev. Bonds (Union Pacific),
Ser. A, 5.7s, 11/1/26 5,500,000 5,465,625 -- -- 5,500,000 5,465,625
UT Cnty., Env. Impt. Rev. Bonds
(Marathon Oil Project), 5.05s, 11/1/17 4,480,000 4,810,400 1,950,000 2,093,813 6,430,000 6,904,213
11,921,935 2,093,813 14,015,748
Virginia 2.7% 1.0% 1.9%
- -------------------------------------------------------------------------------------------------------------------------------
Henrico Cnty. Econ. Dev. Auth. Rev.
Bonds (United Methodist), Ser. A
6.7s, 6/1/27 5,250,000 5,328,750 -- -- 5,250,000 5,328,750
6 1/2s, 6/1/22 -- -- 3,000,000 3,022,500 3,000,000 3,022,500
Henrico Cnty., Indl. Dev. Auth. IFB
(Bon Secours Hlth. Syst.), FSA,
10.205s, 8/23/27 2,000,000 2,547,500 -- -- 2,000,000 2,547,500
James Cnty., Indl. Dev. Auth. Rev.
Bonds (Williamsburg), Ser. A, 6 1/8s,
3/1/32 2,500,000 2,509,375 -- -- 2,500,000 2,509,375
Peninsula Ports Auth. Rev. Bonds (VA
Baptist Homes), Ser. A, 7 3/8s,
12/1/32 4,000,000 4,125,000 -- -- 4,000,000 4,125,000
Pocahontas Parkway Assn. Toll Rd. Rev.
Bonds, Ser. A, 5 1/2s, 8/15/28 3,910,000 3,323,500 -- -- 3,910,000 3,323,500
Roanoke Cnty. Indl. Dev. Auth. Rev.
Bonds (Res. Care Fac.), Ser. A
6.3s, 7/1/35 2,000,000 1,990,000 -- -- 2,000,000 1,990,000
4.4s, 7/1/08 1,000,000 993,750 -- -- 1,000,000 993,750
Russell Cnty. Indl. Dev. Auth. Poll.
Control Rev. Bonds (Appalachian Pwr.
Co.), Ser. I, 2.7s, 11/1/07 1,000,000 992,500 -- -- 1,000,000 992,500
Suffolk, Redev. & Hsg. Auth. Rev.
Bonds (Beach-Oxford Apts.)
6 1/4s, 10/1/33 5,510,000 5,000,325 -- -- 5,510,000 5,000,325
6.1s, 4/1/26 -- -- 5,000,000 4,531,250 5,000,000 4,531,250
-------------- -------------- --------------
26,810,700 7,553,750 34,364,450
Washington 0.9% 0.8% 0.9%
- -------------------------------------------------------------------------------------------------------------------------------
Tobacco Settlement Auth. of WA Rev.
Bonds, 6 1/2s, 6/1/26 4,870,000 4,559,538 -- -- 4,870,000 4,559,538
WA State Pub. Pwr. Supply Syst. Rev.
Bonds (Nuclear No. 3), Ser. B, MBIA, 7
1/8s, 7/1/16 -- -- 5,000,000 6,306,250 5,000,000 6,306,250
Washington Cnty., Hsg. & Redev. Auth.
Rev. Bonds (Healtheast), 5 1/2s,
11/15/27 5,500,000 4,805,625 -- -- 5,500,000 4,805,625
-------------- -------------- --------------
9,365,163 6,306,250 15,671,413
West Virginia 0.7% 0.5% 0.6%
- -------------------------------------------------------------------------------------------------------------------------------
Mason Cnty., Poll. Control FRB
(Aappalachian Pwr. Co. Project), Ser.
L, 5 1/2s, 10/1/22 3,475,000 3,475,000 -- -- 3,475,000 3,475,000
Princeton, Hosp. Rev. Bonds (Cmnty.
Hosp. Assn., Inc.), 6.1s, 5/1/29 4,495,000 3,253,240 -- -- 4,495,000 3,253,240
WV State G.O. Bonds, Ser. D, FGIC, 6
1/2s, 11/1/26 -- -- 3,600,000 4,212,000 3,600,000 4,212,000
-------------- -------------- --------------
6,728,240 4,212,000 10,940,240
Wisconsin 0.6% 1.3% 0.9%
- -------------------------------------------------------------------------------------------------------------------------------
Badger Tobacco Settlement Asset
Securitization Corp. Rev. Bonds
7s, 6/1/28 1,000,000 952,500 1,000,000 952,500 2,000,000 1,905,000
6 3/8s, 6/1/32 5,500,000 4,675,000 7,750,000 6,587,500 13,250,000 11,262,500
WI State Hlth. & Edl. Fac. Auth. Rev.
Bonds (Wheaton Franciscan Svcs.), 5
1/8s, 8/15/33 -- -- 2,500,000 2,350,000 2,500,000 2,350,000
-------------- -------------- --------------
5,627,500 9,890,000 15,517,500
Wyoming 0.9% 0.7% 0.8%
- -------------------------------------------------------------------------------------------------------------------------------
Sweetwater Cnty., Poll. Control Rev.
Bonds (Idaho Power Co. Project), Ser.
A, 6.05s, 7/15/26 5,350,000 5,644,250 2,000,000 2,110,000 7,350,000 7,754,250
Sweetwater Cnty., Poll. Control VRDN
(Pacificorp.), Ser. B, 1.15s, 1/1/14 3,400,000 3,400,000 3,000,000 3,000,000 6,400,000 6,400,000
-------------- -------------- --------------
9,044,250 5,110,000 14,154,250
Total Municipal bonds (cost
$977,255,311, 736,760,252 and
$1,714,015,563) 979,408,183 755,532,161 1,734,940,344
Preferred Stocks (a) 1.1% 0.9% 1.0%
- -------------------------------------------------------------------------------------------------------------------------------
Shares Value Shares Value Shares Value
- -------------------------------------------------------------------------------------------------------------------------------
Charter Mac. Equity Trust 144A Ser. A,
6.625% cum. pfd. 2,000,000 2,195,000 -- -- 2,000,000 2,195,000
MuniMae Tax Exempt Bond Subsidiary,
LLC 144A 6.875% cum. pfd. -- -- 6,000,000 6,577,500 6,000,000 6,577,500
MuniMae Tax Exempt Bond Subsidiary,
LLC 144A Ser. B, 7 3/4s cum. pfd. 8,000,000 9,000,000 -- -- 8,000,000 9,000,000
Total Preferred stocks (cost
$10,000,000, $6,000,000 and
$16,000,000) 11,195,000 6,577,500 17,772,500
Common Stocks (a) 0.2% 0.0% 0.1%
- -------------------------------------------------------------------------------------------------------------------------------
Shares Value Shares Value Shares Value
- -------------------------------------------------------------------------------------------------------------------------------
Hoover Group, Inc. (NON)(AFF) 70,874 7 47,911 5 118,785 12
Tembec, Inc. (Canada) (NON) 184,103 1,503,249 -- -- 184,103 1,503,249
Total Common stocks (cost $9,057,285,
$-- and $9,057,285) 1,503,256 5 1,503,261
- -------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $996,312,596,
$742,760,252 and $1,739,072,848) $992,106,439 $762,109,666 $1,754,216,105
- -------------------------------------------------------------------------------------------------------------------------------
NOTES
Because the Funds are actively managed, their portfolio holdings as of July
31, 2004 are unlikely to reflect what their portfolio holdings will be as
of the date the merger is completed. Accordingly, no adjustments have been
made to indicate holdings that would be sold in anticipation of the merger
to accommodate the investment strategies of Putnam Tax Free High Yield
Fund.
Percentages indicated are based on net assets as follows:
- --------------------------------------------------------------------------
Putnam Tax-Free High Yield Fund $997,151,328
- --------------------------------------------------------------------------
Putnam Municipal Income Fund $771,503,656
- --------------------------------------------------------------------------
Proforma Combined $1,768,540,744
- --------------------------------------------------------------------------
Non-income-producing security.
Restricted, excluding 144A securities, as to public resale. The total market
value of restricted securities held by the funds as of July 31, 2004 were
as follows:
Market % of
value net assets
----------- ----------
Putnam Tax-Free High Yield Fund $26,516,056 2.7%
Putnam Municipal Income Fund $59,752,025 7.7%
Proforma Combined $86,268,081 4.9%
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rates shown on VRDN, mandatory put bonds, Floating Rate Bonds (FRB)
and Floating Rate Notes (FRN) are the current interest rates at July 31,
2004.
The rates shown on IFB and IF COP, which are securities paying interest
rates that vary inversely to changes in the market interest rates, are
the current interest rates at July 31, 2004.
The dates shown on Mandatory Put Bonds are the next mandatory put dates.
Transactions during the period with companies in which the funds owned
at least 5 % of the voting securities were as follows:
Putnam Tax-Free High Yield Fund
Purchase Sales Dividend Market
Affiliate Cost Cost Income Value
- ------------------------------------------------------------------------
Hoover Group, Inc * $-- $-- $-- $7
Putnam Municipal Income Fund
Purchase Sales Dividend Market
Affiliate Cost Cost Income Value
- ------------------------------------------------------------------------
Hoover Group, Inc * $-- $-- $-- $5
Market values are shown for those securities affiliated at period end.
* Security was acquired as part of a corporate action.
Putnam Tax-Free High Yield Fund
(Unaudited)
Pro Forma Combining
Statement of Assets and Liabilities
7/31/2004
Putnam Putnam
Municipal Tax-Free High Pro Forma Pro Forma
Income Fund Yield Fund Adjustments Combined
------------- ------------- ------------- -------------
Assets
Investments in securities, at value
Unaffiliated Issuers $762,109,661 $992,106,432 1,754,216,093
Affiliated Issuers 5 7 12
Cash 517,238 176,716 693,954
Dividends, interest and other receivables 11,345,327 14,103,716 25,449,043
Receivable for shares of the fund sold 180,463 199,944 380,407
Receivable for securities sold 923,486 11,287,526 12,211,012
Total assets 775,076,180 1,017,874,341 1,792,950,521
Liabilities
Distributions payable to shareholders 594,782 1,697,276 2,292,058
Payable for securities purchased -- 16,220,845 16,220,845
Payable for shares of the fund repurchased 1,078,252 1,135,402 2,213,654
Payable for compensation of Manager 1,299,048 895,878 2,194,926
Payable for investor servicing and custodian fees 171,687 208,411 380,098
Payable for Trustee compensation and expenses 113,628 130,000 243,628
Payable for administrative services 1,219 2,118 3,337
Payable for distribution fees 238,469 279,013 517,482
Other accrued expenses 75,439 154,070 114,240 C 343,749
Total liabilities 3,572,524 20,723,013 114,240 24,409,777
Net assets $771,503,656 $997,151,328 (114,240) 1,768,540,744
- -----------------------------------------------------------------------------------------------------------------
Shares
Class A
Net assets $628,275,536 $798,736,694 (92,265) C $1,426,919,965
Shares outstanding 73,634,996 64,085,614 (23,215,307) D 114,505,303
Net asset value per share $8.53 $12.46 $12.46
Class B
Net assets $123,147,488 $180,830,324 (19,484) C $303,958,328
Shares outstanding 14,440,665 14,485,594 (4,573,804) D 24,352,455
Net asset value per share $8.53 $12.48 $12.48
Class C
Net assets $12,559,851 $10,599,538 (1,535) C $23,157,854
Shares outstanding 1,471,137 850,042 (464,006) D 1,857,173
Net asset value per share $8.54 $12.47 $12.47
Class M
Net assets $7,520,781 $6,984,772 (956) C $14,504,597
Shares outstanding 881,852 560,450 (278,302) D 1,164,000
Net asset value per share $8.53 $12.46 $12.46
Cost of investments
Unaffiliated Issuers $742,760,252 $996,312,596 $1,739,072,848
Affiliated Issuers -- -- --
- -----------------------------------------------------------------------------------------------------------------
Proforma Combining
Statement of Operations
Twelve months ended July 31, 2004 (Unaudited)
Putnam Putnam
Municipal Tax-Free High Pro Forma Pro Forma
Income Fund Yield Fund Adjustments Combined
- -----------------------------------------------------------------------------------------------------------------
Interest Income 51,740,582 70,377,178 122,117,760
Expenses:
Compensation of Manager 4,419,886 6,543,183 (1,238,741) A 9,724,328
Investor servicing and custodian fees 1,046,068 1,247,115 (275,478) B 2,017,705
Compensation of Trustees and expenses 29,705 40,661 (7,210) B 63,156
Administrative Services 14,225 22,508 (3,270) B 33,463
Distribution fees - Class A 1,760,793 1,779,034 3,539,827
Distribution fees - Class B 1,325,899 1,713,061 3,038,960
Distribution fees - Class C 149,401 111,705 261,106
Distribution fees - Class M 47,464 40,621 88,085
Other Expenses 209,030 265,501 474,531
Non-recurring costs 10,585 17,961 28,546
Costs assumed by Manager (10,585) (17,961) (28,546)
Fees waived and reimbursed by Manager (87,582) (182,373) (269,955)
- -----------------------------------------------------------------------------------------------------------------
Total Expenses 8,914,889 11,581,016 (1,524,699) 18,971,206
- -----------------------------------------------------------------------------------------------------------------
Expense reduction (52,969) (41,179) -- (94,148)
- -----------------------------------------------------------------------------------------------------------------
Net expenses 8,861,920 11,539,837 (1,524,699) 18,877,058
- -----------------------------------------------------------------------------------------------------------------
Net investment income 42,878,662 58,837,341 1,524,699 103,240,702
- -----------------------------------------------------------------------------------------------------------------
Net realized loss on investments (29,734,936) (68,993,242) (98,728,178)
Net realized gain on futures contracts 3,738,634 -- 3,738,634
Net unrealized appreciation of
investments during the period 32,822,352 85,385,128 118,207,480
- -----------------------------------------------------------------------------------------------------------------
Net gain on investments 6,826,050 16,391,886 23,217,936
- -----------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $49,704,712 $75,229,227 $1,524,699 $126,458,638
- -----------------------------------------------------------------------------------------------------------------
APPENDIX A
PUTNAM TAX-FREE HIGH YIELD FUND
A SERIES OF PUTNAM TAX-FREE INCOME TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
NOVEMBER ___, 2004
This SAI is not a prospectus. If a fund has more than one form of current
prospectus, each reference to the prospectus in this SAI shall include all
of the funds' prospectuses, unless otherwise noted. The SAI should be read
together with the applicable prospectus. Certain disclosure has been
incorporated by reference from the funds' annual reports. For a free copy
of the funds' annual report or prospectuses dated November ___, 2004, as
revised from time to time, call Putnam Investor Services at 1-800-225-1581
or write Putnam Investor Services, Mailing address: P.O. Box 41203,
Providence, RI 02940-1203.
Part I of this SAI contains specific information about the funds. Part II
includes information about these funds and the other Putnam funds.
502110
Table of Contents
PART I
FUND ORGANIZATION AND CLASSIFICATION..................................... I-[ ]
INVESTMENT RESTRICTIONS.................................................. I-[ ]
CHARGES AND EXPENSES I-[ ]
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND FINANCIAL STATEMENTS... I-[ ]
PART II
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS............... II-[ ]
TAXES..................................... ............................. II-[ ]
MANAGEMENT.............................................................. II-[ ]
DETERMINATION OF NET ASSET VALUE........................................ II-[ ]
HOW TO BUY SHARES....................................................... II-[ ]
DISTRIBUTION PLANS...................................................... II-[ ]
INVESTOR SERVICES....................................................... II-[ ]
SIGNATURE GUARANTEES.................................................... II-[ ]
SUSPENSION OF REDEMPTIONS............................................... II-[ ]
SHAREHOLDER LIABILITY................................................... II-[ ]
PROXY VOTING GUIDELINES AND PROCEDURES.................................. II-[ ]
SECURITIES RATINGS...................................................... II-[ ]
DEFINITIONS............................................................. II-[ ]
APPENDIX A.............................................................. II-[ ]
SAI
PART I
FUND ORGANIZATION AND CLASSIFICATION
Putnam Tax-Free High Yield Fund is a series of Putnam Tax-Free Income
Trust, a Massachusetts business trust organized on June 28, 1985 (the
"Trust"). A copy of the Agreement and Declaration of Trust, which is
governed by Massachusetts law, is on file with the Secretary of The
Commonwealth of Massachusetts.
The Trust is an open-end management investment company with an unlimited
number of authorized shares of beneficial interest. The Trustees may,
without shareholder approval, create two or more series of shares
representing separate investment portfolios. Any such series of shares may
be divided without shareholder approval into two or more classes of shares
having such preferences and special or relative rights and privileges as
the Trustees determine. Each fund offers classes of shares with different
sales charges and expenses.
Each share has one vote, with fractional shares voting proportionally.
Shares vote by individual series on all matters except (i) when required by
the Investment Company Act of 1940, shares of all series shall be voted in
the aggregate and (ii) when the Trustees have determined that the matter
affects only the interests of one or more series, only shareholders of such
series shall be entitled to vote. Shares of all classes will vote together
as a single class except when otherwise required by law or as determined by
the Trustees. Shares are freely transferable, are entitled to dividends as
declared by the Trustees, and, if the Trust were liquidated, would receive
the net assets of the fund.
Each fund may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although each fund is not required to hold annual
meetings of its shareholders, shareholders holding at least 10% of the
outstanding shares entitled to vote have the right to call a meeting to
elect or remove Trustees, or to take other actions as provided in the
Agreement and Declaration of Trust. Each fund has voluntarily undertaken to
hold a shareholder meeting at which the Board of Trustees would be elected
at least every five years beginning in 2004.
Each fund is a "diversified" investment company under the Investment
Company Act of 1940. This means that with respect to 75% of its total
assets, each fund may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities and
securities issued by other investment companies). The remaining 25% of its
total assets is not subject to this restriction. To the extent each fund
invests a significant portion of its assets in the securities of a
particular issuer, it will be subject to an increased risk of loss if the
market value of such issuer's securities declines.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed without a
vote of a majority of the outstanding voting securities of a fund created
under the Trust, a fund may not and will not:
(1) Borrow money in excess of 10% of the value (taken at the lower of
cost or current value) of the fund's total assets (not including the
amount borrowed) at the time the borrowing is made, and then only from
banks as a temporary measure to facilitate the meeting of redemption
requests (not for leverage) which might otherwise require the untimely
disposition of portfolio investments for extraordinary or emergency
purposes. Such borrowings will be repaid before any additional
investments are purchased.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it
may be deemed to be an underwriter under federal securities laws.
(3) Purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, securities which are secured by
interests in real estate, and securities which represent interests in real
estate, and it may acquire and dispose of real estate or interests in real
estate acquired through the exercise of its rights as a holder of debt
obligation secured by real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts, except that the
fund may purchase and sell financial futures contracts and options and may
enter into foreign exchange contracts and other financial transactions not
involving physical commodities.
(5) Make loans, except by purchase of debt obligations in which the fund
may invest consistent with its investment policies, by entering into
repurchase agreements, or by lending its portfolio securities.
(6) With respect to 75% of its total assets, invest in the securities of
any issuer if, immediately after such investment, more than 5% of the
total assets of the fund (taken at current value) would be invested in
the securities of such issuer; provided that this limitation does not
apply to obligations issued or guaranteed as to interest and principal
by the U.S. government or its agencies or instrumentalities and that
insurers of tax-exempt securities are not considered issuers of
securities for this purpose. (Insurance policies of which the Trust is a
beneficiary are not considered securities for the purposes of this
restriction.)
(7) With respect to 75% of the fund's total assets, acquire more than 10%
of the voting securities of any issuer.
(8) Purchase securities (other than securities of the U.S government, its
agencies or instrumentalities or tax-exempt securities, except tax-exempt
securities backed only by the assets and revenues of non-governmental
issuers) if, as a result of such purchase, more than 25% of the fund's
total assets would be invested in any one industry.
(9) Issue any class of securities which is senior to the fund's shares of
beneficial interest, except for permitted borrowings.
(10) Invest less than 80% of a fund's net assets in tax-exempt securities,
except when investing for defensive purposes.
The Investment Company Act of 1940 provides that a "vote of a majority of
the outstanding voting securities" of the Trust or a fund means the
affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of the Trust or that fund, as the case may be, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares
of the Trust or that fund are represented at the meeting in person or by
proxy.
The following non-fundamental investment policies may be changed by the
Trustees without shareholder approval:
The fund will not invest in (a) securities which are not readily
marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the fund (or the person designated by the
Trustees of the fund to make such determinations) to be readily
marketable), and (c) repurchase agreements maturing in more than seven
days, if, as a result, more than 15% of a fund's net assets (taken at
current value) would be invested in securities described in (a), (b) and
(c).
All percentage limitations on investments (other than pursuant to the
non-fundamental restriction) pertaining to investments in illiquid or
restricted securities will apply at the time of the making of an investment
and shall not be considered violated unless an excess or deficiency occurs
or exists immediately after and as a result of such investment.
CHARGES AND EXPENSES
Management fees
Under a Management Contract with the Trust dated July 1, 1999, the fund
pays a monthly fee to Putnam Management based on the average net assets of
that fund, as determined at the close of each business day during the
month, at the following rates expressed as a percentage of each fund's
average net assets:
Putnam Tax-Free High Yield Fund
0.65% of the first $500 million;
0.55% of the next $500 million;
0.50% of the next $500 million;
0.45% of the next $5 billion;
0.425% of the next $5 billion;
0.405% of the next $5 billion;
0.39% of the next $5 billion;
and 0.38% thereafter.
For the past three fiscal years, pursuant to the management contract, the
fund incurred the following fees:
Amount
management
fee would
have been
Amount of without
Management management expense
Fund name Fiscal year fee paid fee waived limitation
Putnam Tax-Free
High Yield Fund 2004 $6,360,810 $182,373 $6,543,183
2003 $7,696,907 N/A N/A
2002 $8,350,865 N/A N/A
Expense limitation. Putnam Management has agreed to waive fees and
reimburse expenses of the fund through July 31, 2005 to the extent
necessary to ensure that the fund pays total fund operating expenses at
an annual rate that does not exceed the average expenses of the
front-end load funds viewed by Lipper Inc. as having the same investment
classification or objective as the fund (expressed in each case as a
percentage of average net assets). For these purposes, total fund
operating expenses of both the fund and the Lipper category average will
be calculated without giving effect to 12b-1 fees or any expense offset
and brokerage service arrangements that may reduce fund expenses, the
Lipper category average will be calculated by Lipper each calendar
quarter based on expense information for the most recent fiscal year of
each fund included in that category, and the expense limitation will be
updated as of the first business day after Lipper publishes the category
average (generally shortly after the end of each calendar quarter).
Brokerage commissions
The following table shows brokerage commissions paid during the fiscal
periods indicated:
Brokerage
Fiscal year commissions
Putnam Tax-Free High Yield Fund 2004 $0
2003 $6,681
2002 $3,349
The following table shows transactions placed with brokers and dealers
during the most recent fiscal year to recognize research, statistical and
quotation services received by Putnam Management and its affiliates:
Dollar value Percentage of
of these total Amount of
Fund name transactions transactions commissions
Putnam Tax-Free
High Yield Fund $0 0.00% $0
Administrative expense reimbursement
The fund reimbursed Putnam Management for administrative services during
fiscal 2004, including compensation of certain Trust officers and
contributions to the Putnam Investments Profit Sharing Retirement Plan for
their benefit, as follows:
Portion of
total
reimbursement
for
compensation
Total and
Reimbursement contributions
Putnam Tax-Free High Yield Fund $22,508 $17,649
Trustee responsibilities and fees
The Trustees are responsible for generally overseeing the conduct of fund
business. Subject to such policies as the Trustees may determine, Putnam
Management furnishes a continuing investment program for the fund and makes
investment decisions on its behalf. Subject to the control of the Trustees,
Putnam Management also manages a fund's other affairs and business.
The tables below show the value of each Trustee's holdings in the fund and
in all of the Putnam Funds as of December 31, 2003.
Putnam Tax-Free High Yield Fund
Aggregate
dollar range
of shares
Dollar range held in all
of Putnam of the Putnam
Tax-Free High funds
Yield Fund overseen by
Name of Trustee shares owned Trustee
Jameson A. Baxter $1-$10,000 over $100,000
Charles B. Curtis $1-$10,000 over $100,000
* Myra R. Drucker N/A N/A
John A. Hill $1-$10,000 Over $100,000
Ronald J. Jackson $1-$10,000 Over $100,000
Paul L. Joskow $1-$10,000 Over $100,000
Elizabeth T. Kennan $1-$10,000 Over $100,000
John H. Mullin, III $1-$10,000 Over $100,000
Robert E. Patterson none Over $100,000
W. Thomas Stephens $1-$10,000 Over $100,000
* Richard B. Worley N/A N/A
** Charles E. Haldeman, Jr. N/A N/A
*George Putnam, III $1-$10,000 Over $100,000
*A.J.C. Smith $1-$10,000 Over $100,000
* Elected to the Board of Trustees after December 31, 2003.
** Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the fund, Putnam Management,
Putnam Retail Management Limited Partnership ("Putnam Retail Management")
or Marsh & McLennan Companies, Inc., the parent company of Putnam
Investments and its affiliated companies. Messrs. Putnam, III, Haldeman and
Smith are deemed "interested persons" by virtue of their positions as
officers of the fund, Putnam Management, Putnam Retail Management or Marsh
& McLennan Companies, Inc or shareholders of Marsh & McLennan Companies,
Inc. Mr. Haldeman is the Chief Executive of Putnam Investments. He was
elected to the Board of Trustees after December 31, 2003. Mr. Putnam, III
is the President of the fund and each of the other Putnam funds. Mr. Smith
is the Chairman of Putnam Investments and serves as a Director of and
consultant to Marsh & McLennan Companies, Inc.
Each independent Trustee of the fund receives a fee for his or her
services. Each independent Trustee of the fund also receives fees for
serving as Trustee of the other Putnam funds. Each independent Trustee of
the fund receives an annual retainer fee and an additional meeting fee for
each Trustees' meeting attended. Independent Trustees who serve on board
committees receive additional fees for attendance at certain committee
meetings and for special services rendered in that connection. All of the
current independent Trustees of the fund are Trustees of all the Putnam
finds and receive fees for their services from each fund. Mr. Putnam also
receives the foregoing fees for his services as Trustee of each Putnam
fund.
The Trustees periodically review their fees to ensure 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 Board
Policy and Nominating Committee, which consists solely of independent
Trustees of the fund, estimates that committee and Trustee meeting time,
together with the appropriate preparation, requires the equivalent of at
least three business days per Trustee meeting. The Committees of the Board
of Trustees, and the number of times each committee met during your fund's
fiscal year, are shown in the table below:
Audit and Pricing Committee 21
Board Policy and Nominating Committee 8
Brokerage and Custody Committee 7
Communication, Service and Marketing Committee 11
Contract Committee 16
Distributions Committee 5
Executive Committee 1
Investment Oversight Committees 32
The following table shows the year each Trustee was first elected a Trustee
of the Putnam funds, the fees paid to each Trustee by the fund for fiscal
2004, and the fees paid to each Trustee by all of the Putnam funds during
calendar year 2003:
COMPENSATION TABLE
Putnam Tax-Free High Yield Fund
Pension or Estimated
retirement annual Total
Aggregate benefits benefits from compensation
compensation accrued as all Putnam from all
from the part of fund funds upon Putnam
Trustees/Year fund(1) expenses retirement(2) funds(3)(4)
Jameson A. Baxter/1994(5) $2,241 $655 $100,000 $215,500
Charles B. Curtis/2001 $2,175 $767 $100,000 $210,250
Myra R. Drucker/2004(10) N/A N/A N/A N/A
Charles E. Haldeman, Jr./2004(10) N/A N/A N/A N/A
John A. Hill/1985(5)(7) $4,382 $810 $200,000 $413,625
Ronald J. Jackson/1996(5) $2,228 $652 $100,000 $214,500
Paul L. Joskow/1997(5) $2,877 $467 $100,000 $215,250
Elizabeth T. Kennan/1992 $2,174 $834 $100,000 $207,000
Lawrence J. Lasser/1992(8) $0 $157 $93,333 $0
John H. Mullin, III/1997(5) $2,158 $717 $100,000 $208,750
Robert E. Patterson/1984 $2,172 $452 $100,000 $206,500
George Putnam, III/1984(7) $2,732 $373 $125,000 $260,500
A.J. C. Smith/1986(6) $0 $0 $0 $0
W. Thomas Stephens/1997(5) $2,211 $652 $100,000 $206,500
W. Nicholas Thorndike/1992(9) $1,785 $1,075 $100,000 $212,250
Richard B. Worley/2004(10) N/A N/A N/A N/A
(1) Includes an annual retainer and an attendance fee for each meeting
attended.
(2) Assumes that each Trustee retires at the normal retirement date. For
Trustees who are not within three years of retirement, estimated benefits
for each Trustee are based on Trustee fee rates in effect during calendar
2003.
(3) As of December 31, 2003, there were 101 funds in the Putnam family. For
Mr. Hill, amounts shown also include compensation for service as a trustee
of TH Lee, Putnam Emerging Opportunities Portfolio, a closed-end fund
advised by an affiliate of Putnam Management.
(4) Includes amounts (ranging from $2,000 to $11,000 per Trustee) for which
the Putnam funds were reimbursed by Putnam Management for special Board and
committee meetings in connection with certain regulatory and other matters
relating to alleged improper trading by certain Putnam Management employees
and participants in certain 401(k) plans administered by Putnam Fiduciary
Trust Company.
(5) Includes compensation deferred pursuant to a Trustee Compensation
Deferral Plan. As of July 31, 2004, the total amounts of deferred
compensation payable by Putnam Tax-Free High Yield Fund, including income
earned on such amounts, to certain Trustees were: Ms. Baxter - 7,221; Mr.
Hill - $23,862; Mr. Jackson - $12,166; Mr. Joskow - $8,299; Mr. Mullin -
$8,232; and Mr. Stephens - $2,438.
(6) Marsh & McLennan Companies, Inc. compensates Mr. Smith for his service
as Trustee. Mr. Smith has waived any retirement benefits that he is
entitled to receive under the retirement plan of the Putnam funds.
(7) Includes additional compensation to Messrs. Hill and Putnam for service
as Chairman of the Trustees and President of the Funds, respectively.
(8) Mr. Lasser resigned from the Board of Trustees of the Putnam funds on
November 3, 2003.
(9) Mr. Thorndike resigned from the Board of Trustees of the Putnam funds
on June 30, 2004.
(10) Ms. Drucker and Messrs. Haldeman and Worley were elected to the Board
of Trustees on November 11, 2004.
Under a Retirement Plan for Trustees of the Putnam funds (the "Plan"), each
Trustee who retires with at least five years of service as a Trustee of the
funds is entitled to receive an annual retirement benefit equal to one-half
of the average annual compensation paid to such Trustee for the last three
years of service prior to retirement. This retirement benefit is payable
during a Trustee's lifetime, beginning the year following retirement, for a
number of years equal to such Trustee's years of service. A death benefit,
also available under the Plan, ensures that the Trustee and his or her
beneficiaries will receive benefit payments for the lesser of an aggregate
period of (i) ten years or (ii) such Trustee's total years of service.
The Plan Administrator (currently the Board Policy and Nominating
Committee) may terminate or amend the Plan at any time, but no termination
or amendment will result in a reduction in the amount of benefits (i)
currently being paid to a Trustee at the time of such termination or
amendment, or (ii) to which a current Trustee would have been entitled had
he or she retired immediately prior to such termination or amendment. The
Trustees have terminated the Plan with respect to any Trustee first elected
to the board after 2003.
For additional information concerning the Trustees, see "Management" in
Part II of this SAI.
Share ownership [TO BE UPDATED]
At October 31, 2004, the officers and Trustees of the fund as a group owned
[less than 1%/ ( %)] of the outstanding shares of each class of the fund,
and [, except as noted below,] no person owned of record or to the
knowledge of the fund beneficially 5% or more of any class of shares of the
fund.
Distribution fees
During fiscal 2004, the fund paid the following 12b-1 fees to Putnam Retail
Management:
Class A Class B Class C Class M
Putnam Tax-Free High Yield Fund $1,779,034 $1,713,061 $111,705 $40,621
Class A sales charges and contingent
deferred sales charges
Putnam Retail Management received sales charges with respect to class A
shares in the following amounts during the periods indicated:
Sales charges
retained by
Putnam Retail
Total Management Contingent
front-end after dealer deferred
Fiscal year sales charges concessions sales charges
Putnam Tax-Free High Yield Fund 2004 $473,870 $20,106 $9,738
2003 $891,681 $68,145 $13,384
2002 $1,128,244 $79,297 $7,951
Class B contingent deferred sales charges
Putnam Retail Management received contingent deferred sales charges upon
redemptions of class B shares in the following amounts during the periods
indicated:
Contingent
deferred
Fiscal year sales charges
Putnam Tax-Free High Yield Fund 2004 $488,748
2003 $353,665
2002 $415,858
Class C contingent deferred sales charges
Putnam Retail Management received contingent deferred sales charges upon
redemptions of class C shares in the following amounts during the periods
indicated:
Contingent
deferred
Fiscal year sales charges
Putnam Tax-Free High Yield Fund 2004 $1,698
2003 $3,090
2002 $906
Class M sales charges and contingent deferred sales charges
Putnam Retail Management received sales charges with respect to class M
shares in the following amounts during the periods indicated:
Sales charges
retained by
Putnam Retail
Total Management Contingent
front-end after dealer deferred
Fiscal year sales charges concessions sales charges
Putnam Tax-Free High Yield Fund 2004 $1,356 $132
2003 $7,538 $941
2002 $14,593 $2,240
Investor servicing and custody fees and expenses
During the 2004 fiscal year, each fund incurred the following fees and
out-of-pocket expenses for investor servicing and custody services provided
by Putnam Fiduciary Trust Company:
Putnam Tax-Free High Yield Fund $1,061,406
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, 125 High Street, Boston, Massachusetts 02110,
is the fund's independent registered public accounting firm providing audit
services, tax return review and other tax consulting services and
assistance and consultation in connection with the review of various
Securities and Exchange Commission filings. The Report of Independent
Registered Public Accounting Firm, financial highlights and financial
statements included in the fund's Annual Report for the fiscal year ended
July 31, 2004, filed electronically on September 13, 2004 for Putnam
Tax-Free High Yield Fund (File No. 811-04345), are incorporated by
reference into this SAI. The financial highlights included in the
prospectus and incorporated by reference into this SAI and the financial
statements incorporated by reference into the prospectus and this SAI have
been so included and incorporated in reliance upon the report of the
independent registered public accounting firm, given on their authority as
experts in auditing and accounting.
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-1
TAXES II-25
MANAGEMENT II-30
DETERMINATION OF NET ASSET VALUE II-41
HOW TO BUY SHARES II-43
DISTRIBUTION PLANS II-53
INVESTOR SERVICES II-57
SIGNATURE GUARANTEES II-61
SUSPENSION OF REDEMPTIONS II-61
SHAREHOLDER LIABILITY II-61
PROXY VOTING GUIDELINES AND PROCEDURES II-61
SECURITIES RATINGS II-62
DEFINITIONS II-66
APPENDIX A II-67
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
PART II
As noted in the prospectus, in addition to the principal investment
strategies and the principal risks described in the prospectus, the fund
may employ other investment practices and may be subject to other risks,
which are described below. Because the following is a combined
description of investment strategies of all of the Putnam funds, certain
matters described herein may not apply to your fund. Unless a strategy
or policy described below is specifically prohibited by the investment
restrictions explained in the fund's prospectus or Part I of this SAI,
or by applicable law, the fund may engage in each of the practices
described below. Shareholders who purchase shares at net asset value
through employer-sponsored defined contribution plans should also
consult their employer for information about the extent to which the
matters described below apply to them.
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS
Foreign Investments
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of the fund's foreign investments
and the value of its shares may be affected favorably or unfavorably by
changes in currency exchange rates relative to the U.S. dollar. There
may be less information publicly available about a foreign issuer than
about a U.S. issuer, and foreign issuers may not be subject to
accounting, auditing and financial reporting standards and practices
comparable to those in the United States. 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 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 investments in U.S. markets.
In addition, foreign securities may be subject to the risk of
nationalization or expropriation of assets, imposition of currency
exchange controls, foreign withholding taxes or restrictions on the
repatriation of foreign currency, confiscatory taxation, political or
financial instability and diplomatic developments which could affect the
value of the fund's investments in certain foreign countries. Dividends
or interest on, or proceeds from the sale of, foreign securities may be
subject to foreign withholding taxes, and special U.S. tax
considerations may apply.
Legal remedies available to investors in certain foreign countries may
be more limited than those available with respect to investments in the
United States or in other foreign countries. The laws of some foreign
countries may limit the fund's ability to invest in securities of
certain issuers organized under the laws of those foreign countries.
The risks described above, including the risks of nationalization or
expropriation of assets, typically are increased in connection with
investments in "emerging markets." For example, political and economic
structures in 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 and expropriated the assets of private
companies. High rates of inflation or currency devaluations may
adversely affect the economies and securities markets of such countries.
Investments in emerging markets may be considered speculative.
The currencies of certain emerging market countries have experienced
devaluations relative to the U.S. dollar, and future devaluations may
adversely affect the value of assets denominated in such currencies.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation or deflation for many years,
and future inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may affect
the value of investments in emerging markets and the availability of
additional investments in these markets. The small size, limited
trading volume and relative inexperience of the securities markets in
these countries may make investments in securities traded in emerging
markets illiquid and more volatile than investments in securities traded
in more developed countries, and the fund may be required to establish
special custodial or other arrangements before making investments in
securities traded in emerging markets. There may be little financial or
accounting information available with respect to issuers of emerging
market securities, and it may be difficult as a result to assess the
value of prospects of an investment in such securities.
Certain of the foregoing risks may also apply to some extent to
securities of U.S. issuers that are denominated in foreign currencies or
that are traded in foreign markets, or securities of U.S. issuers having
significant foreign operations.
Foreign Currency Transactions
To manage its exposure to foreign currencies, the fund may engage in
foreign currency exchange transactions, including purchasing and selling
foreign currency, foreign currency options, foreign currency forward
contracts and foreign currency futures contracts and related options.
In addition, the fund may write covered call and put options on foreign
currencies for the purpose of increasing its current return.
Generally, the fund may engage in both "transaction hedging" and
"position hedging." The fund may also engage in foreign currency
transactions for non-hedging purposes, subject to applicable law. When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables, generally
arising in connection with the purchase or sale of portfolio securities.
The fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest payment in
a foreign currency. By transaction hedging the fund will attempt to
protect itself against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the applicable foreign
currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is
earned, and the date on which such payments are made or received.
The fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign
currency. If conditions warrant, for transaction hedging purposes 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. A foreign currency forward contract
is a negotiated agreement to exchange currency at a future time at a
rate or rates that may be higher or lower than the spot rate. Foreign
currency futures contracts are standardized exchange-traded contracts
and have margin requirements. In addition, for transaction hedging
purposes the fund may also purchase or sell exchange-listed and
over-the-counter call and put options on foreign currency futures
contracts and on foreign currencies.
For transaction hedging purposes the fund may also purchase
exchange-listed and over-the-counter call and put options on foreign
currency futures contracts and on foreign currencies. A put option on a
futures contract gives the fund the right to assume a short position in
the futures contract until the expiration of the option. A put option
on a currency gives the fund the right to sell the currency at an
exercise price until the expiration of the option. A call option on a
futures contract gives the fund the right to assume a long position in
the futures contract until the expiration of the option. A call option
on a currency gives the fund the right to purchase the currency at the
exercise price until the expiration of the option.
The fund may engage in position hedging to protect against a decline in
the value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of the currency in which the securities the fund intends to buy
are denominated, when the fund holds cash or short-term investments).
For position hedging purposes, the fund may purchase or sell, on
exchanges or in over-the-counter markets, foreign currency futures
contracts, foreign currency forward contracts and options on foreign
currency futures contracts and on foreign currencies. In connection
with position hedging, the fund may also purchase or sell foreign
currency on a spot basis.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for the fund to
purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency the
fund is obligated to deliver and a decision is made to sell the security
or securities and make delivery of the foreign currency. Conversely, it
may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of
foreign currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that the fund owns or intends to
purchase or sell. They simply establish a rate of exchange which one
can achieve at some future point in time. Additionally, although these
techniques tend to minimize the risk of loss due to a decline in the
value of the hedged currency, they tend to limit any potential gain
which might result from the increase in value of such currency. See
"Risk factors in options transactions."
The fund may seek to increase its current return or to offset some of
the costs of hedging against fluctuations in current exchange rates by
writing covered call options and covered put options on foreign
currencies. The fund receives a premium from writing a call or put
option, which increases the fund's current return if the option expires
unexercised or is closed out at a net profit. The fund may terminate an
option that it has written prior to its expiration by entering into a
closing purchase transaction in which it purchases an option having the
same terms as the option written.
The fund's currency hedging transactions may call for the delivery of
one foreign currency in exchange for another foreign currency and may at
times not involve currencies in which its portfolio securities are then
denominated. Putnam Management will engage in such "cross hedging"
activities when it believes that such transactions provide significant
hedging opportunities for the fund. Cross hedging transactions by the
fund involve the risk of imperfect correlation between changes in the
values of the currencies to which such transactions relate and changes
in the value of the currency or other asset or liability which is the
subject of the hedge.
The fund may also engage in non-hedging currency transactions. For
example, Putnam Management may believe that exposure to a currency is in
the fund's best interest but that securities denominated in that
currency are unattractive. In that case the fund may purchase a
currency forward contract or option in order to increase its exposure to
the currency. In accordance with SEC regulations, the fund will
segregate liquid assets in its portfolio to cover forward contracts used
for non-hedging purposes.
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, forward contracts and futures contracts) may be affected
significantly, fixed, or supported directly or indirectly by U.S. and
foreign government actions. Government intervention may increase risks
involved in purchasing or selling foreign currency options, forward
contracts and futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or futures
contract reflects the value of an exchange rate, which in turn reflects
relative values of two currencies -- the U.S. dollar and the foreign
currency in question. Because foreign currency transactions occurring
in the interbank market involve substantially larger amounts than those
that may be involved in the exercise of foreign currency options,
forward contracts and futures contracts, investors may be disadvantaged
by having to deal in an odd-lot market for the underlying foreign
currencies in connection with options at prices that are less favorable
than for round lots. Foreign governmental restrictions or taxes could
result in adverse changes in the cost of acquiring or disposing of
foreign currencies.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on
a timely basis. Available quotation information is generally
representative of very large round-lot transactions in the interbank
market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that options markets are closed while the markets
for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
The decision as to whether and to what extent the fund will engage in
foreign currency exchange transactions will depend on a number of
factors, including prevailing market conditions, the composition of the
fund's portfolio and the availability of suitable transactions.
Accordingly, there can be no assurance that the fund will engage in
foreign currency exchange transactions at any given time or from time to
time.
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 price
set at the time of the contract. Foreign currency futures contracts
traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of
the contract agreed upon by the parties, rather than a predetermined
date in a given month. Forward contracts may be in any amount agreed
upon by the parties rather than predetermined amounts. Also, forward
foreign exchange contracts are traded directly between currency traders
so that no intermediary is required. A forward contract generally
requires no margin or other deposit.
At the maturity of a forward or futures contract, the fund either may
accept or make delivery of the currency specified in the contract, or at
or prior to maturity enter into a closing transaction involving the
purchase or sale of an offsetting contract. Closing transactions with
respect to forward contracts are usually effected with the currency
trader who is a party to the original forward contract. Closing
transactions with respect to futures contracts are effected on a
commodities exchange; a clearing corporation associated with the
exchange assumes responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed out
only on an exchange or board of trade which provides a secondary market
in such contracts. Although the fund intends to purchase or sell
foreign currency futures contracts only on exchanges or boards of trade
where there appears to be an active secondary market, there is no
assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the
event of adverse price movements, the fund would continue to be required
to make daily cash payments of variation margin.
Foreign currency options. In general, options on foreign currencies
operate similarly to options on securities and are subject to many of
the risks described above. Foreign currency options are traded
primarily in the over-the-counter market, although options on foreign
currencies are also listed on several exchanges. Options are traded not
only on the currencies of individual nations, but also on the euro, the
joint currency of most countries in the European Union.
The fund will only purchase or write foreign currency options when
Putnam Management believes that a liquid secondary market exists for
such options. There can be no assurance that a liquid secondary market
will exist for a particular option at any specific time. Options on
foreign currencies are affected by all of those factors which influence
foreign exchange rates and investments generally.
Settlement procedures. Settlement procedures relating to the fund's
investments in foreign securities and to the fund's foreign currency
exchange transactions may be more complex than settlements with respect
to investments in debt or equity securities of U.S. issuers, and may
involve certain risks not present in the fund's domestic investments.
For example, settlement of transactions involving foreign securities or
foreign currencies may occur within a foreign country, and the fund may
be required to accept or make delivery of the underlying securities or
currency in conformity with any applicable U.S. or foreign restrictions
or regulations, and may be required to pay any fees, taxes or charges
associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its
obligations.
Foreign currency conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on
the difference (the "spread") between prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the fund at one rate, while offering a lesser rate
of exchange should the fund desire to resell that currency to the
dealer.
Options on Securities
Writing covered options. The fund may write covered call options and
covered put options on optionable securities held in its portfolio or that
it has an absolute and immediate right to acquire without additional cash
consideration (or, if additional cash consideration is required, cash or
other assets determined to be liquid by Putnam in accordance with
procedures established by the Trustees, in such amount are segregated by
its custodian), when in the opinion of Putnam Management such transactions
are consistent with the fund's investment objective(s) 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) or have an
absolute and immediate right to acquire without additional cash
consideration (or, if additional cash consideration is required, cash or
other assets determined to be liquid by Putnam in accordance with
procedures established by the Trustees, in such amount are segregated by
its custodian). In the case of put options, the fund will segregate
assets determined to be liquid by Putnam in accordance with procedures
established by the Trustees equal to the price to be paid if the option
is exercised. In addition, the fund will be considered to have covered a
put or call option if and to the extent that it holds an option that
offsets some or all of the risk of the option it has written. The fund may
write combinations of covered puts and calls on the same underlying
security.
The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. The amount of the
premium reflects, among other things, the relationship between the exercise
price and the current market value of the underlying security, the
volatility of the underlying security, the amount of time remaining until
expiration, current interest rates, and the effect of supply and demand in
the options market and in the market for the underlying security. By
writing a call option, if the fund holds the security, 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 the
fund does not hold the underlying security, the fund bears the risk that,
if the market price exceeds the option strike price, the fund will suffer a
loss equal to the difference at the time of exercise. By writing a put
option, the fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then-current
market value, resulting in a potential capital loss unless the security
subsequently appreciates in value.
The fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in which it
purchases an offsetting option. The fund realizes a profit or loss from
a closing transaction if the cost of the transaction (option premium
plus transaction costs) is less or more than the premium received from
writing the option. If the fund writes a call option but does not own
the underlying security, and when it writes a put option, the fund may
be required to deposit cash or securities with its broker as "margin,"
or collateral, for its obligation to buy or sell the underlying
security. As the value of the underlying security varies, the fund may
have to deposit additional margin with the broker. Margin requirements
are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect
its portfolio holdings in an underlying security against a decline in
market value. Such protection is provided during the life of the put
option since the fund, as holder of the option, is able to sell the
underlying security at the put exercise price regardless of any decline
in the underlying security's market price. In order for a put option to
be profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, the fund will
reduce any profit it might otherwise have realized from appreciation of
the underlying security by the premium paid for the put option and by
transaction costs.
Purchasing call options. The fund may purchase call options to hedge
against an increase in the price of securities that the fund wants
ultimately to buy. Such hedge protection is provided during the life of
the call option since the fund, as holder of the call option, is able to
buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. In order for a call
option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs.
Risk Factors in Options Transactions
The successful use of the fund's options strategies depends on the
ability of Putnam Management to forecast correctly interest rate and
market movements. For example, if the fund were to write a call option
based on Putnam Management's expectation that the price of the
underlying security would fall, but the price were to rise instead, the
fund could be required to sell the security upon exercise at a price
below the current market price. Similarly, if the fund were to write a
put option based on Putnam Management's expectation that the price of
the underlying security would rise, but the price were to fall instead,
the fund could be required to purchase the security upon exercise at a
price higher than the current market price.
When the fund purchases an option, it runs the risk that it will lose
its entire investment in the option in a relatively short period of
time, unless the fund exercises the option or enters into a closing sale
transaction before the option's expiration. If the price of the
underlying security does not rise (in the case of a call) or fall (in
the case of a put) to an extent sufficient to cover the option premium
and transaction costs, the fund will lose part or all of its investment
in the option. This contrasts with an investment by the fund in the
underlying security, since the fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the fund's ability to
terminate option positions at times when Putnam Management deems it
desirable to do so. There is no assurance that the fund will be able to
effect closing transactions at any particular time or at an acceptable
price.
If a secondary market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor
interest might adversely affect the liquidity of the market for
particular options or series of options. A market may discontinue
trading of a particular option or options generally. In addition, a
market could become temporarily unavailable if unusual events -- such as
volume in excess of trading or clearing capability -- were to interrupt
its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions.
For example, if an underlying security ceases to meet qualifications
imposed by the market or the Options Clearing Corporation, new series of
options on that security will no longer be opened to replace expiring
series, and opening transactions in existing series may be prohibited.
If an options market were to become unavailable, the fund as a holder of
an option would be able to realize profits or limit losses only by
exercising the option, and the fund, as option writer, would remain
obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the fund could result in losses on the options. If
trading is interrupted in an underlying security, the trading of options
on that security is normally halted as well. As a result, the fund as
purchaser or writer of an option will be unable to close out its
positions until options trading resumes, and it may be faced with
considerable losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions.
If a prohibition on exercise is imposed at the time when trading in the
option has also been halted, the fund as purchaser or writer of an
option will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing Corporation were
to determine that the available supply of an underlying security appears
insufficient to permit delivery by the writers of all outstanding calls
in the event of exercise, it may prohibit indefinitely the exercise of
put options. The fund, as holder of such a put option, could lose its
entire investment if the prohibition remained in effect until the put
option's expiration.
Foreign-traded options are subject to many of the same risks presented
by internationally-traded securities. In addition, because of time
differences between the United States and various foreign countries, and
because different holidays are observed in different countries, foreign
options markets may be open for trading during hours or on days when
U.S. markets are closed. As a result, option premiums may not reflect
the current prices of the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by the fund and assets held
to cover OTC options written by the fund may, under certain
circumstances, be considered illiquid securities for purposes of any
limitation on the fund's ability to invest in illiquid securities.
Investments in Miscellaneous Fixed-Income Securities
If the fund may invest in inverse floating obligations, premium
securities, or interest-only or principal-only classes of
mortgage-backed securities (IOs and POs), it may do so without limit.
The fund, however, currently does not intend to invest more than 15% of
its assets in inverse floating obligations or more than 35% of its
assets in IOs and POs under normal market conditions.
Lower-rated Securities
The fund may invest in lower-rated fixed-income securities (commonly
known as "junk bonds"). The lower ratings of certain securities held by
the fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic conditions, or
both, or an unanticipated rise in interest rates, may impair the ability
of the issuer to make payments of interest and principal. The inability
(or perceived inability) of issuers to make timely payment of interest
and principal would likely make the values of securities held by the
fund more volatile and could limit the fund's ability to sell its
securities at prices approximating the values the fund had placed on
such securities. In the absence of a liquid trading market for
securities held by it, the fund at times may be unable to establish the
fair 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 Investors
Service, Inc. or Standard & Poor's (or by any other nationally
recognized securities rating agency) does not reflect an assessment of
the volatility of the security's market value or the liquidity of an
investment in the security. See "Securities ratings."
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. A
decrease in interest rates will generally result in an increase in the
value of the fund's assets. Conversely, during periods of rising
interest rates, the value of the fund's assets will generally decline.
The values of lower-rated 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-rated securities. Changes by nationally recognized securities
rating agencies in their ratings of any fixed-income security and
changes in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in
the value of portfolio securities generally will not affect income
derived from these securities, but will affect the fund's net asset
value. The fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase. However,
Putnam Management will monitor the investment to determine whether its
retention will assist in meeting the fund's investment objective(s).
Issuers of lower-rated 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.
At times, a substantial portion of the fund's assets may be invested in
an issue of which the fund, by itself or together with other funds and
accounts managed by Putnam Management or its affiliates, holds all or a
major portion. Although Putnam Management generally considers such
securities to be liquid because of the availability of an institutional
market for such securities, it is possible that, under adverse market or
economic conditions or in the event of adverse changes in the financial
condition of the issuer, the fund could find it more difficult to sell
these securities when Putnam Management believes it advisable to do so
or may be able to sell the securities only at prices lower than if they
were more widely held. Under these circumstances, it may also be more
difficult to determine the fair value of such securities for purposes of
computing the fund's net asset value. In order to enforce its rights in
the event of a default, the fund may be required to participate in
various legal proceedings or take possession of and manage assets
securing the issuer's obligations on such securities. This could
increase the fund's operating expenses and adversely affect the fund's
net asset value. In the case of tax-exempt funds, any income derived
from the fund's ownership or operation of such assets would not be
tax-exempt. The ability of a holder of a tax-exempt security to enforce
the terms of that security in a bankruptcy proceeding may be more
limited than would be the case with respect to securities of private
issuers. In addition, the fund's intention to qualify as a "regulated
investment company" under the Internal Revenue Code may limit the extent
to which the fund may exercise its rights by taking possession of such
assets.
Certain securities held by the fund may permit the issuer at its option
to "call," or redeem, its securities. If an issuer were to redeem
securities held by the fund during a time of declining interest rates,
the fund may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
The fund may invest without limit in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its option, to
make current interest payments on the bonds either in cash or in
additional bonds. Because zero-coupon and payment-in-kind bonds do not
pay current interest in cash, their value is subject to greater
fluctuation in response to changes in market interest rates than bonds
that pay interest currently. Both zero-coupon and payment-in-kind bonds
allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit
risks than bonds paying interest currently in cash. The fund is
required to accrue interest income on such investments and to distribute
such amounts at least annually to shareholders even though such bonds do
not pay current interest in cash. Thus, it may be necessary at times
for the fund to liquidate investments in order to satisfy its dividend
requirements.
To the extent the fund invests in securities in the lower rating
categories, the achievement of the fund's goals is more dependent on
Putnam Management's investment analysis than would be the case if the
fund were investing in securities in the higher rating categories. This
also may be true with respect to tax-exempt securities, as the amount of
information about the financial condition of an issuer of tax-exempt
securities may not be as extensive as that which is made available by
corporations whose securities are publicly traded.
Loan Participations and Other Floating Rate Loans.
The fund may invest in "loan participations." By purchasing a loan
participation, the fund acquires some or all of the interest of a bank
or other lending institution in a loan to a particular borrower. Many
such loans are secured, and most impose restrictive covenants which must
be met by the borrower. These loans are typically made by a syndicate
of banks, represented by an agent bank which has negotiated and
structured the loan and which is responsible generally for collecting
interest, principal, and other amounts from the borrower on its own
behalf and on behalf of the other lending institutions in the syndicate,
and for enforcing its and their other rights against the borrower. Each
of the lending institutions, including the agent bank, lends to the
borrower a portion of the total amount of the loan, and retains the
corresponding interest in the loan.
The fund's ability to receive payments of principal and interest and
other amounts in connection with loan participations held by it will
depend primarily on the financial condition of the borrower. The
failure by the fund to receive scheduled interest or principal payments
on a loan participation would adversely affect the income of the fund
and would likely reduce the value of its assets, which would be
reflected in a reduction in the fund's net asset value. Banks and other
lending institutions generally perform a credit analysis of the borrower
before originating a loan or participating in a lending syndicate. In
selecting the loan participations in which the fund will invest,
however, Putnam Management will not rely solely on that credit analysis,
but will perform its own investment analysis of the borrowers. Putnam
Management's analysis may include consideration of the borrower's
financial strength and managerial experience, debt coverage, additional
borrowing requirements or debt maturity schedules, changing financial
conditions, and responsiveness to changes in business conditions and
interest rates. Putnam Management will be unable to access non-public
information to which other investors in syndicated loans may have
access. Because loan participations in which the fund may invest are
not generally rated by independent credit rating agencies, a decision by
the fund to invest in a particular loan participation will depend almost
exclusively on Putnam Management's, and the original lending
institution's, credit analysis of the borrower. Investments in loan
participations may be of any quality, including "distressed" loans, and
will be subject to the fund's credit quality policy.
Loan participations may be structured in different forms, including
novations, assignments and participating interests. In a novation, the
fund assumes all of the rights of a lending institution in a loan,
including the right to receive payments of principal and interest and
other amounts directly from the borrower and to enforce its rights as a
lender directly against the borrower. The fund assumes the position of
a co-lender with other syndicate members. As an alternative, the fund
may purchase an assignment of a portion of a lender's interest in a
loan. In this case, the fund may be required generally to rely upon the
assigning bank to demand payment and enforce its rights against the
borrower, but would otherwise be entitled to all of such bank's rights
in the loan. The fund may also purchase a participating interest in a
portion of the rights of a lending institution in a loan. In such case,
it will be entitled to receive payments of principal, interest and
premium, if any, but will not generally be entitled to enforce its
rights directly against the agent bank or the borrower, and must rely
for that purpose on the lending institution. The fund may also acquire
a loan participation directly by acting as a member of the original
lending syndicate.
The fund will in many cases be required to rely upon the lending
institution from which it purchases the loan participation to collect
and pass on to the fund such payments and to enforce the fund's rights
under the loan. As a result, an insolvency, bankruptcy or
reorganization of the lending institution may delay or prevent the fund
from receiving principal, interest and other amounts with respect to the
underlying loan. When the fund is required to rely upon a lending
institution to pay to the fund principal, interest and other amounts
received by it, Putnam Management will also evaluate the
creditworthiness of the lending institution.
The borrower of a loan in which the fund holds a participation interest
may, either at its own election or pursuant to terms of the loan
documentation, prepay amounts of the loan from time to time. There is
no assurance that the fund will be able to reinvest the proceeds of any
loan prepayment at the same interest rate or on the same terms as those
of the original loan participation.
Corporate loans in which the fund may purchase a loan participation are
made generally to finance internal growth, mergers, acquisitions, stock
repurchases, leveraged buy-outs and other corporate activities. Under
current market conditions, most of the corporate loan participations
purchased by the fund will represent interests in loans made to finance
highly leveraged corporate acquisitions, known as "leveraged buy-out"
transactions. The highly leveraged capital structure of the borrowers
in such transactions may make such loans especially vulnerable to
adverse changes in economic or market conditions. In addition, loan
participations generally are subject to restrictions on transfer, and
only limited opportunities may exist to sell such participations in
secondary markets. As a result, the fund may be unable to sell loan
participations at a time when it may otherwise be desirable to do so or
may be able to sell them only at a price that is less than their fair
market value.
Certain of the loan participations acquired by the fund may involve
revolving credit facilities under which a borrower may from time to time
borrow and repay amounts up to the maximum amount of the facility. In
such cases, the fund would have an obligation to advance its portion of
such additional borrowings upon the terms specified in the loan
participation. To the extent that the fund is committed to make
additional loans under such a participation, it will at all times hold
and maintain in a segregated account liquid assets in an amount
sufficient to meet such commitments. Certain of the loan participations
acquired by the fund may also involve loans made in foreign currencies.
The fund's investment in such participations would involve the risks of
currency fluctuations described above with respect to investments in the
foreign securities.
With respect to its management of investments in floating rate loans,
Putnam will normally seek to avoid receiving material, non-public
information ("Confidential Information") about the issuers of floating
rate loans being considered for acquisition by the fund or held in the
fund's portfolio. In many instances, issuers may offer to furnish
Confidential Information to prospective purchasers, and to holders, of
the issuer's floating rate loans. Putnam's decision not to receive
Confidential Information may place Putnam at a disadvantage relative to
other investors in floating rate loans (which could have an adverse
effect on the price the fund pays or receives when buying or selling
loans). Also, in instances where holders of floating rate loans are
asked to grant amendments, waivers or consent, Putnam's ability to
assess their significance or desirability may be adversely affected.
For these and other reasons, it is possible that Putnam's decision not
to receive Confidential Information under normal circumstances could
adversely affect the fund's investment performance.
Notwithstanding its intention generally not to receive material,
non-public information with respect to its management of investments in
floating rate loans, Putnam may from time to time come into possession
of material, non-public information about the issuers of loans that may
be held in the fund's portfolio. Possession of such information may in
some instances occur despite Putnam's efforts to avoid such possession,
but in other instances Putnam may choose to receive such information
(for example, in connection with participation in a creditors' committee
with respect to a financially distressed issuer). As, and to the
extent, required by applicable law, Putnam's ability to trade in these
loans for the account of the fund could potentially be limited by its
possession of such information. Such limitations on Putnam's ability to
trade could have an adverse effect on the fund by, for example,
preventing the fund from selling a loan that is experiencing a material
decline in value. In some instances, these trading restrictions could
continue in effect for a substantial period of time.
In some instances, other accounts managed by Putnam may hold other
securities issued by borrowers whose floating rate loans may be held in
the fund's portfolio. These other securities may include, for example,
debt securities that are subordinate to the floating rate loans held in
the fund's portfolio, convertible debt or common or preferred equity
securities. In certain circumstances, such as if the credit quality of
the issuer deteriorates, the interests of holders of these other
securities may conflict with the interests of the holders of the
issuer's floating rate loans. In such cases, Putnam may owe conflicting
fiduciary duties to the fund and other client accounts. Putnam will
endeavor to carry out its obligations to all of its clients to the
fullest extent possible, recognizing that in some cases certain clients
may achieve a lower economic return, as a result of these conflicting
client interests, than if Putnam's client accounts collectively held
only a single category of the issuer's securities.
Floating Rate and Variable Rate Demand Notes
Floating rate and variable rate demand notes and bonds may have a stated
maturity in excess of one year, but may have features that permit a
holder to demand payment of principal plus accrued interest upon a
specified number of days notice. Frequently, such obligations are
secured by letters of credit or other credit support arrangements
provided by banks. The issuer has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal of the
obligation plus accrued interest upon a specific number of days notice
to the holders. The interest rate of a floating rate instrument may be
based on a known lending rate, such as a bank's prime rate, and is reset
whenever such rate is adjusted. The interest rate on a variable rate
demand note is reset at specified intervals at a market rate.
Mortgage Related and Asset-backed Securities
Mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and certain stripped mortgage-backed securities
represent a participation in, or are secured by, mortgage loans.
Asset-backed securities are structured like mortgage-backed securities,
but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment
sales or installment loan contracts, leases of various types of real and
personal property and receivables from credit card agreements. The
ability of an issuer of asset-backed securities to enforce its security
interest in the underlying assets may be limited.
Mortgage-backed securities have yield and maturity characteristics
corresponding to the underlying assets. Unlike traditional debt
securities, which may pay a fixed rate of interest until maturity, when
the entire principal amount comes due, payments on certain
mortgage-backed securities include both interest and a partial repayment
of principal. Besides the scheduled repayment of principal, repayments
of principal may result from the voluntary prepayment, refinancing or
foreclosure of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these prepayments will
result in early payment of the applicable mortgage-related securities.
In that event the fund may be unable to invest the proceeds from the
early payment of the mortgage-related securities in an investment that
provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities
may cause these securities to experience significantly greater price and
yield volatility than that experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by
factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. During periods of falling interest rates, the
rate of mortgage prepayments tends to increase, thereby tending to
decrease the life of mortgage-related securities. During periods of
rising interest rates, the rate of mortgage prepayments usually
decreases, thereby tending to increase the life of mortgage-related
securities. If the life of a mortgage-related security is inaccurately
predicted, the fund may not be able to realize the rate of return it
expected.
Mortgage-backed and asset-backed securities are less effective than
other types of securities as a means of "locking in" attractive
long-term interest rates. One reason is the need to reinvest
prepayments of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest rates.
These prepayments would have to be reinvested at lower rates. As a
result, these securities may have less potential for capital
appreciation during periods of declining interest rates than other
securities of comparable maturities, although they may have a similar
risk of decline in market value during periods of rising interest rates.
Prepayments may also significantly shorten the effective maturities of
these securities, especially during periods of declining interest rates.
Conversely, during periods of rising interest rates, a reduction in
prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response
to rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of the fund.
Prepayments may cause losses on securities purchased at a premium. At
times, some mortgage-backed and asset-backed securities will have higher
than market interest rates and therefore will be purchased at a premium
above their par value.
CMOs may be issued by a U.S. government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest
on, the underlying collateral securing privately issued CMOs may be
guaranteed by the U.S. government or its agencies or instrumentalities,
these CMOs represent obligations solely of the private issuer and are
not insured or guaranteed by the U.S. government, its agencies or
instrumentalities or any other person or entity.
Prepayments could cause early retirement of CMOs. CMOs are designed to
reduce the risk of prepayment for investors by issuing multiple classes
of securities, each having different maturities, interest rates and
payment schedules, and with the principal and interest on the underlying
mortgages allocated among the several classes in various ways. Payment
of interest or principal on some classes or series of CMOs may be
subject to contingencies or some classes or series may bear some or all
of the risk of default on the underlying mortgages. CMOs of different
classes or series are generally retired in sequence as the underlying
mortgage loans in the mortgage pool are repaid. If enough mortgages are
repaid ahead of schedule, the classes or series of a CMO with the
earliest maturities generally will be retired prior to their maturities.
Thus, the early retirement of particular classes or series of a CMO
would have the same effect as the prepayment of mortgages underlying
other mortgage-backed securities. Conversely, slower than anticipated
prepayments can extend the effective maturities of CMOs, subjecting them
to a greater risk of decline in market value in response to rising
interest rates than traditional debt securities, and, therefore,
potentially increasing their volatility.
Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually structured
with two classes that receive different portions of the interest and
principal distributions on a pool of mortgage loans. The yield to
maturity on an interest only or "IO" class of stripped mortgage-backed
securities is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurable adverse effect on the fund's yield to
maturity to the extent it invests in IOs. If the assets underlying the
IO experience greater than anticipated prepayments of principal, the
fund may fail to recoup fully its initial investment in these
securities. Conversely, principal only or "POs" tend to increase in
value if prepayments are greater than anticipated and decline if
prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-backed securities,
potentially limiting the fund's ability to buy or sell those securities
at any particular time.
Hybrid Instruments
These instruments are generally considered derivatives and include
indexed or structured securities, and combine the elements of futures
contracts or options with those of debt, preferred equity or a
depository instrument. A hybrid instrument may be a debt security,
preferred stock, warrant, convertible security, certificate of deposit
or other evidence of indebtedness on which a portion of or all interest
payments, and/or the principal or stated amount payable at maturity,
redemption or retirement, is determined by reference to prices, changes
in prices, or differences between prices, of securities, currencies,
intangibles, goods, articles or commodities (collectively, "underlying
assets"), or by another objective index, economic factor or other
measure, including interest rates, currency exchange rates, or
commodities or securities indices (collectively, "benchmarks"). Hybrid
instruments may take a number of forms, including, but not limited to,
debt instruments with interest or principal payments or redemption terms
determined by reference to the value of an index at a future time,
preferred stock with dividend rates determined by reference to the value
of a currency, or convertible securities with the conversion terms
related to a particular commodity.
The risks of investing in hybrid instruments reflect a combination of
the risks of investing in securities, options, futures and currencies.
An investment in a hybrid instrument may entail significant risks that
are not associated with a similar investment in a traditional debt
instrument that has a fixed principal amount, is denominated in U.S.
dollars or bears interest either at a fixed rate or a floating rate
determined by reference to a common, nationally published benchmark.
The risks of a particular hybrid instrument will depend upon the terms
of the instrument, but may include the possibility of significant
changes in the benchmark(s) or the prices of the underlying assets to
which the instrument is linked. Such risks generally depend upon
factors unrelated to the operations or credit quality of the issuer of
the hybrid instrument, which may not be foreseen by the purchaser, such
as economic and political events, the supply and demand of the
underlying assets and interest rate movements. Hybrid instruments may
be highly volatile and their use by a fund may not be successful.
Hybrid instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, hybrid
instruments may bear interest at above market rates but bear an
increased risk of principal loss (or gain). The latter scenario may
result if "leverage" is used to structure the hybrid instrument.
Leverage risk occurs when the hybrid instrument is structured so that a
given change in a benchmark or underlying asset is multiplied to produce
a greater value change in the hybrid instrument, thereby magnifying the
risk of loss as well as the potential for gain.
Hybrid instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of
enhancing total return. For example, a fund may wish to take advantage
of expected declines in interest rates in several European countries,
but avoid the transaction costs associated with buying and
currency-hedging the foreign bond positions. One solution would be to
purchase a U.S. dollar-denominated hybrid instrument whose redemption
price is linked to the average three year interest rate in a designated
group of countries. The redemption price formula would provide for
payoffs of less than par if rates were above the specified level.
Furthermore, a fund could limit the downside risk of the security by
establishing a minimum redemption price so that the principal paid at
maturity could not be below a predetermined minimum level if interest
rates were to rise significantly. The purpose of this arrangement,
known as a structured security with an embedded put option, would be to
give the fund the desired European bond exposure while avoiding currency
risk, limiting downside market risk, and lowering transaction costs. Of
course, there is no guarantee that the strategy will be successful and a
fund could lose money if, for example, interest rates do not move as
anticipated or credit problems develop with the issuer of the hybrid
instrument.
Hybrid instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the
structure of the particular hybrid instrument, changes in a benchmark
may be magnified by the terms of the hybrid instrument and have an even
more dramatic and substantial effect upon the value of the hybrid
instrument. Also, the prices of the hybrid instrument and the benchmark
or underlying asset may not move in the same direction or at the same
time.
Hybrid instruments may also carry liquidity risk since the instruments
are often "customized" to meet the portfolio needs of a particular
investor, and therefore, the number of investors that are willing and
able to buy such instruments in the secondary market may be smaller than
that for more traditional debt securities. Under certain conditions,
the redemption value of such an investment could be zero. In addition,
because the purchase and sale of hybrid investments could take place in
an over-the-counter market without the guarantee of a central clearing
organization, or in a transaction between the fund and the issuer of the
hybrid instrument, the creditworthiness of the counterparty of the
issuer of the hybrid instrument would be an additional risk factor the
fund would have to consider and monitor. Hybrid instruments also may
not be subject to regulation by the CFTC, which generally regulates the
trading of commodity futures by U.S. persons, the SEC, which regulates
the offer and sale of securities by and to U.S. persons, or any other
governmental regulatory authority.
Structured investments. A structured investment is a security having a
return tied to an underlying index or other security or asset class.
Structured investments generally are individually negotiated agreements
and may be traded over-the-counter. Structured investments are
organized and operated to restructure the investment characteristics of
the underlying security. This restructuring involves the deposit with
or purchase by an entity, such as a corporation or trust, or specified
instruments (such as commercial bank loans) and the issuance by that
entity or one or more classes of securities ("structured securities")
backed by, or representing interests in, the underlying instruments.
The cash flow on the underlying instruments may be apportioned among the
newly issued structured securities to create securities with different
investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of such payments
made with respect to structured securities is dependent on the extent of
the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments.
Investments in structured securities are generally of a class of
structured securities that is either subordinated or unsubordinated to
the right of payment of another class. Subordinated structured
securities typically have higher yields and present greater risks than
unsubordinated structured securities. Structured securities are
typically sold in private placement transactions, and there currently is
no active trading market for structured securities. Investments in
government and government-related and restructured debt instruments are
subject to special risks, including the inability or unwillingness to
repay principal and interest, requests to reschedule or restructure
outstanding debt and requests to extend additional loan amounts.
Securities of Other Investment Companies. Securities of other
investment companies, including shares of closed-end investment
companies, unit investment trusts and open-end investment companies,
represent interests in professionally managed portfolios that may invest
in any type of instrument. These types of instruments are often
structured to perform in a similar fashion to a broad based securities
index. Investing in these types of securities involves substantially
the same risks as investing directly in the underlying instruments, but
may involve additional expenses at the investment company-level, such as
portfolio management fees and operating expenses. In addition, these
types of investments involve the risk that they will not perform in
exactly the same fashion, or in response to the same factors, as the
index or underlying instruments. Certain types of investment companies,
such as closed-end investment companies, issue a fixed number of shares
that trade on a stock exchange or over-the-counter at a premium or a
discount to their net asset value. Others are continuously offered at
net asset value, but may also be traded in the secondary market. The
extent to which a fund can invest in securities of other investment
companies is limited by federal securities laws.
Tax-exempt Securities
General description. As used in this SAI, the term "Tax-exempt
securities" includes debt obligations issued by a state, its political
subdivisions (for example, counties, cities, towns, villages, districts
and authorities) and their agencies, instrumentalities or other
governmental units, the interest from which is, in the opinion of bond
counsel, exempt from federal income tax and the corresponding state's
personal income tax. Such obligations are issued to obtain funds for
various public purposes, including the construction of a wide range of
public facilities, such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer
works. Other public purposes for which Tax-exempt securities may be
issued include the refunding of outstanding obligations or the payment
of general operating expenses.
Short-term Tax-exempt securities are generally issued by state and local
governments and public authorities as interim financing in anticipation
of tax collections, revenue receipts or bond sales to finance such
public purposes.
In addition, certain types of "private activity" bonds may be issued by
public authorities to finance projects such as privately operated
housing facilities; certain local facilities for supplying water, gas or
electricity; sewage or solid waste disposal facilities; student loans;
or public or private institutions for the construction of educational,
hospital, housing and other facilities. Such obligations are included
within the term Tax-exempt securities if the interest paid thereon is,
in the opinion of bond counsel, exempt from federal income tax and state
personal income tax (such interest may, however, be subject to federal
alternative minimum tax). Other types of private activity bonds, the
proceeds of which are used for the construction, repair or improvement
of, or to obtain equipment for, privately operated industrial or
commercial facilities, may also constitute Tax-exempt securities,
although the current federal tax laws place substantial limitations on
the size of such issues.
Participation interests (Money Market Funds only). The money market
funds may invest in Tax-exempt securities either by purchasing them
directly or by purchasing certificates of accrual or similar instruments
evidencing direct ownership of interest payments or principal payments,
or both, on Tax-exempt securities, provided that, in the opinion of
counsel, any discount accruing on a certificate or instrument that is
purchased at a yield not greater than the coupon rate of interest on the
related Tax-exempt securities will be exempt from federal income tax to
the same extent as interest on the Tax-exempt securities. The money
market funds may also invest in Tax-exempt securities by purchasing from
banks participation interests in all or part of specific holdings of
Tax-exempt securities. These participations may be backed in whole or
in part by an irrevocable letter of credit or guarantee of the selling
bank. The selling bank may receive a fee from the money market funds in
connection with the arrangement. The money market funds will not
purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned
by it on Tax-exempt securities in which it holds such participation
interests is exempt from federal income tax. No money market fund
expects to invest more than 5% of its assets in participation interests.
Stand-by commitments. When the fund purchases Tax-exempt securities, it
has the authority to acquire stand-by commitments from banks and
broker-dealers with respect to those Tax-exempt securities. A stand-by
commitment may be considered a security independent of the Tax-exempt
security to which it relates. The amount payable by a bank or dealer
during the time a stand-by commitment is exercisable, absent unusual
circumstances, would be substantially the same as the market value of
the underlying Tax-exempt security to a third party at any time. The
fund expects that stand-by commitments generally will be available
without the payment of direct or indirect consideration. The fund does
not expect to assign any value to stand-by commitments.
Yields. The yields on Tax-exempt securities depend on a variety of
factors, including general money market conditions, effective marginal
tax rates, the financial condition of the issuer, general conditions of
the Tax-exempt security market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of
nationally recognized securities rating agencies represent their
opinions as to the credit quality of the Tax-exempt securities which
they undertake to rate. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. Consequently,
Tax-exempt securities with the same maturity and interest rate but with
different ratings may have the same yield. Yield disparities may occur
for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates and may be due to such
factors as changes in the overall demand or supply of various types of
Tax-exempt securities or changes in the investment objectives of
investors. Subsequent to purchase by the fund, an issue of Tax-exempt
securities or other investments may cease to be rated, or its rating may
be reduced below the minimum rating required for purchase by the fund.
Neither event will require the elimination of an investment from the
fund's portfolio, but Putnam Management will consider such an event in
its determination of whether the fund should continue to hold an
investment in its portfolio.
"Moral obligation" bonds. The fund does not currently intend to invest
in so-called "moral obligation" bonds, where repayment is backed by a
moral commitment of an entity other than the issuer, unless the credit
of the issuer itself, without regard to the "moral obligation," meets
the investment criteria established for investments by the fund.
Municipal leases. The fund may acquire participations in lease
obligations or installment purchase contract obligations (collectively,
"lease obligations") of municipal authorities or entities. Lease
obligations do not constitute general obligations of the municipality
for which the municipality's taxing power is pledged. Certain of these
lease obligations contain "non-appropriation" clauses, which provide
that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. In the case of a "non-appropriation" lease,
the fund's ability to recover under the lease in the event of
non-appropriation or default will be limited solely to the repossession
of the leased property, and in any event, foreclosure of that property
might prove difficult.
Inverse Floaters have variable interest rates that typically move in the
opposite direction from movements in prevailing short-term interest rate
levels - rising when prevailing short-term interest rate fall, and vice
versa. The prices of inverse floaters can be considerably more volatile
than the prices of bonds with comparable maturities.
Additional risks. Securities in which the fund may invest, including
Tax-exempt securities, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the federal Bankruptcy Code (including special
provisions related to municipalities and other public entities), and
laws, if any, that may be enacted by Congress or state legislatures
extending the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of such obligations. There
is also the possibility that, as a result of litigation or other
conditions, the power, ability or willingness of issuers to meet their
obligations for the payment of interest and principal on their
Tax-exempt securities may be materially affected.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax
exemption for interest on debt obligations issued by states and their
political subdivisions. Federal tax laws limit the types and amounts of
tax-exempt bonds issuable for certain purposes, especially industrial
development bonds and private activity bonds. Such limits may affect
the future supply and yields of these types of Tax-exempt securities.
Further proposals limiting the issuance of Tax-exempt securities may
well be introduced in the future. If it appeared that the availability
of Tax-exempt securities for investment by the fund and the value of the
fund's portfolio could be materially affected by such changes in law,
the Trustees of the fund would reevaluate its investment objective and
policies and consider changes in the structure of the fund or its
dissolution.
Convertible Securities
Convertible securities include bonds, debentures, notes, preferred
stocks and other securities that may be converted into or exchanged for,
at a specific 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.
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.
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 or other equity
securities 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 or other equity security has
declined substantially.
The fund's investments in convertible securities, particularly
securities that are convertible into securities of an issuer other than
the issuer of the convertible security, may be illiquid. The fund may
not be able to dispose of such securities in a timely fashion or for a
fair price, which could result in losses to the fund.
Alternative Investment Strategies
Under normal market conditions, each fund seeks to remain fully invested
and to minimize its cash holdings. However, at times Putnam Management
may judge that market conditions make pursuing a fund's investment
strategies inconsistent with the best interests of its shareholders.
Putnam Management then may temporarily use alternative strategies that
are mainly designed to limit the fund's losses. In implementing these
strategies, the funds may invest primarily in debt securities, preferred
stocks, U.S. Government and agency obligations, cash or money market
instruments, or any other securities Putnam Management considers
consistent with such defensive strategies.
Money market instruments, or short-term debt instruments, consist of
obligations such as commercial paper, bank obligations (i.e.,
certificates of deposit and bankers' acceptances), repurchase agreements
and various government obligations, such as Treasury bills. These
instruments have a remaining maturity of one year or less and are
generally of high credit quality. Money market instruments may be
structured to be, or may employ a trust or other form so that they are,
eligible investments for money market funds. For example, put features
can be used to modify the maturity of a security or interest rate
adjustment features can be used to enhance price stability. If a
structure fails to function as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor
any other regulatory authority has ruled definitively on certain legal
issues presented by certain structured securities. Future tax or other
regulatory determinations could adversely affect the value, liquidity,
or tax treatment of the income received from these securities or the
nature and timing of distributions made by the funds.
Private Placements and Restricted Securities
The fund may invest in securities that are purchased in private
placements and, accordingly, are 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 Management believes
it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. 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.
While such private placements may often offer attractive opportunities
for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities," i.e.,
securities which cannot be sold to the public without registration
under the Securities Act of 1933 or the availability of an exemption
from registration (such as Rules 144 or 144A), or which are "not readily
marketable" because they are subject to other legal or contractual
delays in or restrictions on resale.
The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the fund to sell them promptly
at an acceptable price. The fund may have to bear the extra expense of
registering such securities for resale and the risk of substantial delay
in effecting such registration. Also market quotations are less readily
available. The judgment of Putnam Management may at times play a greater
role in valuing these securities than in the case of publicly traded
securities.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have
been held for a specified period of time and other conditions are met
pursuant to an exemption from registration, or in a public offering for
which a registration statement is in effect under the Securities Act of
1933. The fund may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 when selling restricted securities to the public,
and in such event the fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
The SEC Staff currently takes the view that any delegation by the
Trustees of the authority to determine that a restricted security is
readily marketable (as described in the investment restrictions of the
funds) must be pursuant to written procedures established by the
Trustees and the Trustees have delegated such authority to Putnam
Management.
Futures Contracts and Related Options
Subject to applicable law the fund may invest without limit in futures
contracts and related options for hedging and non-hedging purposes, such
as to manage the effective duration of the fund's portfolio or as a
substitute for direct investment. A financial futures contract sale
creates an obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery month for
a stated price. A financial futures contract purchase creates an
obligation by the purchaser to take delivery of the type of financial
instrument called for in the contract in a specified delivery month at a
stated price. The specific instruments delivered or taken,
respectively, at settlement date are not determined until on or near
that date. The determination is made in accordance with the rules of
the exchange on which the futures contract sale or purchase was made.
Futures contracts are traded in the United States only on commodity
exchanges or boards of trade -- known as "contract markets" -- approved
for such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market.
Although futures contracts (other than index futures) by their terms
call for actual delivery or acceptance of commodities or securities, in
most cases the contracts are closed out before the settlement date
without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or
commodity with the same delivery date. If the price of the initial sale
of the futures contract exceeds the price of the offsetting purchase,
the seller is paid the difference and realizes a gain. Conversely, if
the price of the offsetting purchase exceeds the price of the initial
sale, the seller realizes a loss. If the fund is unable to enter into a
closing transaction, the amount of the fund's potential loss is
unlimited. The closing out of a futures contract purchase is effected
by the purchaser's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes
a gain, and if the purchase price exceeds the offsetting sale price, he
realizes a loss. In general, 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved by the
CFTC is treated as short-term gain or loss, and 60% is treated as
long-term gain or loss.
Unlike when the fund purchases or sells a security, no price is paid or
received by the fund upon the purchase or sale of a futures contract.
Upon entering into a contract, the fund is required to deposit with its
custodian in a segregated account in the name of the futures broker an
amount of liquid assets. This amount is known as "initial margin." The
nature of initial margin in futures transactions is different from that
of margin in security transactions in that futures contract margin does
not involve the borrowing of funds to finance the transactions. Rather,
initial margin is similar to a performance bond or good faith deposit
which is returned to the fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance margin,"
to and from the broker (or the custodian) are made on a daily basis as
the price of the underlying security or commodity fluctuates, making the
long and short positions in the futures contract more or less valuable,
a process known as "marking to the market." For example, when the fund
has purchased a futures contract on a security and the price of the
underlying security has risen, that position will have increased in
value and the fund will receive from the broker a variation margin
payment based on that increase in value. Conversely, when the fund has
purchased a security futures contract and the price of the underlying
security has declined, the position would be less valuable and the fund
would be required to make a variation margin payment to the broker.
The fund may elect to close some or all of its futures positions at any
time prior to their expiration in order to reduce or eliminate a hedge
position then currently held by the fund. The fund may close its
positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be paid
by or released to the fund, and the fund realizes a loss or a gain.
Such closing transactions involve additional commission costs.
The fund does not intend to purchase or sell futures or related options
for other than hedging purposes, if, as a result, the sum of the initial
margin deposits on the fund's existing futures and related options
positions and premiums paid for outstanding options on futures contracts
would exceed 5% of the fund's net assets.
The fund has claimed an exclusion from the definition of the term
"commodity pool operator" under the Commodity Exchange Act (the "CEA"), and
therefore, is not subject to registration or regulation as a pool operator
under the CEA.
Options on futures contracts. The fund may purchase and write call and
put options on futures contracts it may buy or sell and enter into
closing transactions with respect to such options to terminate existing
positions. In return for the premium paid, options on futures contracts
give the purchaser the right to assume a position in a futures contract
at the specified option exercise price at any time during the period of
the option. The fund may use options on futures contracts in lieu of
writing or buying options directly on the underlying securities or
purchasing and selling the underlying futures contracts. For example,
to hedge against a possible decrease in the value of its portfolio
securities, the fund may purchase put options or write call options on
futures contracts rather than selling futures contracts. Similarly, the
fund may purchase call options or write put options on futures contracts
as a substitute for the purchase of futures contracts to hedge against a
possible increase in the price of securities which the fund expects to
purchase. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option.
There is no guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts written
by it pursuant to brokers' requirements similar to those described above
in connection with the discussion of futures contracts.
Risks of transactions in futures contracts and related options.
Successful use of futures contracts by the fund is subject to Putnam
Management's ability to predict movements in various factors affecting
securities markets, including interest rates. Compared to the purchase
or sale of futures contracts, the purchase of call or put options on
futures contracts involves less potential risk to the fund because the
maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a
loss to the fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the hedged
investments. The writing of an option on a futures contract involves
risks similar to those risks relating to the sale of futures contracts.
The use of options and futures strategies also involves the risk of
imperfect correlation among movements in the prices of the securities
underlying the futures and options purchased and sold by the fund, of
the options and futures contracts themselves, and, in the case of
hedging transactions, of the securities which are the subject of a
hedge. The successful use of these strategies further depends on the
ability of Putnam Management to forecast interest rates and market
movements correctly.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market
clearing facilities inadequate, and thereby result in the institution by
exchanges of special procedures which may interfere with the timely
execution of customer orders.
To reduce or eliminate a position held by the fund, the fund may seek to
close out such position. The ability to establish and close out
positions will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop or
continue to exist for a particular futures contract or option. Reasons
for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain
contracts or options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt
normal operations on an exchange; (v) the facilities of an exchange or a
clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue
the trading of contracts or options (or a particular class or series of
contracts or options), in which event the secondary market on that
exchange for such contracts or options (or in the class or series of
contracts or options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
U.S. Treasury security futures contracts and options. U.S. Treasury
security futures contracts require the seller to deliver, or the
purchaser to take delivery of, the type of U.S. Treasury security called
for in the contract at a specified date and price. Options on U.S.
Treasury security futures contracts give the purchaser the right in
return for the premium paid to assume a position in a U.S. Treasury
security futures contract at the specified option exercise price at any
time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the fund
is subject to Putnam Management's ability to predict movements in the
direction of interest rates and other factors affecting markets for debt
securities. For example, if the fund has sold U.S. Treasury security
futures contracts in order to hedge against the possibility of an
increase in interest rates which would adversely affect securities held
in its portfolio, and the prices of the fund's securities increase
instead as a result of a decline in interest rates, the fund will lose
part or all of the benefit of the increased value of its securities
which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily
maintenance margin requirements at a time when it may be disadvantageous
to do so.
There is also a risk that price movements in U.S. Treasury security
futures contracts and related options will not correlate closely with
price movements in markets for particular securities. For example, if
the fund has hedged against a decline in the values of tax-exempt
securities held by it by selling Treasury security futures and the
values of Treasury securities subsequently increase while the values of
its tax-exempt securities decrease, the fund would incur losses on both
the Treasury security futures contracts written by it and the tax-exempt
securities held in its portfolio.
Index futures contracts. An index futures contract is a contract to buy
or sell units of an index at a specified future date at a price agreed
upon when the contract is made. Entering into a contract to buy units
of an index is commonly referred to as buying or purchasing a contract
or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or
holding a short position. A unit is the current value of the index.
The fund may enter into stock index futures contracts, debt index
futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500") is composed of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. The S&P 500 assigns relative
weightings to the common stocks included in the Index, and the value
fluctuates with changes in the market values of those common stocks. In
the case of the S&P 500, contracts are to buy or sell 500 units. Thus,
if the value of the S&P 500 were $150, one contract would be worth
$75,000 (500 units x $150). The stock index futures contract specifies
that no delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the
contract price and the actual level of the stock index at the expiration
of the contract. For example, if the fund enters into a futures
contract to buy 500 units of the S&P 500 at a specified future date at a
contract price of $150 and the S&P 500 is at $154 on that future date,
the fund will gain $2,000 (500 units x gain of $4). If the fund enters
into a futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500 is at
$152 on that future date, the fund will lose $1,000 (500 units x loss of
$2).
There are several risks in connection with the use by the fund of index
futures. One risk arises because of the imperfect correlation between
movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. Putnam Management
will, however, attempt to reduce this risk by buying or selling, to the
extent possible, futures on indices the movements of which will, in its
judgment, have a significant correlation with movements in the prices of
the securities sought to be hedged.
Successful use of index futures by the fund is also subject to Putnam
Management's ability to predict 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 the futures and also experience a decline
in value in its portfolio securities. It is also possible that, if the
fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities
prices increase instead, the fund will lose part or all of the benefit
of the increased value of those securities it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if the fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it
is disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index
futures and the portion of the portfolio being hedged, the prices of
index futures may not correlate perfectly with movements in the
underlying index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators
than the securities market does. Increased participation by speculators
in the futures market may also cause temporary price distortions. Due
to the possibility of price distortions in the futures market and also
because of the imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast of
general market trends by Putnam Management may still not result in a
profitable position over a short time period.
Options on stock index futures. Options on index futures are similar to
options on securities except that options on index futures give the
purchaser the right, in return for the premium paid, to assume a
position in an index futures contract (a long position if the option is
a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin
account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the option on
the index future. If an option is exercised on the last trading day
prior to its expiration date, the settlement will be made entirely in
cash equal to the difference between the exercise price of the option
and the closing level of the index on which the future is based on the
expiration date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.
Options on Indices
As an alternative to purchasing call and put options on index futures,
the fund may purchase and sell call and put options on the underlying
indices themselves. Such options would be used in a manner identical to
the use of options on index futures.
Index Warrants
The fund may purchase put warrants and call warrants whose values vary
depending on the change in the value of one or more specified securities
indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at
any time during the term of the warrant, to receive upon exercise of the
warrant a cash payment from the issuer based on the value of the
underlying index at the time of exercise. In general, if the value of
the underlying index rises above the exercise price of the index
warrant, the holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference between
the value of the index and the exercise price of the warrant; if the
value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise based
on the difference between the exercise price of the warrant and the
value of the index. The holder of a warrant would not be entitled to
any payments from the issuer at any time when, in the case of a call
warrant, the exercise price is greater than the value of the underlying
index, or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the fund were not to exercise an
index warrant prior to its expiration, then the fund would lose the
amount of the purchase price paid by it for the warrant.
The fund will normally use index warrants in a manner similar to its use
of options on securities indices. The risks of the fund's use of index
warrants are generally similar to those relating to its use of index
options. Unlike most index options, however, index warrants are issued
in limited amounts and are not obligations of a regulated clearing
agency, but are backed only by the credit of the bank or other
institution which issues the warrant. Also, index warrants generally
have longer terms than index options. Although the fund will normally
invest only in exchange-listed warrants, index warrants are not likely
to be as liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the fund's
ability to exercise the warrants at such time, or in such quantities, as
the fund would otherwise wish to do.
Short-term Trading
In seeking the fund's objective(s), Putnam Management will buy or sell
portfolio securities whenever Putnam Management believes it appropriate
to do so. From time to time the fund will buy securities intending to
seek short-term trading profits. A change in the securities held by the
fund is known as "portfolio turnover" and generally involves some
expense to the fund. This expense may include brokerage commissions or
dealer markups and other transaction costs on both the sale of
securities and the reinvestment of the proceeds in other securities. If
sales of portfolio securities cause the fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As a
result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of
other mutual funds. Portfolio turnover rate for a fiscal year is the
ratio of the lesser of purchases or sales of portfolio securities to the
monthly average of the value of portfolio securities -- excluding
securities whose maturities at acquisition were one year or less. The
fund's portfolio turnover rate is not a limiting factor when Putnam
Management considers a change in the fund's portfolio.
Securities Loans
The fund may make secured loans of its portfolio securities, on either a
short-term or long-term basis, amounting to not more than 25% of its
total assets, thereby realizing additional income. The risks in lending
portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights
in the collateral should the borrower fail financially. As a matter of
policy, securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by
collateral consisting of cash or short-term debt obligations at least
equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the fund an amount equal
to any dividends or interest received on securities lent. The fund
retains all or a portion of the interest received on investment of the
cash collateral or receives a fee from the borrower. Although voting
rights, or rights to consent, with respect to the loaned securities may
pass to the borrower, the fund retains the right to call the loans at
any time on reasonable notice, and it will do so to enable the fund to
exercise voting rights on any matters materially affecting the
investment. The fund may also call such loans in order to sell the
securities.
Repurchase Agreements
The fund, unless it is a money market fund, may enter into repurchase
agreements, amounting to not more than 25% of its total assets. Money
market funds may invest without limit in repurchase agreements. A
repurchase agreement is a contract under which the fund acquires a
security for a relatively short period (usually not more than one week)
subject to the obligation of the seller to repurchase and the fund to
resell such security at a fixed time and price (representing the fund's
cost plus interest). It is the fund's present intention to enter into
repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S.
government or its agencies or instrumentalities. Repurchase agreements
may also be viewed as loans made by the fund which are collateralized by
the securities subject to repurchase. Putnam Management will monitor
such transactions to ensure that the value of the underlying securities
will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller
defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of the sale including accrued
interest are less than the resale price provided in the agreement
including interest. In addition, if the seller should be involved in
bankruptcy or insolvency proceedings, the fund may incur delay and costs
in selling the underlying security or may suffer a loss of principal and
interest if the fund is treated as an unsecured creditor and required to
return the underlying collateral to the seller's estate.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the fund may transfer uninvested cash balances into a joint
account, along with cash of other Putnam funds and certain other
accounts. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
Forward Commitments
The fund may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward
commitments") if the fund sets aside, on the books and records of its
custodian, liquid assets in an amount sufficient to meet the purchase
price, or if the fund enters into offsetting contracts for the forward
sale of other securities it owns. In the case of to-be-announced
("TBA") purchase commitments, the unit price and the estimated principal
amount are established when the fund enters into a contract, with the
actual principal amount being within a specified range of the estimate.
Forward commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Where such
purchases are made through dealers, the fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the
loss to the fund of an advantageous yield or price. Although the fund
will generally enter into forward commitments with the intention of
acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if Putnam Management deems it appropriate
to do so. The fund may realize short-term profits or losses upon the
sale of forward commitments.
The fund may enter into TBA sale commitments to hedge its portfolio
positions or to sell securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received until
the contractual settlement date. During the time a TBA sale commitment
is outstanding, equivalent deliverable securities, or an offsetting TBA
purchase commitment deliverable on or before the sale commitment date,
are held as "cover" for the transaction. Unsettled TBA sale commitments
are valued at current market value of the underlying securities. If the
TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss on the commitment
without regard to any unrealized gain or loss on the underlying
security. If the fund delivers securities under the commitment, the
fund realizes a gain or loss from the sale of the securities based upon
the unit price established at the date the commitment was entered into.
Swap Agreements
The fund may enter into swap agreements and other types of
over-the-counter transactions with broker-dealers or other financial
institutions. Depending on their structures, swap agreements may
increase or decrease the fund's exposure to long-or short-term interest
rates (in the United States or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. The value of the fund's swap
positions would increase or decrease depending on the changes in value
of the underlying rates, currency values, or other indices or measures.
The fund's ability to engage in certain swap transactions may be limited
by tax considerations.
The fund's ability to realize a profit from such transactions will
depend on the ability of the financial institutions with which it enters
into the transactions to meet their obligations to the fund. Under
certain circumstances, suitable transactions may not be available to the
fund, or the fund may be unable to close out its position under such
transactions at the same time, or at the same price, as if it had
purchased comparable publicly traded securities.
Derivatives
Certain of the instruments in which the fund may invest, such as futures
contracts, options and forward contracts, are considered to be
"derivatives." Derivatives are financial instruments whose value
depends upon, or is derived from, the value of an underlying asset, such
as a security or an index. Further information about these instruments
and the risks involved in their use is included elsewhere in the
prospectus or in this SAI. The fund's use of derivatives may cause the
fund to recognize higher amounts of short-term capital gains, generally
taxed to shareholders at ordinary income tax rates. Investments in
derivatives may be applied toward meeting a requirement to invest in a
particular kind of investment if the derivatives have economic
characteristics similar to that investment.
Industry and sector groups
Putnam uses a customized set of industry and sector groups for
classifying securities ("Putnam Investment Codes"). The Putnam
Investment Codes are based on an expanded Standard & Poor's industry
classification model, modified to be more representative of global
investing and more applicable to both large and small capitalization
securities.
TAXES
The following discussion of U.S. Federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code"),
existing U.S. Treasury regulations, and other applicable authority, as
of the date of this SAI. These authorities are subject to change by
legislative or administrative action, possibly with retroactive effect.
The following discussion is only a summary of some of the important U.S.
Federal tax considerations generally applicable to investments in the
fund. There may be other tax considerations applicable to particular
shareholders. Shareholders should consult their own tax advisers
regarding their particular situation and the possible application of
foreign, state and local tax laws.
Taxation of the fund. The fund intends to qualify each year as a
regulated investment company under Subchapter M of the Code. In order
to qualify for the special tax treatment accorded regulated investment
companies and their shareholders, the fund must, among other things:
(a) derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, and gains from the
sale of stock, securities and foreign currencies, or other income
(including but not limited to gains from options, futures, or forward
contracts) derived with respect to its business of investing in such
stock, securities, or currencies;
(b) distribute with respect to each taxable year at least 90% of the sum
of its taxable net investment income, its net tax-exempt income, and the
excess, if any, of net short-term capital gains over net long-term
capital losses for such year; and
(c) diversify its holdings so that, at the end of each fiscal quarter,
(i) at least 50% of the market value of the fund's assets is represented
by cash and cash items, U.S. government securities, securities of other
regulated investment companies, and other securities limited in respect
of any one issuer to a value not greater than 5% of the value of the
fund's total assets and to not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of
its assets is invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one issuer or
of two or more issuers which the fund controls and which are engaged in
the same, similar, or related trades or businesses.
If the fund qualifies as a regulated investment company that is accorded
special tax treatment, the fund will not be subject to federal income
tax on income distributed in a timely manner, to its shareholders in the
form of dividends (including capital gain dividends).
If the fund failed to qualify as a regulated investment company accorded
special tax treatment in any taxable year, the fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt
income and net long-term capital gains, would be taxable to shareholders
as ordinary income. In addition, the fund could be required to
recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the fund fails to distribute in a calendar year substantially all of
its ordinary income for such year and substantially all of its capital
gain net income for the one-year period ending October 31 (or later if
the fund is permitted so to elect and so elects), plus any retained
amount from the prior year, the fund will be subject to a 4% excise tax
on the undistributed amounts. A dividend paid to shareholders by the
fund in January of a year generally is deemed to have been paid by the
fund on December 31 of the preceding year, if the dividend was declared
and payable to shareholders of record on a date in October, November or
December of that preceding year. The fund intends generally to make
distributions sufficient to avoid imposition of the 4% excise tax.
Fund distributions. Distributions from the fund (other than
exempt-interest dividends, as discussed below) will be taxable to
shareholders as ordinary income to the extent derived from the fund's
investment income and net short-term capital gains. Distributions of
net capital gains (that is, the excess of net gains from the sale of
capital assets held more than one year over net losses from the sale of
capital assets held for not more than one year) will be taxable to
shareholders as such, regardless of how long a shareholder has held the
shares in the fund.
For taxable years beginning on or before December 31, 2008, "qualified
dividend income" received by an individual will be taxed at the rates
applicable to long-term capital gain. In order for some portion of the
dividends received by a fund shareholder to be qualified dividend
income, the fund must meet holding period and other requirements with
respect to some portion of the dividend paying stocks in its portfolio
and the shareholder must meet holding period and other requirements with
respect to the fund's shares. A dividend will not be treated as
qualified dividend income (at either the fund or shareholder level) (1)
if the dividend is received with respect to any share of stock held for
fewer than 61 days during the 120-day period beginning on the date which
is 60 days before the date on which such share becomes ex-dividend with
respect to such dividend (or, in the case of certain preferred stock, 91
days during the 180-day period beginning 90 days before such date), (2)
to the extent that the recipient is under an obligation (whether
pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property, (3)
if the recipient elects to have the dividend income treated as
investment income for purposes of the limitation on deductibility of
investment interest, or (4) if the dividend is received from a foreign
corporation that is (a) not eligible for the benefits of a comprehensive
income tax treaty with the United States (with the exception of
dividends paid on stock of such a foreign corporation readily tradable
on an established securities market in the United States) or (b) treated
as a foreign personal holding company, foreign investment company, or
passive foreign investment company.
In general, distributions of investment income designated by the fund as
derived from qualified dividend income will be treated as qualified
dividend income by a shareholder taxed as an individual provided the
shareholder meets the holding period and other requirements described
above with respect to the fund's shares. Only qualified dividend income
received by the fund after December 31, 2002 is eligible for
pass-through treatment. If the aggregate qualified dividends received
by a fund during any taxable year are 95% or more of its gross income,
then 100% of the fund's dividends (other than properly designated
capital gain dividends) will be eligible to be treated as qualified
dividend income. For this purpose, the only gain included in the term
"gross income" is the excess of net short-term capital gain over net
long-term capital loss.
Long-term capital gain rates applicable to individuals have been
temporarily reduced--in general, to 15% with lower rates applying to
taxpayers in the 10% and 15% rate brackets-- for taxable years beginning
on or before December 31, 2008.
Exempt-interest dividends. The fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the close of
each quarter of the fund's taxable year, at least 50% of the total value
of the fund's assets consists of obligations the interest on which is
exempt from federal income tax. Distributions that the fund properly
designates as exempt-interest dividends are treated as interest
excludable from shareholders' gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax purposes
and for state and local purposes. If the fund intends to be qualified
to pay exempt-interest dividends, the fund may be limited in its ability
to enter into taxable transactions involving forward commitments,
repurchase agreements, financial futures and options contracts on
financial futures, tax-exempt bond indices and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of the fund
paying exempt-interest dividends is not deductible. The portion of
interest that is not deductible is equal to the total interest paid or
accrued on the indebtedness, multiplied by the percentage of the fund's
total distributions (not including distributions from net long-term
capital gains) paid to the shareholder that are exempt-interest
dividends. Under rules used by the Internal Revenue Service to
determine when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though such funds
are not directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to interest
received on certain private activity obligations and certain industrial
development bonds will not be tax-exempt to any shareholders who are
"substantial users" of the facilities financed by such obligations or
bonds or who are "related persons" of such substantial users.
A fund that is qualified to pay exempt-interest dividends will inform
investors within 60 days of the fund's fiscal year-end of the percentage
of its income distributions designated as tax-exempt. The percentage is
applied uniformly to all distributions made during the year. The
percentage of income designated as tax-exempt for any particular
distribution may be substantially different from the percentage of the
fund's income that was tax-exempt during the period covered by the
distribution.
Hedging transactions. If the fund engages in hedging transactions,
including hedging transactions in options, futures contracts, and
straddles, or other similar transactions, it will be subject to special
tax rules (including constructive sale, mark-to-market, straddle, wash
sale, and short sale rules), the effect of which may be to accelerate
income to the fund, defer losses to the fund, cause adjustments in the
holding periods of the fund's securities, convert long-term capital
gains into short-term capital gains or convert short-term capital losses
into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders. The fund
will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interests of the
fund.
Certain of the fund's hedging activities (including its transactions, if
any, in foreign currencies or foreign currency-denominated instruments) are
likely to produce a difference between its book income and its taxable
income. If the fund's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as (i) a dividend to
the extent of the fund's remaining earnings and profits (including earnings
and profits arising from tax-exempt income), (ii) thereafter as a return of
capital to the extent of the recipient's basis in the shares, and (iii)
thereafter as gain from the sale or exchange of a capital asset. If the
fund's book income is less than its taxable income, (or, for tax-exempt
funds, the sum of its net tax-exempt and taxable income), the fund could be
required to make distributions exceeding book income to qualify as a
regulated investment company that is accorded special tax treatment.
Return of capital distributions. If the fund makes a distribution to
you in excess of its current and accumulated "earnings and profits" in
any taxable year, the excess distribution will be treated as a return of
capital to the extent of your tax basis in your shares, and thereafter
as capital gain. A return of capital is not taxable, but it reduces
your tax basis in your shares, thus reducing any loss or increasing any
gain on a subsequent taxable disposition by you of your shares.
Dividends and distributions on the fund's shares are generally subject
to federal income tax as described herein to the extent they do not
exceed the fund's realized income and gains, even though such dividends
and distributions may economically represent a return of a particular
shareholder's investment. Such distributions are likely to occur in
respect of shares purchased at a time when the fund's net asset value
reflects gains that are either unrealized, or realized but not
distributed. Distributions are taxable to a shareholder even if they
are paid from income or gains earned by the fund prior to the
shareholder's investment (and thus included in the price paid by the
shareholder).
Securities issued or purchased at a discount. The fund's investment in
securities issued at a discount and certain other obligations will (and
investments in securities purchased at a discount may) require the fund
to accrue and distribute income not yet received. In order to generate
sufficient cash to make the requisite distributions, the fund may be
required to sell securities in its portfolio that it otherwise would
have continued to hold.
Capital loss carryover. Distributions from capital gains are generally
made after applying any available capital loss carryovers. The amounts
and expiration dates of any capital loss carryovers available to the
fund are shown in Note 1 (Federal income taxes) to the financial
statements included in Part I of this SAI or incorporated by reference
into this SAI.
Foreign currency-denominated securities and related hedging
transactions. The fund's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign currency
options, futures contracts and forward contracts (and similar
instruments) may give rise to ordinary income or loss to the extent such
income or loss results from fluctuations in the value of the foreign
currency concerned.
If more than 50% of the fund's assets at year end consists of the
securities of foreign corporations, the fund may elect to permit
shareholders to claim a credit or deduction on their income tax returns
for their pro rata portion of qualified taxes paid by the fund to
foreign countries in respect of foreign securities the fund has held for
at least the minimum period specified in the Code. In such a case,
shareholders will include in gross income from foreign sources their pro
rata shares of such taxes. A shareholder's ability to claim a foreign
tax credit or deduction in respect of foreign taxes paid by the fund may
be subject to certain limitations imposed by the Code, as a result of
which a shareholder may not get a full credit or deduction for the
amount of such taxes. In particular, shareholders must hold their fund
shares (without protection from risk of loss) on the ex-dividend date
and for at least 15 additional days during the 30-day period surrounding
the ex-dividend date to be eligible to claim a foreign tax credit with
respect to a given dividend. Shareholders who do not itemize on their
federal income tax returns may claim a credit (but no deduction) for
such foreign taxes.
Investment by the fund in "passive foreign investment companies" could
subject the fund to a U.S. federal income tax or other charge on the
proceeds from the sale of its investment in such a company; however,
this tax can be avoided by making an election to mark such investments
to market annually or to treat the passive foreign investment company as
a "qualified electing fund."
A "passive foreign investment company" is any foreign corporation: (i)
75 percent or more of the income of which for the taxable year is
passive income, or (ii) the average percentage of the assets of which
(generally by value, but by adjusted tax basis in certain cases) that
produce or are held for the production of passive income is at least 50
percent. Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties, rents,
annuities, the excess of gains over losses from certain property
transactions and commodities transactions, and foreign currency gains.
Passive income for this purpose does not include rents and royalties
received by the foreign corporation from active business and certain
income received from related persons.
Sale or redemption of shares. The sale, exchange or redemption of fund
shares may give rise to a gain or loss. In general, any gain or loss
realized upon a taxable disposition of shares will be treated as
long-term capital gain or loss if the shares have been held for more
than 12 months. Otherwise the gain or loss on the sale, exchange or
redemption of fund shares will be treated as short-term capital gain or
loss. However, if a shareholder sells shares at a loss within six months
of purchase, any loss will be disallowed for Federal income tax purposes
to the extent of any exempt-interest dividends received on such shares.
In addition, any loss (not already disallowed as provided in the
preceding sentence) realized upon a taxable disposition of shares held
for six months or less will be treated as long-term, rather than
short-term, to the extent of any long-term capital gain distributions
received by the shareholder with respect to the shares. All or a
portion of any loss realized upon a taxable disposition of fund shares
will be disallowed if other shares of the same fund are purchased within
30 days before or after the disposition. In such a case, the basis of
the newly purchased shares will be adjusted to reflect the disallowed
loss.
Shares purchased through tax-qualified plans. Special tax rules apply
to investments though defined contribution plans and other tax-qualified
plans. Shareholders should consult their tax advisers to determine the
suitability of shares of a fund as an investment through such plans and
the precise effect of an investment on their particular tax situation.
Backup withholding. The fund generally is required to withhold and
remit to the U.S. Treasury a percentage of the taxable dividends and
other distributions paid to any individual shareholder who fails to
furnish the fund with a correct taxpayer identification number (TIN),
who has under-reported dividends or interest income, or who fails to
certify to the fund that he or she is not subject to such withholding.
The back-up withholding tax rate is 28% for amounts paid through 2010.
This legislation will expire and the back-up withholding rate will be
31% for amounts paid after December 31, 2010, unless Congress enacts tax
legislation providing otherwise.
In order for a foreign investor to qualify for exemption from the
back-up withholding tax rates and for reduced withholding tax rates
under income tax treaties, the foreign investor must comply with special
certification and filing requirements. Foreign investors in a fund
should consult their tax advisers in this regard.
Tax shelter reporting regulations. Under U.S. Treasury regulations
issued on February 28, 2003, if a shareholder realizes a loss on
disposition of fund shares of $2 million or more for an individual
shareholder or $10 million or more for a corporate shareholder, the
shareholder must file with the Internal Revenue Service a disclosure
statement on Form 8886. Direct shareholders of portfolio securities are
in many cases excepted from this reporting requirement, but under
current guidance, shareholders of a regulated investment company are not
excepted. Future guidance may extend the current exception from this
reporting requirement to shareholders of most or all regulated
investment companies.
MANAGEMENT
Trustees
- -----------------------------------------------------------------------------------------------------------
Name, Address 1, Date of
Birth, Position(s) Held
with Fund and Length of Principal
Service as a Putnam Fund Occupation(s) During Other Directorships
Trustee 2 Past 5 Years Held by Trustee
- -----------------------------------------------------------------------------------------------------------
Jameson A. Baxter President of Baxter Director of ASHTA Chemicals, Inc., Banta
(9/6/43), Trustee since 1994 Associates, Inc., Corporation (a printing and digital
a private investment firm imaging firm), Ryerson Tull, Inc.
that she founded in 1986. (a steel service corporation),
Advocate Health Care and BoardSource
(formerly the National Center for Nonprofit
Boards). She is Chairman Emeritus of the
Board of Trustees, Mount Holyoke College,
having served as Chairman for five years and
as a board member for thirteen years. Until
2002, Ms. Baxter was a Director of Intermatic
Corporation (a manufacturer of energy control
products).
- -----------------------------------------------------------------------------------------------------------
Charles B. Curtis President and Chief Member of the Council on Foreign
(4/27/40), Trustee since 2001 Operating Officer, Relations and the Trustee Advisory Council
Nuclear Threat Initiative of the Applied Physics Laboratory, Johns
(a private foundation Hopkins University. Until 2003, Mr. Curtis was
dealing with national a Member of the Electric Power Research
security issues) and Institute Advisory Council and the University
serves as Senior Advisor of Chicago Board of Governors for Argonne
to the Untited Nations National Laboratory. Prior to 2002, Mr. Curtis
Foundaton. From August was a Member of the Board of Directors of the
1997 to December 1999, Gas Technology Institute and the Board of
Mr. Curtis was a partner Directors of the Environment and Natural
at Hogan & Hartson Resources Program Steering Committee, John F.
L.L.P., a Washington, DC Kennedy School of Government, Harvard
law firm. University. Until 2001, Mr. Curtis was a Member
of the Department of Defense Policy Board and
Director of EG&G Technical Services, Inc.
(a fossil energy research and development
support company).
- -----------------------------------------------------------------------------------------------------------
John A. Hill Vice Chairman, First Director of Devon Energy Corporation,
(1/31/42), Reserve Corporation (a TransMontaigne Oil Company, Continuum
Trustee since 1985 and private equity buyout Health Partners of New York and various
Chairman since 2000 firm that specializes private companies controlled by First
in energy investments Reserve Corporation, as well as a Trustee
in the diversified of TH Lee Putnam Investment Trust (a
world-wide energy closed-end investment company advised by an
industry). affiliate of Putnam Management). He is also
a Trustee of Sarah Lawrence College.
- -----------------------------------------------------------------------------------------------------------
Ronald J. Jackson Private investor. President of the Kathleen and Ronald J. Jackson
(12/17/43), Foundation (a charitable trust). He is also
Trustee since 1996 a Member of the Board of Overseers of WGBH (a
public television and radio station) as well as
a Member of the Board of Overseers of the
Peabody Essex Museum.
- -----------------------------------------------------------------------------------------------------------
Paul L. Joskow (6/30/47), Elizabeth and James Director of National Grid Transco (a UK-based
Trustee since 1997 Killian Professor of holding company with interests in electric and
Economics and Management, gas transmission and distribution and
and Director of the telecommunications infrastructure) and
Center for Energy and TransCanada Corporation (an energy company
Environmental Policy focused on natural gas transmission and power
Research at the services). He also serves on the board of the
Massachusetts Institute Whitehead Institute for Biomedical Research
of Technology. (a non-profit research institution) and has
been President of the Yale University Council
since 1993. Prior to February 2002, he was a
Director of State Farm Indemnity Company (an
automobile insurance company), and prior to
March 2000, he was a Director of New England
Electric System (a public utility holding
company).
- -----------------------------------------------------------------------------------------------------------
Elizabeth T. Kennan Partner in Cambus-Kenneth Lead Director of Northeast Utilities and is a
(2/25/38), Trustee Farm (thoroughbred horse Director of Talbots, Inc. (a distributor of
since 1992 and catlle breeding). women's apparel). She is a Trustee of National
She is President Emeritus Trust for Historic Preservation, of Centre
of Mount Holyoke College. College and of Midway College (in Midway,
Kentucky).She is also a Member of The Trustees
of Reservations. Prior to 2001, Dr. Kennan
served on the oversight committee of the Folger
Shakespeare Library. Prior to September 2000,
she was a Director of Chastain Real Estate;
prior to June 2000, she was a Director of Bell
Atlantic Corp.; and prior to November 1999,
she was a Director of Kentucky Home Life
Insurance Co.
- -----------------------------------------------------------------------------------------------------------
John H. Mullin, III Chairman and CEO of Director of The Liberty Corporation (a
(6/15/41), Trustee Ridgeway Farm (a limited broadcasting company), Progress Energy, Inc. (a
since 1997 liability company engaged utility company, formerly known as Carolina
in timber and farming). Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee
Emeritus of The National Humanitites Center and
Washington & Lee University, where he served as
Chairman of the Investment Committee. Until
February 2004 and May 2001, he was a Director
of Alex Brown Realty, Inc. and Graphic
Packaging International Corp., respectively.
- -----------------------------------------------------------------------------------------------------------
Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes Center and a
(3/15/45), Trustee Properties, L.P. and Director of Brandywine Trust Company. Prior to
since 1984 Chairman of Cabot December 2001 and June 2003, Mr. Patterson
Properties, Inc. (a served as a Trustee of Cabot Industrial Trust
private equity firm and Sea Education Association, respectively.
investing in commercial
real estate). Prior to
December 2001, he was
President of Cabot
Industrial Trust (a
publicly traded real
estate investment
trust).
- -----------------------------------------------------------------------------------------------------------
W. Thomas Stephens Serves on a number Director of Xcel Energy Incorporated (a public
(9/2/42), Trustee of corporate boards. utility company) and TransCanada Pipelines
since 1997 Limited. Until 2004, Mr. Stephens was a Director
of Qwest Communications and Norske Canada, Inc.
(a paper manufacturer). Until 2003, Mr.
Stephens was a Director of Mail-Well, Inc. (a
diversified printing company). Prior to July
2001, Mr. Stephens was Chairman of Mail-Well;
and prior to October 1999, he was CEO of
MacMillan-Bloedel, Ltd. (a forest products
company).
- -----------------------------------------------------------------------------------------------------------
Interested Trustees
- -----------------------------------------------------------------------------------------------------------
*George Putnam III President of New Director of The Boston Family Office, L.L.C.
(8/10/51), Trustee Generation Research, Inc. (a registered investment advisor), and a Trustee
since 1984 and (a publisher of financial of St. Mark's School and Shore Country Day School.
President since advisory and other Until 2002, Mr. Putnam was a Trustee of the Sea
2000 research services) and Education Association.
of New Generation
Advisers, Inc. (a
registered investment
adviser to private funds).
Both firms he founded
in 1986.
- -----------------------------------------------------------------------------------------------------------
*A.J.C. Smith Chairman of Putnam Director of Trident Corp. (a limited partnership
(4/13/34), Trustee Investments and Director with over thirty institutional investors). He
since 1986 of and Consultant to is also a Trustee of the Carnegie Hall Society,
Marsh & McLennan the Educational Broadcasting Corporation and the
Companies, Inc. Prior National Museums of Scotland. He is Chairman of
to May 2000 and November the Central Park Conservancy and a Member of the
1999, Mr. Smith was Board of Overseers of the Joan and Sanford I.
Chairman and CEO, Weill Graduate School of Medical Sciences of
respectively, of Marsh Cornell University.
& McLennan Companies, Inc.
- -----------------------------------------------------------------------------------------------------------
1 The address of each Trustee is One Post Office Square, Boston, MA
02109. As of December 31, 2003, there were 101 Putnam Funds.
2 Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management or Marsh & McLennan Companies,
Inc., the parent company of Putnam Investments and its affiliated companies.
Messrs. Putnam, III, and Smith are deemed "interested persons" by
virtue of their positions as officers of the fund or Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc. and as
shareholders of Marsh & McLennan Companies, Inc. George Putnam, III is the
President of your Fund and each of the other Putnam Funds. A.J.C. Smith is
Chairman of Putnam Investments and serves as Director of and Consultant to
Marsh & McLennan Companies, Inc.
Officers
In addition to George Putnam III, the other officers of the fund are shown below:
- -----------------------------------------------------------------------------------------------------------
Name, Address 1, Date of
Birth, Position(s) Held Length of Service with Principal Occupation(s)
with Fund the Putnam Funds During Past 5 Years
- -----------------------------------------------------------------------------------------------------------
Charles E. Porter Since 1989 Managing Director, Putnam Investments, Putnam
(7/26/38), Executive Advisory Company, Putnam Investor Services and
Vice President, Associate Putnam Management.
Treasurer and Principal
Executive Officer
- -----------------------------------------------------------------------------------------------------------
Jonathan S. Horwitz Since 2004 Managing Director, Putnam Investments.
(6/4/55), Senior Vice
President and Treasurer
- -----------------------------------------------------------------------------------------------------------
Steven D. Krichmar Since 2002 Managing Director, Putnam Investments and Putnam
(6/27/58), Vice President Investor Services. Prior to 2001, Partner,
and Principal Financial PricewaterhouseCoopers LLP.
Officer
- -----------------------------------------------------------------------------------------------------------
Michael T. Healy Since 2000 Managing Director, Putnam Investments and Putnam
(1/24/58), Assistant Investor Services.
Treasurer and Principal
Accounting Officer
- -----------------------------------------------------------------------------------------------------------
Beth S. Mazor Since 2002 Senior Vice President, Putnam Investments and
(4/6/58), Vice President Putnam Investor Services.
- -----------------------------------------------------------------------------------------------------------
Daniel T. Gallagher Since 2004 Vice President, Putnam Investments. Prior to 2004,
(2/27/62), Vice President Mr. Gallagher was an attorney for Ropes & Gray
and Legal and Compliance LLP; prior to 2000, he was a law clerk for the
Liaison Officer Massachusetts Supreme Judicial Court.
- -----------------------------------------------------------------------------------------------------------
Mark C. Trenchard Since 2002 Senior Vice President, Putnam Investments.
(6/5/62), Vice President
and BSA Compliance Officer
- -----------------------------------------------------------------------------------------------------------
Francis J. McNamara, III Since 2004 Senior Managing Director, Putnam Investments,
(8/19/55), Vice President Putnam Management and Putnam Retail Management.
and Chief Legal Officer Prior to 2004, Mr. McNamara was General Counsel
of State Street Research & Management Company.
- -----------------------------------------------------------------------------------------------------------
Charles A. Ruys de Perez Since 2004 Managing Director, Putnam Investments, Putnam
(10/17/57), Vice President Advisory Company, Putnam Investor Services,
and Chief Compliance Officer Putnam Management and Putnam Retail Management.
- -----------------------------------------------------------------------------------------------------------
James P. Pappas Since 2004 Managing Director, Putnam Investments and Putnam
(2/24/53), Vice President Management. During 2002, Mr. Pappas was Chief
Operating Officer of Atalanta/Sosnoff Management
Corporation. Prior to 2001, he was President and
Chief Executive Officer of UAM Investment
Services, Inc.
- -----------------------------------------------------------------------------------------------------------
Richard S. Robie, III Since 2004 Senior Managing Director, Putnam Investments,
(3/30/60), Vice President Putnam Management and Putnam Advisory Company.
Prior to 2003, Mr. Robie was Senior Vice President
of United Asset Management Corporation.
- -----------------------------------------------------------------------------------------------------------
Judith Cohen Since 1993 Clerk and Assistant Treasurer, The Putnam Funds.
(6/7/45), Clerk and
Assistant Treasurer
- -----------------------------------------------------------------------------------------------------------
1 The address of each Officer is One Post Office Square, Boston, MA 02109.
Except as stated above, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown
above, although in some cases they have held different positions with
such employers.
Committees of the Board of Trustees
Audit and Pricing Committee. The Audit and Pricing Committee provides
oversight on matters relating to the preparation of the funds' financial
statements, compliance matters and Code of Ethics issues. This oversight
is discharged by regularly meeting with management and the funds'
independent auditors and keeping current on industry developments.
Duties of this Committee also include the review and evaluation of all
matters and relationships pertaining to the funds' independent auditors,
including their independence. The members of the Committee include only
Trustees who are not "interested persons" of the fund or Putnam
Management. Each member of the Committee is "independent" as defined in
Sections 303.01(B)(2)(a) and (3) of the listing standards of the New
York Stock Exchange and as defined in Section 121(A) of the listing
standards of the American Stock Exchange. The Trustees have adopted a
written charter for the Committee. The Committee also reviews the
funds' policies and procedures for achieving accurate and timely pricing
of the funds' shares, including oversight of fair value determinations
of individual securities made by Putnam Management or other designated
agents of the funds. The Committee oversees compliance by money market
funds with Rule 2a-7, interfund transactions pursuant to Rule 17a-7, and
the correction of occasional pricing errors. The Committee also receives
reports regarding the liquidity of portfolio securities. The Audit and
Pricing Committee currently consists of Drs. Joskow (Chairperson) and
Kennan, and Messrs. Patterson and Stephens.
Board Policy and Nominating Committee. The Board Policy and Nominating
Committee reviews matters pertaining to the operations of the Board of
Trustees and its Committees, the compensation of the Trustees and their
staff, and the conduct of legal affairs for the funds. The Committee
evaluates and recommends all candidates for election as Trustees and
recommends the appointment of members and chairs of each board
committee. The Committee also reviews policy matters affecting the
operation of the Board and its independent staff and makes
recommendations to the Board as appropriate. The Committee consists
only of Trustees who are not "interested persons" of your fund or Putnam
Management. The Committee also oversees the voting of proxies associated
with portfolio investments of The Putnam Funds with the goal of ensuring
that these proxies are voted in the best interest of the Funds'
shareholders. The Board Policy and Nominating Committee currently
consists of Dr. Kennan (Chairperson), Ms. Baxter and Messrs. Hill,
Mullin and Patterson. The Board Policy and Nominating Committee will
consider nominees for trustee recommended by shareholders of a fund
provided shareholders submit their recommendations by the date disclosed
in the fund's proxy statement and provided the shareholders'
recommendations otherwise comply with applicable securities laws,
including Rule 14a-8 under the Securities Exchange Act of 1934.
Brokerage and Custody Committee. The Brokerage and Custody Committee
reviews the policies and procedures of the Funds regarding the execution
of portfolio transactions for the Funds, including policies regarding
the allocation of brokerage commissions and soft dollar credits. The
Committee reviews periodic reports regarding the Funds' activities
involving derivative securities. The Committee also reviews and
evaluates matters relating to the Funds' custody arrangements. The
Committee currently consists of Messrs. Jackson (Chairperson), Curtis
and Mullin, Ms. Baxter and Dr. Kennan.
Communication, Service, and Marketing Committee. This Committee
examines the quality, cost and levels of services provided to the
shareholders of The Putnam Funds. The Committee also reviews
communications sent from the Funds to their shareholders, including
shareholder reports, prospectuses, newsletters and other materials. In
addition, this Committee oversees marketing and sales communications of
the Funds' distributor. The Committee currently consists of Messrs.
Putnam (Chairperson), Smith and Stephens and Dr. Joskow.
Contract Committee. The Contract Committee reviews and evaluates at
least annually all arrangements pertaining to (i) the engagement of
Putnam Investment Management and its affiliates to provide services to
the Funds, (ii) the expenditure of the Funds' assets for distribution
purposes pursuant to the Distribution Plans of the Funds, and (iii) the
engagement of other persons to provide material services to the Funds,
including in particular those instances where the cost of services is
shared between the Funds and Putnam Investment Management and its
affiliates or where Putnam Investment Management or its affiliates have
a material interest. The Committee recommends to the Trustees such
changes in arrangements that it deems appropriate. The Committee also
reviews the conversion of Class B shares into Class A shares of the
Funds in accordance with procedures approved by the Trustees. After
review and evaluation, the Committee recommends to the Trustees the
proposed organization of new Fund products, and proposed structural
changes to existing Funds. The Committee is comprised exclusively of
Independent Trustees. The Committee currently consists of Ms. Baxter
(Chairperson), Messrs. Curtis, Jackson, and Mullin and Dr. Kennan.
Distributions Committee. This Committee oversees all Fund distributions
and the management of the Closed-End Funds. In regard to distributions, the
Committee approves the amount and timing of distributions paid by all the
Funds to the shareholders when the Trustees are not in session. This
Committee also meets regularly with representatives of Putnam Investments
to review distribution levels and the Funds' distribution policies. Its
oversight of the Closed-End Funds includes (i) investment performance, (ii)
trading activity, (iii) determinations with respect to sunroof provisions,
(iv) disclosure practices, and (v) the use of leverage. The Committee
currently consists of Messrs. Patterson (Chairperson) and Jackson and Dr.
Joskow.
Executive Committee. The functions of the Executive Committee are
twofold. The first is to ensure that the Funds' business may be
conducted at times when it is not feasible to convene a meeting of the
Trustees or for the Trustees to act by written consent. The Committee
may exercise any or all of the power and authority of the Trustees when
the Trustees are not in session. The second is to establish annual and
ongoing goals, objectives and priorities for the Board of Trustees and
to insure coordination of all efforts between the Trustees and Putnam
Investments on behalf of the shareholders of the Putnam Funds. The
Committee currently consists of Messrs. Hill (Chairman),
Jackson, and Putnam, Dr. Joskow and Ms. Baxter.
Investment Oversight Committees. These Committees regularly meet with
investment personnel of Putnam Investment Management to review the
investment performance and strategies of the Putnam Funds in light of their
stated investment objectives and policies. Investment Oversight Committee
A currently consists of Ms. Baxter (Acting Chairperson), and Mr. Smith.
Investment Oversight Committee B currently consists of Messrs. Curtis
(Chairperson), Hill and Stephens. Investment Committee C currently
consists of Messrs. Mullin (Chairperson) and Putnam, and Dr. Kennan.
Investment Oversight Committee D currently consists of Messrs. Patterson
(Chairperson) and Jackson and Dr. Joskow.
Each Trustee of the fund receives an annual retainer fee and an additional
meeting fee for each Trustees' meeting attended. Trustees who are not
"interested persons" of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings and for special services rendered in that connection. All of the
Trustees who are not "interested persons" of Putnam Management are Trustees
of all the Putnam funds and each receives fees for their services. For
details of Trustees' fees paid by the fund and information concerning
retirement guidelines for the Trustees, see "Charges and expenses" in Part
I of this SAI.
The Agreement and Declaration of Trust of the fund provides that the
fund will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be
involved because of their offices with the fund, except if it is
determined in the manner specified in the Agreement and Declaration of
Trust that they have not acted in good faith in the reasonable belief
that their actions were in the best interests of the fund or that such
indemnification would relieve any officer or Trustee of any liability to
the fund or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of his or her duties. The
fund, at its expense, provides liability insurance for the benefit of
its Trustees and officers.
Putnam Management and its affiliates
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced portfolio
managers and research analysts selects securities and constantly
supervises the fund's portfolio. By pooling an investor's money with
that of other investors, a greater variety of securities can be
purchased than would be the case individually; the resulting
diversification helps reduce investment risk. Putnam Management has
been managing mutual funds since 1937.
Putnam Management is a subsidiary of Putnam Investment Management Trust, a
Massachusetts business trust owned by Putnam LLC, which is also the parent
company of Putnam Retail Management, Putnam Advisory Company, LLC (a
wholly-owned subsidiary of The Putnam Advisory Company Trust), Putnam
Investments Limited (a wholly-owned subsidiary of The Putnam Advisory
Company Trust) and Putnam Fiduciary Trust Company. Putnam LLC, which
generally conducts business under the name Putnam Investments, is a
wholly-owned subsidiary of Putnam Investments Trust, a holding company
that, except for a minority stake owned by employees, is 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.
Trustees and officers of the fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh & McLennan
Companies, Inc. will benefit from the advisory fees, sales commissions,
distribution fees, custodian fees and transfer agency fees paid or
allowed by the fund.
The Management Contract
Under a Management Contract between the fund and Putnam Management,
subject to such policies as the Trustees may determine, Putnam
Management, at its expense, furnishes continuously an investment program
for the fund and makes investment decisions on behalf of the fund.
Subject to the control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the fund,
furnishes office space and equipment, provides bookkeeping and clerical
services (including determination of the fund's net asset value, but
excluding shareholder accounting services) and places all orders for the
purchase and sale of the fund's portfolio securities. Putnam Management
may place fund portfolio transactions with broker-dealers that furnish
Putnam Management, without cost to it, certain research, statistical and
quotation services of value to Putnam Management and its affiliates in
advising the fund and other clients. In so doing, Putnam Management may
cause the fund to pay greater brokerage commissions than it might
otherwise pay.
For details of Putnam Management's compensation under the Management
Contract, see "Charges and expenses" in Part I of this SAI. Putnam
Management's compensation under the Management Contract may be reduced
in any year if the fund's expenses exceed the limits on investment
company expenses imposed by any statute or regulatory authority of any
jurisdiction in which shares of the fund are qualified for offer or
sale. The term "expenses" is defined in the statutes or regulations of
such jurisdictions, and generally excludes brokerage commissions, taxes,
interest, extraordinary expenses and, if the fund has a distribution
plan, payments made under such plan.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that the fund's expenses exceed such lower
expense limitation as Putnam Management may, by notice to the fund, declare
to be effective. For the purpose of determining any such limitation on
Putnam Management's compensation, expenses of the fund shall not reflect
the application of commissions or cash management credits that may reduce
designated fund expenses. The terms of any expense limitation from time to
time in effect are described in the prospectus and/or Part I of this SAI.
In addition, through December 31, 2004, Putnam Management has agreed to
waive fees and reimburse expenses of the fund to the extent necessary to
ensure that the fund's class A shares pay total fund operating expenses at
an annual rate that does not exceed the average expenses of the front-end
load funds viewed by Lipper Inc. as having the same investment
classification or objective as the fund (expressed in each case as a
percentage of average net assets). Putnam Management has also agreed to a
corresponding waiver/reimbursement with respect to each other class of
shares of the fund (adjusting the Lipper category average to reflect the
12b-1 fee, if any, applicable to each such class). For these purposes, the
Lipper category average will be calculated by Lipper each calendar quarter
based on expense information for the most recent fiscal year of each fund
included in that category, and the expense limitation will be updated as of
the first business day after Lipper publishes the category average
(generally shortly after the end of each calendar quarter).
In addition to the fee paid to Putnam Management, the fund reimburses
Putnam Management for the compensation and related expenses of certain
officers of the fund and their assistants who provide certain
administrative services for the fund and the other Putnam funds, each of
which bears an allocated share of the foregoing costs. The aggregate
amount of all such payments and reimbursements is determined annually by
the Trustees.
The amount of this reimbursement for the fund's most recent fiscal year
is included in "Charges and Expenses" in Part I of this SAI. Putnam
Management pays all other salaries of officers of the fund. The fund
pays all expenses not assumed by Putnam Management including, without
limitation, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The fund pays the cost of typesetting
for its prospectuses and the cost of printing and mailing any
prospectuses sent to its shareholders. Putnam Retail Management pays
the cost of printing and distributing all other prospectuses.
The Management Contract provides that Putnam Management shall not be
subject to any liability to the fund or to any shareholder of the fund
for any act or omission in the course of or connected with rendering
services to the fund in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties on the part of
Putnam Management.
The Management Contract may be terminated without penalty by vote of the
Trustees or the shareholders of the fund, or by Putnam Management, on 30
days' written notice. It may be amended only by a vote of the
shareholders of the fund. The Management Contract also terminates
without payment of any penalty in the event of its assignment. The
Management Contract provides that it will continue in effect only so
long as such continuance is approved at least annually by vote of either
the Trustees or the shareholders, and, in either case, by a majority of
the Trustees who are not "interested persons" of Putnam Management or
the fund. In each of the foregoing cases, the vote of the shareholders
is the affirmative vote of a "majority of the outstanding voting
securities" as defined in the Investment Company Act of 1940.
In considering the Management Contract, the Trustees consider numerous
factors they believe to be relevant, including the advisor's research
and decision-making processes, the methods adopted to assure compliance
with the fund's investment objectives, policies and restrictions; the
level of research required to select the securities appropriate for
investment by the fund; the education, experience and number of advisory
personnel; the level of skill and effort required to manage the fund;
the value of services provided by the advisor; the economies and
diseconomies of scale reflected in the management fee; the advisor's
profitability; the financial condition and stability of the advisor; the
advisor's trade allocation methods; the standards and performance in
seeking best execution; allocation for brokerage and research and use of
soft dollars; the fund's total return performance compared with its
peers. Putnam has established several management fee categories to fit
the particular characteristics of different types of funds.
The nature and complexity of international and global funds generally
makes these funds more research intensive than funds that invest mainly
in U.S. companies, due to the greater difficulty of obtaining
information regarding the companies in which the fund invests, and the
governmental, economic and market conditions of the various countries
outside of the U.S. In addition, trade execution and settlement may be
more costly than in the U.S.
Conversely, the research intensity for a U.S. money market or bond fund
is typically less than for a international or global fund or a U.S.
equity fund due to the more ready availability of information regarding
the issuer, the security, the accessibility of the trading market and
the typically lower trading and execution costs. See "Portfolio
Transactions - Brokerage and Research Services."
The Sub-Manager
Putnam Investments Limited ("PIL"), a wholly-owned subsidiary of The Putnam
Advisory Company, LLC and an affiliate of Putnam Management, has been
retained as the sub-manager for a portion of the assets of certain funds as
determined by Putnam Management from time to time. PIL is currently
authorized to serve as the sub-manager, to the extent determined by Putnam
Management from time to time, for the following funds: Putnam Diversified
Income Trust, Putnam Global Income Trust, Putnam High Yield Advantage Fund,
Putnam High Yield Trust, Putnam Global Equity Fund, Putnam Europe Equity
Fund and Putnam International Equity Fund. PIL may serve as sub-manager
pursuant to the terms of a sub-management agreement between Putnam
Management and PIL. PIL's address is Cassini House, 57-59 St James's
Street, London, England, SW1A 1LD.
Under the terms of the sub-management contract, PIL, at its own expense,
furnishes continuously an investment program for that portion of each such
fund that is allocated to PIL from time to time by Putnam Management and
makes investment decisions on behalf of such portion of the fund, subject
to the supervision of Putnam Management. Putnam Management may also, at
its discretion, request PIL to provide assistance with purchasing and
selling securities for the fund, including placement of orders with certain
broker-dealers. PIL, at its expense, furnishes all necessary investment
and management facilities, including salaries of personnel, required for it
to execute its duties.
The sub-management contract provides that PIL shall not be subject to any
liability to Putnam Management, the fund or 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 obligations and duties on the part
of PIL.
The sub-management contract may be terminated with respect to a fund
without penalty by vote of the Trustees or the shareholders of the fund, or
by PIL or Putnam Management, on 30 days' written notice. The
sub-management contract also terminates without payment of any penalty in
the event of its assignment. Subject to applicable law, it may be amended
by a majority of the Trustees who are not "interested persons" of Putnam
Management or the fund. The sub-management contract provides that it will
continue in effect only so long as such continuance is approved at least
annually by vote of either the Trustees or the shareholders, and, in either
case, by a majority of the Trustees who are not "interested persons" of
Putnam Management or the fund. In each of the foregoing cases, the vote of
the shareholders is the affirmative vote of a "majority of the outstanding
voting securities" as defined in the Investment Company Act of 1940.
Portfolio Transactions
Investment decisions. Investment decisions for the fund and for the
other investment advisory clients of Putnam Management and its
affiliates are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus,
a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security. In
some instances, one client may sell a particular security to another
client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each
day's transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which in
Putnam Management's opinion is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances
when purchases or sales of portfolio securities for one or more clients
will have an adverse effect on other clients.
Brokerage and research services. Transactions on stock exchanges,
commodities markets and futures markets and other agency transactions
involve the payment by the fund of negotiated brokerage commissions.
Such commissions vary among different brokers. A particular broker may
charge different commissions according to such factors as the difficulty
and size of the transaction. Transactions in foreign investments often
involve the payment of fixed brokerage commissions, which may be higher
than those in the United States. The fund pays commissions on certain
securities traded in the over-the-counter markets. In underwritten
offerings, the price paid by the fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. It is
anticipated that most purchases and sales of securities by funds
investing primarily in tax-exempt securities and certain other
fixed-income securities will be with the issuer or with underwriters of
or dealers in those securities, acting as principal. Accordingly, those
funds would not ordinarily pay significant brokerage commissions with
respect to securities transactions. See "Charges and expenses" in Part
I of this SAI for information concerning commissions paid by the fund.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive brokerage and research services (as defined in the
Securities Exchange Act of 1934, as amended (the "1934 Act")) from
broker-dealers that execute portfolio transactions for the clients of
such advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from many
broker-dealers with which Putnam Management places the fund's portfolio
transactions and from third parties with which these broker-dealers have
arrangements. These services include such matters as economic analysis,
investment research and database services, industry and company reviews,
evaluations of investments, recommendations as to the purchase and sale
of investments, performance measurement services, subscriptions, pricing
services, quotation services, news services and computer equipment
(investment-related hardware and software) utilized by Putnam
Management's managers and analysts. Where the services referred to
above are used by Putnam Management not exclusively for research
purposes, Putnam Management, based upon its own allocations of expected
use, bears that portion of the cost of these services which directly
relates to their non-research use. Some of these services are of value
to Putnam Management and its affiliates in advising various of their
clients (including the fund), although not all of these services are
necessarily useful and of value in managing the fund. The management
fee paid by the fund is not reduced because Putnam Management and its
affiliates receive these services even though Putnam Management might
otherwise be required to purchase some of these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for the fund and buys and sells investments for
the fund through a substantial number of brokers and dealers. In so
doing, Putnam Management uses its best efforts to obtain for the fund
the most favorable price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions as described
below. In seeking the most favorable price and execution, Putnam
Management, having in mind the fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the
size of the transaction, the nature of the market for the security or
other investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in
other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, Putnam Management may cause the fund to pay a broker-dealer
which provides "brokerage and research services" (as defined in the 1934
Act) to Putnam Management an amount of disclosed commission for
effecting securities transactions on stock exchanges and other
transactions for the fund on an agency basis in excess of the commission
which another broker-dealer would have charged for effecting that
transaction. Putnam Management's authority to cause the fund to pay any
such greater commissions is subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently intend to
cause the fund to make such payments. It is the position of the staff of
the Securities and Exchange Commission that Section 28(e) does not apply
to the payment of such greater commissions in "principal" transactions.
Accordingly Putnam Management will use its best effort to obtain the
most favorable price and execution available with respect to such
transactions, as described above.
The Management Contract provides that commissions, fees, brokerage or
similar payments received by Putnam Management or an affiliate in
connection with the purchase and sale of portfolio investments of the
fund, less any direct expenses approved by the Trustees, shall be
recaptured by the fund through a reduction of the fee payable by the
fund under the Management Contract. Putnam Management seeks to
recapture for the fund soliciting dealer fees on the tender of the
fund's portfolio securities in tender or exchange offers. Any such fees
which may be recaptured are likely to be minor in amount.
Principal Underwriter
Putnam Retail Management is the principal underwriter of shares of the
fund and the other continuously offered Putnam funds. Putnam Retail
Management is not obligated to sell any specific amount of shares of the
fund and will purchase shares for resale only against orders for shares.
See "Charges and expenses" in Part I of this SAI for information on
sales charges and other payments received by Putnam Retail Management.
Personal Investments by Employees of Putnam Management and Putnam Retail
Management and Officers and Trustees of the Fund
Employees of Putnam Management and Putnam Retail Management and officers
and Trustees of the fund are subject to significant restrictions on
engaging in personal securities transactions. These restrictions are set
forth in the Codes of Ethics adopted by Putnam Management and Putnam
Retail Management (The Putnam Investments' Code of Ethics) and by the
fund (the Putnam Funds' Code of Ethics). The Putnam Investments' Code of
Ethics and the Putnam Funds' Code of Ethics, in accordance with Rule
17j-1 of the Investment Company Act of 1940, as amended, contain
provisions and requirements designed to identify and address certain
conflicts of interest between personal investment activities and the
interests of the fund.
The Putnam Investments' Code of Ethics does not prohibit personnel from
investing in securities that may be purchased or held by the fund.
However, the Putnam Investments' Code, consistent with standards
recommended by the Investment Company Institute's Advisory Group on
Personal Investing and requirements established by Rule 17j-1, among
other things, prohibits personal securities investments without
pre-clearance, imposes time periods during which personal transactions
may not be made in certain securities by employees with access to
investment information, and requires the timely submission of broker
confirmations and quarterly reporting of personal securities
transactions. Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in the investment
advisory process.
The Putnam Funds' Code of Ethics incorporates and applies the
restrictions of Putnam Investments' Code of Ethics to officers and
Trustees of the fund who are affiliated with Putnam Investments. The
Putnam Funds' Code does not prohibit unaffiliated officers and Trustees
from investing in securities that may be held by the fund; however, the
Putnam Funds' Code regulates the personal securities transactions of
unaffiliated Trustees of the fund, including limiting the time periods
during which they may personally buy and sell certain securities and
requiring them to submit reports of personal securities transactions
under certain circumstances.
The fund's Trustees, in compliance with Rule 17j-1, approved Putnam
Investments' and the Putnam Funds' Codes of Ethics and are required to
approve any material changes to these Codes. The Trustees also provide
continued oversight of personal investment policies and annually
evaluate the implementation and effectiveness of the Codes of Ethics.
Investor Servicing Agent and Custodian
Putnam Investor Services, a division of Putnam Fiduciary Trust Company
("PFTC"), is the fund's investor servicing agent (transfer, plan and
dividend disbursing agent), for which it receives fees that are paid
monthly by the fund as an expense of all its shareholders. The fee paid to
Putnam Investor Services is determined on the basis of the number of
shareholder accounts and the assets of the fund. For Putnam Prime Money
Market Fund the fee paid to Putnam Investor Services is 0.01% per annum.
PFTC is the custodian of the fund's assets. In carrying out its duties
under its custodian contract, PFTC may employ one or more subcustodians
whose responsibilities include safeguarding and controlling the fund's cash
and securities, handling the receipt and delivery of securities and
collecting interest and dividends on the fund's investments. PFTC and any
subcustodians employed by it have a lien on the securities of the fund (to
the extent permitted by the fund's investment restrictions) to secure
charges and any advances made by such subcustodians at the end of any day
for the purpose of paying for securities purchased by the fund. The fund
expects that such advances will exist only in unusual circumstances.
Neither PFTC nor any subcustodian determines the investment policies of the
fund or decides which securities the fund will buy or sell. PFTC pays the
fees and other charges of any subcustodians employed by it. The fund pays
PFTC an annual fee based on the fund's assets, securities transactions and
securities holdings and reimburses PFTC for certain out-of-pocket expenses
incurred by it or any subcustodian employed by it in performing custodial
services.
The fund may from time to time pay custodial or investor servicing agent
expenses in full or in part through the placement by Putnam Management of
the fund's portfolio transactions with the subcustodians or with a third
party broker having an agreement with the subcustodians. See "Charges and
expenses" in Part I of this SAI for information on fees and reimbursements
for investor servicing and custody received by PFTC. The fees may be
reduced by credits allowed by PFTC.
Counsel to the Fund and the Independent Trustees
Ropes & Gray LLP serves as counsel to the fund and the independent
Trustees, and is located at One International Place, Boston,
Massachusetts 02110.
DETERMINATION OF NET ASSET VALUE
The fund determines the net asset value per share of each class of
shares once each day the New York Stock Exchange (the "Exchange") is
open. Currently, the Exchange is closed Saturdays, Sundays and the
following holidays: New Year's Day, Rev. Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving and Christmas. The fund determines net asset
value as of the close of regular trading on the Exchange, normally 4:00
p.m except that Putnam Prime Money Market Fund normally determines
net asset value as of 5:00 p.m. Eastern time. However, equity options
held by the fund are priced as of the close of trading at 4:10 p.m., and
futures contracts on U.S. government and other fixed-income securities
and index options held by the fund are priced as of their close of
trading at 4:15 p.m.
Securities for which market quotations are readily available are valued
at prices which, in the opinion of Putnam Management, most nearly
represent the market values of such securities. Currently, such prices
are determined using the last reported sale price (or official closing
price for certain markets) 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 securities are valued at the mean between the
last reported bid and ask prices. Short-term investments having
remaining maturities of 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are
valued at their fair value following procedures approved by the
Trustees. Liabilities are deducted from the total, and the resulting
amount is divided by the number of shares of the class outstanding.
Reliable market quotations are not considered to be readily available
for long-term corporate bonds and notes, certain preferred stocks,
tax-exempt securities, and certain foreign securities. These
investments are valued at fair value on the basis of valuations
furnished by pricing services, which determine valuations for normal,
institutional-size trading units of such securities using methods based
on market transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders.
If any securities held by the fund are restricted as to resale, Putnam
Management determines their fair value following procedures approved by
the Trustees. The fair value of such securities is generally determined
as the amount which the fund could reasonably expect to realize from an
orderly disposition of such securities over a reasonable period of time.
The valuation procedures applied in any specific instance are likely to
vary from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental analytical
data relating to the investment and to the nature of the restrictions on
disposition of the securities (including any registration expenses that
might be borne by the fund in connection with such disposition). In
addition, specific factors are also generally considered, such as the
cost of the investment, the market value of any unrestricted securities
of the same class, the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Currency exchange rates are normally determined at the close of
trading in London, England (11:00 a.m., New York time). The closing prices
for securities in markets or on exchanges outside the U.S. that close prior
to the close of the Exchange may not fully reflect events that occur after
such close but before the close of the Exchange. As a result, the fund has
adopted fair value pricing procedures, which, among other things, require
the fund to fair value such securities if there has been a movement in the
U.S. market that exceeds a specified threshold. Although the threshold may
be revised from time to time and the number of days on which fair value
prices will be used will depend on market activity, it is possible that
fair value prices will be used by the fund to a significant extent. In
addition, securities held by some of the funds may be traded in foreign
markets that are open for business on days that the fund is not, and the
trading of such securities on those days may have an impact on the value of
a shareholder's investment at a time when the shareholder cannot buy and
sell shares of the fund.
In addition, because of the amount of time required to collect and process
trading information as to large numbers of securities issues, the values of
certain securities (such as convertible bonds, U.S. government securities
and tax-exempt securities) are determined based on market quotations
collected prior to the close of the Exchange. Occasionally, events
affecting the value of such securities may occur between the time of the
determination of value and the close of the Exchange which will not be
reflected in the computation of the fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value following
procedures approved by the Trustees.
The funds may also value their assets at fair value under other
circumstances pursuant to procedures approved by the Trustees.
Money Market Funds
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment Company Act
of 1940.
Since the net income of a money market fund is declared as a dividend
each time it is determined, the net asset value per share of a money
market fund remains at $1.00 per share immediately after such
determination and dividend declaration. Any increase in the value of a
shareholder's investment in a money market fund representing the
reinvestment of dividend income is reflected by an increase in the
number of shares of that fund in the shareholder's account on the last
business day of each month. It is expected that a money market fund's
net income will normally be positive each time it is determined.
However, if because of realized losses on sales of portfolio
investments, a sudden rise in interest rates, or for any other reason
the net income of a fund determined at any time is a negative amount, a
money market fund may offset such amount allocable to each then
shareholder's account from dividends accrued during the month with
respect to such account. If, at the time of payment of a dividend, such
negative amount exceeds a shareholder's accrued dividends, a money
market fund may reduce the number of outstanding shares by treating the
shareholder as having contributed to the capital of the fund that number
of full and fractional shares which represent the amount of the excess.
Each shareholder is deemed to have agreed to such contribution in these
circumstances by his or her investment in a money market fund.
HOW TO BUY SHARES
Each prospectus describes briefly how investors may buy shares of the
fund and identifies the share classes offered by that prospectus.
Because of these different sales charges and expenses, the investment
performance of the classes will vary. For more information, including
your eligibility to purchase certain classes of shares, contact your
investment dealer or Putnam Investor Services (at 1-800-225-1581).
This section of the SAI contains more information on how to buy shares
and the features of all share classes offered by Putnam funds. These
features include the sales charges and contingent deferred sales charges
(CDSCs) payable by investors, the conditions under which those charges
may be reduced, and the sales charges, commissions and other amounts
payable by Putnam Retail Management to investment dealers. As set forth
under the following sub-headings of this section, some features apply to
all classes, while others apply only to certain classes:
* General Information describes how to buy shares, identifies the
classes, describes ways of reducing sales charges that apply to all
classes and describes certain payments to investment dealers.
* Additional Information about Class A and Class M Shares describes the
allocation of initial sales charges between Putnam Retail Management and
investment dealers, ways of reducing those sales charges, the CDSC
payable by purchasers of $1 million or more of class A shares and the
commissions on those purchases payable by Putnam Retail Management to
investment dealers.
* Additional Information about Class B, Class C and Class R Shares
describes the commissions payable by Putnam Retail Management to
investment dealers.
* Putnam Prime Money Market Fund describes the special procedures
applicable to that fund. Information in the other sections listed
above is not applicable to that fund.
General Information
The fund is currently making a continuous offering of its shares. The fund
receives the entire net asset value of shares sold. The fund will accept
unconditional orders for shares to be executed at the public offering price
based on the net asset value per share next determined after the order is
placed. In the case of class A shares and class M shares, the public
offering price is the net asset value plus the applicable sales charge, if
any. (The public offering price is thus calculable by dividing the net
asset value by 100% minus the sales charge, expressed as a percentage.) No
sales charge is included in the public offering price of other classes of
shares. In the case of orders for purchase of shares placed through
dealers, the public offering price will be based on the net asset value
determined on the day the order is placed, but only if the dealer or a
registered transfer agent or registered clearing agent receives the order,
together with all required identifying information, before the close of
regular trading on the Exchange. If the dealer or registered transfer
agent or registered clearing agent receives the order after the close of
the Exchange, the price will be based on the net asset value next
determined. If funds for the purchase of shares are sent directly to
Putnam Investor Services, they will be invested at the public offering
price based on the net asset value next determined after all required
identifying information has been collected. Payment for shares of the fund
must be in U.S. dollars; if made by check, the check must be drawn on a
U.S. bank.
Initial and subsequent purchases must satisfy the minimums stated in the
prospectus, except that (i) individual investments under certain
employee benefit plans or Tax Qualified Retirement Plans may be lower,
(ii) persons who are already shareholders may make additional purchases
of $50 or more by sending funds directly to Putnam Investor Services
(see "Your investing account" below), and (iii) for investors
participating in systematic investment plans and military allotment
plans, the initial and subsequent purchases must be $25 or more.
Information about these plans is available from investment dealers or
from Putnam Investor Services.
As a convenience to investors, shares may be purchased through a
systematic investment plan. Pre-authorized monthly, semimonthly or
weekly bank drafts for a fixed amount (at least $25) are used to
purchase fund shares at the applicable public offering price next
determined after Putnam Retail Management receives the proceeds from the
draft. A shareholder may choose any day of the month or week for
these drafts, but if the date falls on a weekend or holiday, the draft
will be processed on the next business day. Further information and
application forms are available from investment dealers or from Putnam
Retail Management.
Distributions to be reinvested are reinvested without a sales charge in
shares of the same class as of the ex-dividend date using the net asset
value determined on that date, and are credited to a shareholder's account
on the payment date. Dividends for Putnam money market funds are credited
to a shareholder's account on the payment date. Distributions for all
other funds that declare a distribution daily are reinvested without a
sales charge as of the last day of the period for which distributions are
paid using the net asset value determined on that date, and are credited to
a shareholder's account on the payment date.
Payment in securities. In addition to cash, the fund may accept
securities as payment for fund shares at the applicable net asset value.
Generally, the fund will only consider accepting securities to increase
its holdings in a portfolio security, or if Putnam Management determines
that the offered securities are a suitable investment for the fund and
in a sufficient amount for efficient management.
While no minimum has been established, it is expected that the fund
would not accept securities with a value of less than $100,000 per issue
as payment for shares. The fund may reject in whole or in part any or
all offers to pay for purchases of fund shares with securities, may
require partial payment in cash for such purchases to provide funds for
applicable sales charges, and may discontinue accepting securities as
payment for fund shares at any time without notice. The fund will value
accepted securities in the manner described in the section
"Determination of Net Asset Value" for valuing shares of the fund. The
fund will only accept securities which are delivered in proper form.
The fund will not accept options or restricted securities as payment for
shares. The acceptance of securities by certain funds in exchange for
fund shares is subject to additional requirements. For federal income
tax purposes, a purchase of fund shares with securities will be treated
as a sale or exchange of such securities on which the investor will
generally realize a taxable gain or loss. The processing of a purchase
of fund shares with securities involves certain delays while the fund
considers the suitability of such securities and while other
requirements are satisfied. For information regarding procedures for
payment in securities, contact Putnam Retail Management. Investors
should not send securities to the fund except when authorized to do so
and in accordance with specific instructions received from Putnam Retail
Management.
Class A shares and class M shares are generally sold with a sales charge
payable at the time of purchase (except for class A shares and class M
shares of money market funds). As used in this SAI and unless the
context requires otherwise, the term "class A shares" includes shares of
funds that offer only one class of shares. The prospectus contains a
table of applicable sales charges.
Class B shares and class C shares are generally sold subject to a CDSC
payable upon redemption within a specified period after purchase. The
prospectus contains a table of applicable CDSCs. CDSCs on shares sold
outside the United States may differ.
Class B shares will automatically convert into class A shares at the
end of the month eight years after the purchase date. Class B shares
acquired by exchanging class B shares of another Putnam fund will
convert into class A shares based on the time of the initial purchase.
Class B shares acquired through reinvestment of distributions will
convert into Class A shares based on the date of the initial purchase to
which such shares relate. For this purpose, class B shares acquired
through reinvestment of distributions will be attributed to particular
purchases of class B shares in accordance with such procedures as the
Trustees may determine from time to time. The conversion of class B
shares to class A shares is subject to the condition that such
conversions will not constitute taxable events for Federal tax purposes.
Class T shares are sold at net asset value without a sales charge or
CDSC. See the prospectus that offers class T shares for more
information.
Class R shares, which are not subject to sales charges or a CDSC, are
available only to certain defined contribution plans.
Class Y shares, which are not subject to sales charges or a CDSC, are
available only to certain defined contribution plans, college savings
plans, bank trust departments and trust companies. See the prospectus
that offers class Y shares for more information.
Sales without sales charges, contingent deferred sales charges or
short-term trading fees. The fund may sell shares without a sales charge or
CDSC to:
(i) current and former Trustees of the fund, their family members,
business and personal associates; current and former employees of Putnam
Management and certain corporate affiliates, their family members,
business and personal associates; employee benefit plans for the
foregoing; and partnerships, trusts or other entities in which any of
the foregoing has a substantial interest;
(ii) employer-sponsored retirement plans, for the repurchase of shares
in connection with repayment of plan loans made to plan participants (if
the sum loaned was obtained by redeeming shares of a Putnam fund sold
with a sales charge) (not offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employer-sponsored
retirement plans which have entered into agreements with Putnam Retail
Management (not offered by tax-exempt funds);
(iv) registered representatives and other employees of broker-dealers
having sales agreements with Putnam Retail Management; employees of
financial institutions having sales agreements with Putnam Retail
Management or otherwise having an arrangement with any such
broker-dealer or financial institution with respect to sales of fund
shares; and their family members (Putnam Retail Management is regarded
as the dealer of record for all such accounts);
(v) investors meeting certain requirements who sold shares of certain
Putnam closed-end funds pursuant to a tender offer by such closed-end
fund;
(vi) a trust department of any financial institution purchasing shares
of the fund in its capacity as trustee of any trust (other than a
tax-qualified retirement plan trust), through an arrangement approved by
Putnam Retail Management, if the value of the shares of the fund and
other Putnam funds purchased or held by all such trusts exceeds $1
million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-dealers,
financial institutions or financial intermediaries who have entered into
agreements with Putnam Retail Management with respect to such accounts,
which in all cases shall be subject to a wrap fee economically
comparable to a sales charge. Fund shares offered pursuant to this
waiver may not be advertised as "no load," or otherwise offered for sale
at NAV without a wrap fee.
The fund may issue its shares at net asset value without an initial
sales charge or a CDSC in connection with the acquisition of
substantially all of the securities owned by other investment companies
or personal holding companies. The CDSC will be waived on redemptions
to pay premiums for insurance under Putnam's insured investor program.
Investors who set up an Systematic Withdrawal Plan ("SWP") for a share
account (see "Plans available to shareholders -- Systematic Withdrawal
Plan") may withdraw through the SWP up to 12% of the net asset value of
the account (calculated as set forth below) each year without incurring
any CDSC. Shares not subject to a CDSC (such as shares representing
reinvestment of distributions) will be redeemed first and will count
toward the 12% limitation. If there are insufficient shares not subject
to a CDSC, shares subject to the lowest CDSC liability will be redeemed
next until the 12% limit is reached. The 12% figure is calculated on a
pro rata basis at the time of the first payment made pursuant to an SWP
and recalculated thereafter on a pro rata basis at the time of each SWP
payment. Therefore, shareholders who have chosen an SWP based on a
percentage of the net asset value of their account of up to 12% will be
able to receive SWP payments without incurring a CDSC. However,
shareholders who have chosen a specific dollar amount (for example, $100
per month from the fund that pays income distributions monthly) for
their periodic SWP payment should be aware that the amount of that
payment not subject to a CDSC may vary over time depending on the net
asset value of their account. For example, if the net asset value of
the account is $10,000 at the time of payment, the shareholder will
receive $100 free of the CDSC (12% of $10,000 divided by 12 monthly
payments). However, if at the time of the next payment the net asset
value of the account has fallen to $9,400, the shareholder will receive
$94 free of any CDSC (12% of $9,400 divided by 12 monthly payments) and
$6 subject to the lowest applicable CDSC. This SWP privilege may be
revised or terminated at any time.
No CDSC is imposed on the redemption of shares of any class subject to a
CDSC to the extent that the shares redeemed (i) are no longer subject to
the holding period therefor, (ii) resulted from reinvestment of
distributions, or (iii) were exchanged for shares of another Putnam
fund, provided that the shares acquired in such exchange or subsequent
exchanges (including shares of a Putnam money market fund) will continue
to remain subject to the CDSC, if applicable, until the applicable
holding period expires. In determining whether the CDSC applies to each
redemption, shares not subject to a CDSC are redeemed first.
The fund will waive any CDSC on redemptions, in the case of individual,
joint or Uniform Transfers to Minors Act accounts, in the event of death or
post-purchase disability of a shareholder, for the purpose of paying
benefits pursuant to tax-qualified retirement plans ("Benefit Payments"),
or, in the case of living trust accounts, in the event of the death or
post-purchase disability of the settlor of the trust. Benefit Payments
currently include, without limitation, (1) distributions from an IRA due to
death or post-purchase disability, (2) a return of excess contributions to
an IRA or 401(k) plan, and (3) distributions from retirement plans
qualified under Section 401(a) of the Code or from a 403(b) plan due to
death, disability, retirement or separation from service. These waivers may
be changed at any time.
The short-term trading fee may not apply in certain circumstances, such as
redemptions on certain omnibus accounts, including accounts established as
part of a Section 529 college savings plan, transactions in connection with
periodic portfolio rebalancings of certain wrap accounts, automatic
rebalancing arrangements entered into by Putnam Retail Management and
dealers, and Systematic Withdrawal Plan redemptions. A short-term trading
fee will also not be imposed in cases of shareholder death or post-purchase
disability or other circumstances in which a CDSC would be waived as stated
above.
Additional Information About Class A and Class M Shares
The underwriter's commission is the sales charge shown in the prospectus
less any applicable dealer discount. Putnam Retail Management will give
dealers ten days' notice of any changes in the dealer discount. Putnam
Retail Management retains the entire sales charge on any retail sales
made by it.
Putnam Retail Management offers several plans by which an investor may
obtain reduced sales charges on purchases of class A shares and class M
shares. The variations in sales charges reflect the varying efforts
required to sell shares to separate categories of purchasers. These
plans may be altered or discontinued at any time.
The public offering price of class A and class M shares is the net asset
value plus a sales charge that varies depending on the size of your
purchase (calculable as described above). The fund receives the net asset
value. The sales charge is allocated between your investment dealer and
Putnam Retail Management as shown in the following table, except when
Putnam Retail Management, in its discretion, allocates the entire amount to
your investment dealer.
For Growth Funds, Blend Funds, Value Funds and Asset Allocation Funds
only:
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
- -------------------------------------------------------------------------------------
Under 50,000 5.25% 5.00% 3.50% 3.00%
50,000 but under 100,000 4.00 2.75 2.50 2.00
100,000 but under 250,000 3.00 2.75 1.50 1.00
250,000 but under 500,000 2.25 2.00 1.00 1.00
500,000 but under 1,000,000 2.00 1.75 NONE NONE
1,000,000 and above NONE NONE NONE NONE
- -------------------------------------------------------------------------------------
For Income Funds only (except for Putnam Floating Rate Income Fund and Putnam
Intermediate U.S. Government Income Fund):
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
- -------------------------------------------------------------------------------------
Under 50,000 4.50% 4.25% 3.25% 3.00%
50,000 but under 100,000 4.25 4.00 2.25 2.00
100,000 but under 250,000 3.25 3.00 1.50 1.25
250,000 but under 500,000 2.50 2.25 1.00 1.00
500,000 but under 1,000,000 2.00 1.75 NONE NONE
1,000,000 and above NONE NONE NONE NONE
- -------------------------------------------------------------------------------------
For Putnam Floating Rate Income Fund and Putnam Intermediate U.S. Government
Income Fund only:
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
- -------------------------------------------------------------------------------------
Under 100,000 3.25% 3.00% 2.00% 1.80%
100,000 but under 250,000 2.50 2.25 1.50 1.30
250,000 but under 500,000 2.00 1.75 1.00 1.00
500,000 but under 1,000,000 1.50 1.25 NONE NONE
1,000,000 and above NONE NONE NONE NONE
- -------------------------------------------------------------------------------------
For Tax Free Funds only:
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
- -------------------------------------------------------------------------------------
Under 25,000 4.50% 4.50% 3.25% 3.00%
25,000 but under 50,000 4.25 4.25 3.25 3.00
50,000 but under 100,000 4.25 4.25 2.25 2.00
100,000 but under 250,000 3.50 3.50 1.50 1.25
250,000 but under 500,000 2.75 2.75 1.00 1.00
500,000 but under 1,000,000 2.00 1.85 NONE NONE
1,000,000 and above NONE NONE NONE NONE
- -------------------------------------------------------------------------------------
Combined purchase privilege. The following persons may qualify for the
sales charge reductions or eliminations shown in the prospectus by
combining into a single transaction the purchase of class A shares or
class M shares with other purchases of any class of shares by such persons:
(i) an individual, or a "company" as defined in Section 2(a)(8) of the
Investment Company Act of 1940 (which includes corporations which are
corporate affiliates of each other);
(ii) an individual, his or her spouse and their children under
twenty-one, purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust estate
or single fiduciary account (including a pension, profit-sharing, or
other employee benefit trust created pursuant to a plan qualified under
Section 401 of the Internal Revenue Code of 1986, as amended (the
"Code");
(iv) tax-exempt organizations qualifying under Section 501(c)(3) of the
Internal Revenue Code (not including tax-exempt organizations qualifying
under Section 403(b)(7) (a "403(b) plan") of the Code; and
(v) employee benefit plans of a single employer or of affiliated
employers, other than 403(b) plans.
A combined purchase currently may also include shares of any class of other
continuously offered Putnam funds (other than money market funds) purchased
at the same time, if the dealer places the order for such shares directly
with Putnam Retail Management.
Right of accumulation. A purchaser of class A shares or class M shares
may qualify for a right of accumulation discount by combining all
current purchases by such person with the value of certain other shares
of any class of Putnam funds already owned. In the case of an
individual purchaser, all current purchases made or already owned by the
individual's spouse and children under the age of 21 may be combined
with the individual's current purchases. The applicable sales charge is
based on the total of:
(i) the investor's current purchase(s); and
(ii) the maximum public offering price (at the close of business on the
previous day) of:
(a) all shares held in accounts registered to the investor and other
accounts eligible to be linked to the investor's accounts (as described
below) in all of the Putnam funds (except closed-end and money market
funds, unless acquired as described in (b) below); and
(b) any shares of money market funds acquired by exchange from other
Putnam funds
Account types eligible to be linked for the purpose of qualifying for a
right of accumulation discount include the following (in each case as
registered to the investor, his or her spouse and his or her children
under the age of 21):
(i) individual accounts;
(ii) joint accounts;
(iii) accounts established as part of a plan established pursuant to
Section 403(b) of the Internal Revenue Code of 1986, as amended ("403(b)
plans") or an IRA other than a Simple IRA, SARSEP or SEP IRA;
(iv) shares owned through accounts in the name of the investor's (or
spouse's or minor child's) dealer or other financial intermediary (with
documentation identifying to the satisfaction of Putnam Investor
Services the beneficial ownership of such shares); and
(v) accounts established as part of a Section 529 college savings plan
managed by Putnam Management
Putnam Investor Services automatically links accounts the registrations
of which are under the same last name and address. Shares owned as part
of an employee benefit plan of a single employer or of affiliated
employers (other than 403(b) plans) or a single fiduciary account opened
by a trustee or other fiduciary (including a pension, profit-sharing, or
other employee benefit trust created pursuant to a plan qualified under
Section 401 of the Internal Revenue Code) are not eligible for linking
to qualify for the right of accumulation discount, although all current
purchases made by each such plan may be combined for purposes of
determining the sales charge applicable to shares purchased at such time
by the plan.
To obtain the right of accumulation discount on a purchase through an
investment dealer, when each purchase is made the investor or dealer
must provide Putnam Retail Management with sufficient information to
verify that the purchase qualifies for the privilege or discount. The
shareholder must furnish this information to Putnam Investor Services
when making direct cash investments. Sales charge discounts under a
right of accumulation apply only to current purchases. No credit is
given for any higher sales charge paid with respect to previous
purchases for the investor's account or any linked accounts.
Statement of Intention. Investors may also obtain the reduced sales
charges for class A shares or class M shares shown in the prospectus for
investments of a particular amount by means of a written Statement of
Intention, which expresses the investor's intention to invest that
amount (including certain "credits," as described below) within a period
of 13 months in shares of any class of the fund or any other
continuously offered Putnam fund (excluding money market funds). Each
purchase of class A shares or class M shares under a Statement of
Intention will be made at the public offering price applicable at the
time of such purchase to a single transaction of the total dollar amount
indicated in the Statement of Intention. A Statement of Intention may
include purchases of shares made not more than 90 days prior to the date
that an investor signs a Statement; however, the 13-month period during
which the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
An investor may receive a credit toward the amount indicated in the
Statement of Intention equal to the maximum public offering price as of
the close of business on the previous day of all shares he or she owns
on the date of the Statement of Intention which are eligible for
purchase under a Statement of Intention (plus any shares of money market
funds acquired by exchange of such eligible shares). Investors do not
receive credit for shares purchased by the reinvestment of
distributions. Investors qualifying for the "combined purchase
privilege" (see above) may purchase shares under a single Statement of
Intention.
The Statement of Intention is not a binding obligation upon the investor
to purchase the full amount indicated. The minimum initial investment
under a Statement of Intention is 5% of such amount, and must be
invested immediately. Class A shares or class M shares purchased with
the first 5% of such amount will be held in escrow to secure payment of
the higher sales charge applicable to the shares actually purchased if
the full amount indicated is not purchased. When the full amount
indicated has been purchased, the escrow will be released. If an
investor desires to redeem escrowed shares before the full amount has
been purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the Statement of
Intention, would apply to the total investment made to date.
To the extent that an investor purchases more than the dollar amount
indicated on the Statement of Intention and qualifies for a further
reduced sales charge, the sales charge will be adjusted for the entire
amount purchased at the end of the 13-month period, upon recovery from
the investor's dealer of its portion of the sales charge adjustment.
Once received from the dealer, which may take a period of time or may
never occur, the sales charge adjustment will be used to purchase
additional shares at the then current offering price applicable to the
actual amount of the aggregate purchases. These additional shares will
not be considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement of
Intention. No sales charge adjustment will be made unless and until the
investor's dealer returns any excess commissions previously received.
To the extent that an investor purchases less than the dollar amount
indicated on the Statement of Intention within the 13-month period, the
sales charge will be adjusted upward for the entire amount purchased at the
end of the 13-month period. This adjustment will be made by redeeming
shares from the account to cover the additional sales charge, the proceeds
of which will be paid to the investor's dealer and Putnam Retail Management
in accordance with the prospectus. Putnam Retail Management will make a
corresponding downward adjustment to the amount of the reallowance payable
to the dealer with respect to purchases made prior to the investor's
failure to fulfill the conditions of the Statement of Intention. If the
account exceeds an amount that would otherwise qualify for a reduced sales
charge, that reduced sales charge will be applied. Adjustments to sales
charges and dealer reallowances will not be made in the case of the
shareholder's death prior to the expiration of the 13-month period.
Statements of Intention are not available for certain employee benefit
plans.
Statement of Intention forms may be obtained from Putnam Retail Management
or from investment dealers. In addition, shareholders may complete the
applicable portion of the fund's standard account application. Interested
investors should read the Statement of Intention carefully.
Group purchases of class A and class M shares. Members of qualified
groups may purchase class A shares of the fund at a group sales charge
rate of 4.50% of the public offering price (4.71% of the net amount
invested). The dealer discount on such sales is 3.75% of the offering
price. Members of qualified groups may also purchase class M shares at
net asset value.
To receive the class A or class M group rate, group members must
purchase shares through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial
purchase to Putnam Retail Management, together with payment and
completed application forms. After the initial purchase, a member may
send funds for the purchase of shares directly to Putnam Investor
Services. Purchases of shares are made at the public offering price
based on the net asset value next determined after Putnam Retail
Management or Putnam Investor Services receives payment for the shares.
The minimum investment requirements described above apply to purchases
by any group member. Only shares purchased under the class A group
discount are included in calculating the purchased amount for the
purposes of these requirements.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or association,
or other organized groups of persons (the members of which may include
other qualified groups) provided that: (i) the group has at least 25
members of which, with respect to the class A discount only, at least 10
members participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some purpose in
addition to the purchase of investment company shares at a reduced sales
charge; (iv) the group's sole organizational nexus or connection is not
that the members are credit card holders of a company, policy holders of
an insurance company, customers of a bank or broker-dealer, clients of
an investment adviser or security holders of a company; (v) with respect
to the class A discount only, the group agrees to provide its designated
investment dealer access to the group's membership by means of written
communication or direct presentation to the membership at a meeting on
not less frequently than an annual basis; (vi) the group or its
investment dealer will provide annual certification in form satisfactory
to Putnam Investor Services that the group then has at least 25 members
and, with respect to the class A discount only, that at least ten
members participated in group purchases during the immediately preceding
12 calendar months; and (vii) the group or its investment dealer will
provide periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the group.
Members of a qualified group include: (i) any group which meets the
requirements stated above and which is a constituent member of a
qualified group; (ii) any individual purchasing for his or her own
account who is carried on the records of the group or on the records of
any constituent member of the group as being a good standing employee,
partner, member or person of like status of the group or constituent
member; or (iii) any fiduciary purchasing shares for the account of a
member of a qualified group or a member's beneficiary. For example, a
qualified group could consist of a trade association which would have as
its members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the members of
the partnerships and their employees, and the corporations and their
employees, as well as the trustees of employee benefit trusts acquiring
class A shares for the benefit of any of the foregoing.
A member of a qualified group may, depending upon the value of class A
shares of the fund owned or proposed to be purchased by the member, be
entitled to purchase class A shares of the fund at non-group sales
charge rates shown in the prospectus which may be lower than the group
sales charge rate, if the member qualifies as a person entitled to
reduced non-group sales charges. Such a group member will be entitled
to purchase at the lower rate if, at the time of purchase, the member or
his or her investment dealer furnishes sufficient information for Putnam
Retail Management or Putnam Investor Services to verify that the
purchase qualifies for the lower rate.
Interested groups should contact their investment dealer or Putnam
Retail Management. The fund reserves the right to revise the terms of
or to suspend or discontinue group sales at any time.
Purchases of $1 million or more of Class A shares. Purchases of class A
shares of $1 million or more are not subject to an initial sales charge,
but shares purchased by investors other than qualified benefit plans are
subject to a CDSC of 1.00% or 0.50% if redeemed before the first or second
anniversary, respectively, of purchase, unless the dealer of record has,
with Putnam Retail Management's approval, waived its commission or agreed
to refund its commission to Putnam Retail Management if a CDSC would
otherwise apply.
On sales at net asset value to a class A qualified benefit plan, Putnam
Retail Management pays commissions to the dealer of record at the time
of the sale on net monthly purchases up to the following rates: 1.00%
of the first $1 million, 0.75% of the next $1 million and 0.50%
thereafter.
On sales at net asset value to other investors, Putnam Retail Management
pays commissions on sales during the one-year period beginning with the
date of the initial purchase at net asset value. Each subsequent
one-year measuring period for these purposes begins with the first net
asset value purchase following the end of the prior period. These
commissions are paid at the rate of 1.00% of the amount under $3
million, 0.50% of the next $47 million and 0.25% thereafter.
Purchases of less than $1 million of Class A shares for rollover IRAs.
Purchases of class A shares for a Putnam Rollover IRA that is not part of a
Class A qualified benefit plan addressed above, including Putnam Rollover
IRAs for which Putnam Retail Management or an affiliate is the dealer of
record, with less than $1 million in proceeds from a retirement plan for
which a Putnam fund is an investment option are not subject to an initial
sales charge or CDSC. Putnam Retail Management or Putnam Investor services
may pay commissions or finders' fees of up to 1.00% of the proceeds for
such Putnam Rollover IRA purchases to the dealer of record.
Purchases of Class M shares for rollover IRAs. Purchases of class M
shares for a Putnam Rollover IRA with proceeds in any amount from a
retirement plan for which a Putnam fund is an investment option are not
subject to an initial sales charge but may be subject to a CDSC on
shares redeemed within one year of purchase at the rates set forth
below, which are equal to commissions Putnam Retail Management pays to
the dealer of record at the time of the sale of class M shares. These
purchases will not be subject to a CDSC if the dealer of record has,
with Putnam Retail Management's approval, waived its commission or
agreed to refund its commission to Putnam Retail Management if a CDSC
would otherwise apply.
Class M CDSC and dealer commission
----------------------------------
All growth, blend, value and asset
allocation funds: 0.65%
All income funds (except Putnam Money
Market Fund): 0.40%
Putnam Money Market Fund 0.15%
Additional Information About Class B, Class C and Class R Shares
Except as noted below, Putnam Retail Management will pay a 4% commission on
sales of class B shares of the fund only to those financial intermediaries
who have entered into service agreements with Putnam Retail Management.
For tax-exempt funds, this commission includes a 0.20% pre-paid service fee
(except for Putnam Municipal Income Fund, Putnam Tax-Free High Yield Fund
and Putnam Tax-Free Insured Fund, each of which has a 0.25% pre-paid
service fee). For Putnam Floating Rate Income Fund and Putnam Intermediate
U.S. Government Income Fund, Putnam Retail Management will pay a 2.75%
commission to financial intermediaries selling class B shares of the fund.
Putnam Retail Management pays financial intermediaries a 1.00% commission
on sales of class C shares of a fund, and may, at its discretion, pay
financial intermediaries up to a 1.00% commission on sales of class R
shares of a fund. Putnam Retail Management will retain any CDSC imposed on
redemptions of class B and class C shares to compensate it for the cost of
paying the up-front commissions paid to financial intermediaries for class
B or class C share sales. Purchases of class C shares may be made without
a CDSC if the dealer of record has, with Putnam Retail Management's
approval, waived its commission or agreed to refund its commission to
Putnam Retail Management. Commissions may vary on sales outside the United
States.
Putnam Prime Money Market Fund
The fund makes a continuous offering of its shares. Shares of the fund
are sold at the net asset value per share next determined after
confirmation of a completed purchase order by Putnam Investor
Services. As the fund is designed for institutional investors, the
share classes offered and the terms and conditions of buying them vary
from other Putnam funds. The fund's prospectus contains detailed
information on these terms and conditions. Payment for shares must be
in federal funds or other immediately available funds.
No initial or contingent deferred sales charges apply to shares of the
fund.
DISTRIBUTION PLANS
If the fund or a class of shares of the fund has adopted a distribution
plan, the prospectus describes the principal features of the plan. This
SAI contains additional information which may be of interest to
investors.
Continuance of a plan is subject to annual approval by a vote of the
Trustees, including a majority of the Trustees who are not interested
persons of the fund and who have no direct or indirect interest in the
plan or related arrangements (the "Qualified Trustees"), cast in person
at a meeting called for that purpose. All material amendments to a plan
must be likewise approved by the Trustees and the Qualified Trustees.
No plan may be amended in order to increase materially the costs which
the fund may bear for distribution pursuant to such plan without also
being approved by a majority of the outstanding voting securities of the
fund or the relevant class of the fund, as the case may be. A plan
terminates automatically in the event of its assignment and may be
terminated without penalty, at any time, by a vote of a majority of the
Qualified Trustees or by a vote of a majority of the outstanding voting
securities of the fund or the relevant class of the fund, as the case
may be.
Putnam Retail Management compensates qualifying dealers (including, for
this purpose, certain financial institutions) for sales of shares and
the maintenance of shareholder accounts.
Putnam Retail Management may suspend or modify its payments to dealers.
The payments are also subject to the continuation of the relevant
distribution plan, the terms of the service agreements between the
dealers and Putnam Retail Management and any applicable limits imposed
by the National Association of Securities Dealers, Inc.
Financial institutions receiving payments from Putnam Retail Management
as described above may be required to comply with various state and
federal regulatory requirements, including among others those regulating
the activities of securities brokers or dealers.
Except as otherwise agreed between Putnam Retail Management and a
dealer, for purposes of determining the amounts payable to dealers for
shareholder accounts for which such dealers are designated as the dealer
of record, "average net asset value" means the product of (i) the
average daily share balance in such account(s) and (ii) the average
daily net asset value of the relevant class of shares over the quarter.
Class A shares:
Putnam Retail Management makes quarterly (or in certain cases monthly)
payments to dealers at the annual rates set forth below (as a percentage
of the average net asset value of class A shares for which such dealers
are designated the dealer of record) except as described below. No
payments are made during the first year after purchase on shares
purchased at net asset value by shareholders that invest at least $1
million or that are class A qualified benefit plans, unless the
shareholder has made arrangements with Putnam Retail Management and the
dealer of record has waived the sales commission.
Rate Fund
- ---- ----
0.25% All funds currently making payments under a class A
distribution plan, except for those listed below
0.20% Putnam Tax-Free High Yield Fund
Putnam Tax-Free Insured Fund
0.20% for shares purchased
on or before 12/31/89; Putnam Convertible Income-Growth Trust
0.25% for shares
purchased after 12/31/89 The George Putnam Fund of Boston
Putnam Global Equity Fund (formerly Putnam Global Growth Fund)
Putnam Global Natural Resources Fund
Putnam Health Sciences Trust
The Putnam Fund for Growth and Income
Putnam Investors Fund
Putnam Vista Fund
Putnam Voyager Fund
0.20% for shares purchased
on or before 3/31/90; Putnam High Yield Trust
0.25% for shares
purchased after 3/31/90 Putnam U.S. Government Income Trust
0.20% for shares purchased
on or before 1/1/90; Putnam Equity Income Fund
0.25% for shares purchased
after 1/1/90
0.20% for shares purchased
on or before 3/31/91; Putnam Income Fund
0.25% for shares
purchased after 3/31/91
0.20% for shares purchased
on or before 5/7/92; Putnam Municipal Income Fund
0.25% for shares
purchased after 5/7/92
0.15% for shares purchased
on or before 3/6/92; Putnam Michigan Tax Exempt Income Fund
0.20% for shares
purchased after 3/6/92 Putnam Minnesota Tax Exempt Income Fund
Putnam Ohio Tax Exempt Income Fund
0.15% for shares purchased
on or before 5/11/92; Putnam Massachusetts Tax Exempt Income Fund
0.20% for shares
purchased after 5/11/92
0.15% for shares purchased
on or before 7/12/92; Putnam New York Tax Exempt Opportunities Fund
0.20% for shares
purchased after 7/12/92
0.15% for shares purchased
on or before 12/31/92; Putnam California Tax Exempt Income Fund
0.20% for shares
purchased after 12/31/92 Putnam New Jersey Tax Exempt Income Fund
Putnam New York Tax Exempt Income Fund
Putnam Tax Exempt Income Fund
0.15% for shares purchased
on or before 3/5/93; Putnam Arizona Tax Exempt Income Fund
0.20% for shares
purchased after 3/5/93
0.15% for shares purchased
on or before 7/8/93; Putnam Florida Tax Exempt Income Fund
0.20% for shares
purchased after 7/8/93 Putnam Pennsylvania Tax Exempt Income Fund
0.00% Putnam Money Market Fund
Putnam Tax Exempt Money Market Fund
Class B shares:
Putnam Retail Management makes quarterly (or in certain cases monthly)
payments to dealers at the annual rates set forth below (as a percentage
of the average net asset value of class B shares for which such dealers
are designated the dealer of record).
Rate Fund
- ---- ----
0.25% All funds currently making payments under a class B
distribution plan, except for those listed below
0.25%, except that the first Putnam Municipal Income Fund
year's service fees of 0.25% Putnam Tax-Free Insured Fund
are prepaid at time of sale Putnam Tax-Free High Yield
0.20% , except that the first Putnam Arizona Tax Exempt Income Fund
year's service fees of 0.20% Putnam California Tax Exempt Income Fund
are prepaid at time of sale Putnam Florida Tax Exempt Income Fund
Putnam Massachusetts Tax Exempt Income Fund
Putnam Michigan Tax Exempt Income Fund
Putnam Minnesota Tax Exempt Income Fund
Putnam New Jersey Tax Exempt Income Fund
Putnam New York Tax Exempt Income Fund
Putnam New York Tax Exempt Opportunities Fund
Putnam Ohio Tax Exempt Income Fund
Putnam Pennsylvania Tax Exempt Income Fund
Putnam Tax Exempt Income Fund
0.00% Putnam Money Market Fund
Class C shares:
Putnam Retail Management makes quarterly (or in certain cases monthly)
payments to dealers at the annual rates set forth below (as a percentage
of the average net asset value of class C shares for which such dealers
are designated the dealer of record). No payments are made during the
first year after purchase unless the shareholder has made arrangements
with Putnam Retail Management and the dealer of record has waived the
sales commission.
Rate Fund
- ---- ----
1.00% All funds currently making payments under a class C
distribution plan, except the fund listed below
0.50% Putnam Money Market Fund
Different rates may apply to shares sold outside the United States.
Class M shares:
Putnam Retail Management makes quarterly (or in certain cases monthly)
payments to dealers at the annual rates set forth below (as a percentage
of the average net asset value of class M shares for which such dealers
are designated the dealer of record), except as follows. No payments
are made during the first year after purchase on shares purchased at net
asset value for Putnam Rollover IRAs, unless the dealer of record has
waived the sales commission.
Rate Fund
- ---- ----
0.65% All growth, blend, value and asset allocation funds currently
making payments under a class M distribution plan
0.40% All income funds currently making payments under a class M
distribution plan (except for Putnam Money Market Fund)
0.15% Putnam Money Market Fund
Class R shares:
Putnam Retail Management makes quarterly (or in certain cases monthly)
payments to dealers at the annual rates set forth below (as a percentage
of the average net asset value of class R shares for which such dealers
are designated the dealer of record).
Rate Fund
- ---- ----
0.50% All funds currently making payments under a class R
distribution plan
A portion of the Class R distribution fee payable to dealers may be paid to
third parties who provide services to plans investing in Class R shares and
participants in such plans.
Class T shares:
Putnam Retail Management makes quarterly (or in certain cases monthly)
payments to dealers at the annual rates set forth below (as a percentage
of the average net asset value of class T shares for which such dealers
are designated the dealer of record).
Rate Fund
- ---- ----
0.25% Putnam Money Market Fund
Class S Shares
Putnam Retail Management makes quarterly (or in certain cases monthly)
payments to dealers at the annual rates set forth below (as a percentage
of the average net asset value of class S shares for which such dealers
are designated the dealer of record).
Rate Fund
- ---- ----
0.10% Putnam Prime Money Market Fund
INVESTOR SERVICES
Shareholder Information
Each time shareholders buy or sell shares, they will receive a statement
confirming the transaction and listing their current share balance. (Under
certain investment plans, a statement may only be sent quarterly.)
Shareholders will receive a statement confirming reinvestment of
distributions in additional fund shares (or in shares of other Putnam funds
for Dividends Plus accounts) promptly following the quarter in which the
reinvestment occurs. To help shareholders take full advantage of their
Putnam investment, they will receive a Welcome Kit and a periodic
publication covering many topics of interest to investors. The fund also
sends annual and semiannual reports that keep shareholders informed about
its portfolio and performance, and year-end tax information to simplify
their recordkeeping. Easy-to-read, free booklets on special subjects such
as the Exchange Privilege and IRAs are available from Putnam Investor
Services. Shareholders may call Putnam Investor Services toll-free
weekdays at 1-800-225-1581 between 8:30 a.m. and 8:00 p.m., and Saturdays
from 9:00 a.m. to 5:00 p.m., Boston time for more information, including
account balances. Shareholders can also visit the Putnam web site at
http://www.putnaminvestments.com.
Your Investing Account
The following information provides more detail concerning the operation
of a Putnam Investing Account. For further information or assistance,
investors should consult Putnam Investor Services. Shareholders who
purchase shares through a defined contribution plan should note that not
all of the services or features described below may be available to
them, and they should contact their employer for details.
A shareholder may reinvest a cash distribution without a front-end sales
charge or without the reinvested shares being subject to a CDSC, as the
case may be, by delivering to Putnam Investor Services the uncashed
distribution check, endorsed to the order of the fund. Putnam Investor
Services must receive the properly endorsed check within 1 year after
the date of the check.
The Investing Account also provides a way to accumulate shares of the
fund. In most cases, after an initial investment of $500, a shareholder
may send checks to Putnam Investor Services for $50 or more, made
payable to the fund, to purchase additional shares at the applicable
public offering price next determined after Putnam Investor Services
receives the check. Checks must be drawn on a U.S. bank and must be
payable in U.S. dollars.
Putnam Investor Services acts as the shareholder's agent whenever it
receives instructions to carry out a transaction on the shareholder's
account. Upon receipt of instructions that shares are to be purchased
for a shareholder's account, shares will be purchased through the
investment dealer designated by the shareholder. Shareholders may
change investment dealers at any time by written notice to Putnam
Investor Services, provided the new dealer has a sales agreement with
Putnam Retail Management.
Shares credited to an account are transferable upon written instructions
in good order to Putnam Investor Services and may be sold to the fund as
described under "How do I sell fund shares?" in the prospectus. Money
market funds and certain other funds will not issue share certificates.
A shareholder may send to Putnam Investor Services any certificates
which have been previously issued for safekeeping at no charge to the
shareholder.
Putnam Retail Management, at its expense, may provide certain additional
reports and administrative material to qualifying institutional
investors with fiduciary responsibilities to assist these investors in
discharging their responsibilities. Institutions seeking further
information about this service should contact Putnam Retail Management,
which may modify or terminate this service at any time.
Putnam Investor Services may make special services available to
shareholders with investments exceeding $1,000,000. Contact Putnam
Investor Services for details.
The fund pays Putnam Investor Services' fees for maintaining Investing
Accounts.
Reinstatement Privilege
An investor who has redeemed shares of the fund may reinvest (within 1
year) the proceeds of such sale in shares of the same class of the fund,
or may be able to reinvest (within 1 year) the proceeds in shares of the
same class of one of the other continuously offered Putnam funds
(through the exchange privilege described in the prospectus), including,
in the case of shares subject to a CDSC, the amount of CDSC charged on
the redemption. Any such reinvestment would be at the net asset value
of the shares of the fund(s) the investor selects, next determined after
Putnam Retail Management receives a Reinstatement Authorization. The
time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions and, in the case of
class B shares, the eight-year period for conversion to class A shares.
Shareholders will receive from Putnam Retail Management the amount of
any CDSC paid at the time of redemption as part of the reinstated
investment, which may be treated as capital gains to the shareholder for
tax purposes. Exercise of the Reinstatement Privilege does not alter
the federal income tax treatment of any capital gains realized on a sale
of fund shares, but to the extent that any shares are sold at a loss and
the proceeds are reinvested in shares of the fund, some or all of the
loss may be disallowed as a deduction. Consult your tax adviser.
Investors who desire to exercise the Reinstatement Privilege should
contact their investment dealer or Putnam Investor Services.
Exchange Privilege
Except as otherwise set forth in this section, by calling Putnam
Investor Services, investors may exchange shares valued up to $500,000
between accounts with identical registrations, provided that no
certificates are outstanding for such shares and no address change has
been made within the preceding 15 days. During periods of unusual
market changes and shareholder activity, shareholders may experience
delays in contacting Putnam Investor Services by telephone to exercise
the telephone exchange privilege. No exchanges are permitted into or
out of Putnam Prime Money Market Fund.
Putnam Investor Services also makes exchanges promptly after receiving a
properly completed Exchange Authorization Form and, if issued, share
certificates. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, Putnam Investor Services will require
additional documentation of a customary nature. Because an exchange of
shares involves the redemption of fund shares and reinvestment of the
proceeds in shares of another Putnam fund, completion of an exchange may
be delayed under unusual circumstances if the fund were to suspend
redemptions or postpone payment for the fund shares being exchanged, in
accordance with federal securities laws. Exchange Authorization Forms
and prospectuses of the other Putnam funds are available from Putnam
Retail Management or investment dealers having sales contracts with
Putnam Retail Management. The prospectus of each fund describes its
investment objective(s) and policies, and shareholders should obtain a
prospectus and consider these objectives and policies carefully before
requesting an exchange. Shares of certain Putnam funds are not
available to residents of all states. The fund reserves the right to
change or suspend the exchange privilege at any time. Shareholders
would be notified of any change or suspension. Additional information
is available from Putnam Investor Services.
Shareholders of other Putnam funds may also exchange their shares at net
asset value for shares of the fund, as set forth in the current
prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which the
investor generally will realize a capital gain or loss depending on
whether the net asset value at the time of the exchange is more or less
than the investor's basis.
All exchanges are subject to applicable short-term trading fees and
Putnam's policies on short-term trading, as set forth in the Fund's
Prospectus. In addition, trustees, sponsors and administrators of qualified
plans that invest in the Fund may impose short-term trading fees whose
terms may differ from those described in the Prospectus.
Dividends PLUS
Shareholders may invest the fund's distributions of net investment
income or distributions combining net investment income and short-term
capital gains in shares of the same class of another continuously
offered Putnam fund (the "receiving fund") using the net asset value per
share of the receiving fund determined on the date the fund's
distribution is payable. No sales charge or CDSC will apply to the
purchased shares unless the fund paying the distribution is a money
market fund. The prospectus of each fund describes its investment
objective(s) and policies, and shareholders should obtain a prospectus
and consider these objective(s) and policies carefully before investing
their distributions in the receiving fund. Shares of certain Putnam
funds are not available to residents of all states.
The minimum account size requirement for the receiving fund will not
apply if the current value of your account in the fund paying the
distribution is more than $5,000.
Shareholders of other Putnam funds (except for money market funds, whose
shareholders must pay a sales charge or become subject to a CDSC) may
also use their distributions to purchase shares of the fund at net asset
value.
For federal tax purposes, distributions from the fund which are
reinvested in another fund are treated as paid by the fund to the
shareholder and invested by the shareholder in the receiving fund and
thus, to the extent comprised of taxable income and deemed paid to a
taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any time and
is not available for dividends paid by Putnam Prime Money Market Fund.
Shareholders in other Putnam funds cannot cross fund reinvest into the
Putnam Prime Money Market Fund.
Plans Available To Shareholders
The plans described below are fully voluntary and may be terminated at
any time without the imposition by the fund or Putnam Investor Services
of any penalty. All plans provide for automatic reinvestment of all
distributions in additional shares of the fund at net asset value. The
fund, Putnam Retail Management or Putnam Investor Services may modify or
cease offering these plans at any time.
Systematic Withdrawal Plan ("SWP"). An investor who owns or buys shares
of the fund valued at $5,000 or more at the current public offering
price may open a SWP plan and have a designated sum of money ($50 or
more) paid monthly, quarterly, semi-annually or annually to the investor
or another person. (Payments from the fund can be combined with
payments from other Putnam funds into a single check through a
designated payment plan.) Shares are deposited in a plan account, and
all distributions are reinvested in additional shares of the fund at net
asset value (except where the plan is utilized in connection with a
charitable remainder trust). Shares in a plan account are then redeemed
at net asset value to make each withdrawal payment. Payment will be
made to any person the investor designates; however, if shares are
registered in the name of a trustee or other fiduciary, payment will be
made only to the fiduciary, except in the case of a profit-sharing or
pension plan where payment will be made to a designee. As withdrawal
payments may include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor. The
redemption of shares in connection with a plan generally will result in
a gain or loss for tax purposes. Some or all of the losses realized
upon redemption may be disallowed pursuant to the so-called wash sale
rules if shares of the same fund from which shares were redeemed are
purchased (including through the reinvestment of fund distributions)
within a period beginning 30 days before, and ending 30 days after, such
redemption. In such a case, the basis of the replacement shares will be
increased to reflect the disallowed loss. Continued withdrawals in
excess of income will reduce and possibly exhaust invested principal,
especially in the event of a market decline. The maintenance of a plan
concurrently with purchases of additional shares of the fund would be
disadvantageous to the investor because of the sales charge payable on
such purchases. For this reason, the minimum investment accepted while
a plan is in effect is $1,000, and an investor may not maintain a plan
for the accumulation of shares of the fund (other than through
reinvestment of distributions) and a plan at the same time. The cost of
administering these plans for the benefit of those shareholders
participating in them is borne by the fund as an expense of all
shareholders. The fund, Putnam Retail Management or Putnam Investor
Services may terminate or change the terms of the plan at any time. A
plan will be terminated if communications mailed to the shareholder are
returned as undeliverable.
Investors should consider carefully with their own financial advisers
whether the plan and the specified amounts to be withdrawn are
appropriate in their circumstances. The fund and Putnam Investor
Services make no recommendations or representations in this regard.
Tax Qualified Retirement Plans; 403(b) and SEP Plans. (Not offered by
funds investing primarily in tax-exempt securities.) Investors may
purchase shares of the fund through the following Tax Qualified
Retirement Plans, available to qualified individuals or organizations:
Standard and variable profit-sharing (including 401(k)) and money
purchase pension plans; and Individual Retirement Account Plans (IRAs).
Each of these Plans has been qualified as a prototype plan by the
Internal Revenue Service. Putnam Investor Services will furnish
services under each plan at a specified annual cost. Putnam Fiduciary
Trust Company serves as trustee under each of these Plans.
Forms and further information on these Plans are available from
investment dealers or from Putnam Retail Management. In addition,
specialized professional plan administration services are available on
an optional basis; contact Putnam Defined Contribution Plan Services at
1-800-225-2465, extension 8600.
A 403(b) Retirement Plan is available for employees of public school
systems and organizations which meet the requirements of Section
501(c)(3) of the Internal Revenue Code. Forms and further information
on the 403(b) Plan are also available from investment dealers or from
Putnam Retail Management. Shares of the fund may also be used in
simplified employee pension (SEP) plans. For further information on the
Putnam prototype SEP plan, contact an investment dealer or Putnam Retail
Management.
Consultation with a competent financial and tax adviser regarding these
Plans and consideration of the suitability of fund shares as an
investment under the Employee Retirement Income Security Act of 1974, or
otherwise, is recommended.
In addition to the plans described above, Putnam Retail Management or
Putnam Investor Services may enter into arrangements with certain dealers
which provide for automatic periodic rebalancing of shareholders' accounts
in Putnam funds. For more information about these arrangements, please
contact Putnam Retail Management or Putnam Investor Services.
SIGNATURE GUARANTEES
Requests to redeem shares having a net asset value of $100,000 or more,
or to transfer shares or make redemption proceeds payable to anyone
other than the registered account owners, must be signed by all
registered owners or their legal representatives and must be guaranteed
by a bank, broker/dealer, municipal securities dealer or broker, credit
union, national securities exchange, registered securities association,
clearing agency, savings association or trust company, provided such
institution is authorized and acceptable under and conforms with Putnam
Fiduciary Trust Company's signature guarantee procedures. A copy of
such procedures is available upon request. In certain situations, for
example, if you want your redemption proceeds sent to an address other
than your address as it appears on Putnam's records, you may also need
to provide a signature guarantee. Putnam Investor Services usually
requires additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint
owner. Contact Putnam Investor Services for more information on Putnam's
signature guarantee and documentation requirements.
SUSPENSION OF REDEMPTIONS
The fund may not suspend shareholders' right of redemption, or postpone
payment for more than seven days, unless the Exchange is closed for
other than customary weekends or holidays, or if permitted by the rules
of the Securities and Exchange Commission during periods when trading on
the Exchange is restricted or during any emergency which makes it
impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted
by order of the Commission for protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the
fund. However, the Agreement and Declaration of Trust disclaims
shareholder liability for acts or obligations of the fund and requires
that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by the fund or the Trustees. The
Agreement and Declaration of Trust provides for indemnification out of
fund property for all loss and expense of any shareholder held
personally liable for the obligations of the fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund would be unable to meet
its obligations. The likelihood of such circumstances is remote.
PROXY VOTING GUIDELINES AND PROCEDURES
The Trustees of the Putnam funds have established proxy voting guidelines
and procedures that govern the voting of proxies for the securities held in
the funds' portfolios. The proxy voting guidelines summarize the funds'
positions on various issues of concern to investors, and provide direction
to the proxy voting service used by the funds as to how fund portfolio
securities should be voted on proposals dealing with particular issues. The
proxy voting procedures explain the role of the Trustees, Putnam
Management, the proxy voting service and the funds' proxy coordinator in
the proxy voting process, describe the procedures for referring matters
involving investment considerations to the investment personnel of Putnam
Management and describe the procedures for handling potential conflicts of
interest. The Putnam funds' proxy voting guidelines and procedures are
included in this SAI as Appendix A. Information regarding how the funds
voted proxies relating to portfolio securities during the 12-month period
ended June 30, 2004 is available on the Putnam Individual Investor Web
site, www.putnam.com/individual, and on the SEC's Web site at www.sec.gov.
If you have questions about finding forms on the SEC's Web site, you may
call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds' proxy
voting guidelines and procedures by calling Putnam's Shareholder Services
at 1-800-225-1581.
SECURITIES RATINGS
The ratings of securities in which the fund may invest will be measured
at the time of purchase and, to the extent a security is assigned a
different rating by one or more of the various rating agencies, Putnam
Management will use the highest rating assigned by any agency. Putnam
Management will not necessarily sell an investment if its rating is
reduced. The following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk appear
somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Notes
MIG 1/VMIG 1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
Commercial paper
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by the following
characteristics:
- -- Leading market positions in well established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- -- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's
Bonds
AAA -- An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA -- An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A -- An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB -- An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
Obligations rated BB, B, CCC, CC and C are regarded as having
significant speculative characteristics. BB indicates the lowest degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.
BB -- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B -- An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet
its financial commitment on the obligations. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC -- An obligation rated CCC is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or economic
conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation.
CC -- An obligation rated CC is currently highly vulnerable to
nonpayment.
C -- The C rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments
on this obligation are being continued.
D -- An obligation rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition, or the taking of a similar action if payments on an
obligation are jeopardized.
Notes
SP-1 -- Strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a
plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
SP-3 -- Speculative capacity to pay principal and interest.
Commercial paper
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated 'A-1'.
A-3 -- Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
Duff & Phelps Corporation
Long-Term Debt
AAA -- Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are strong.
Risk is modest but may vary slightly from time to time because of
economic conditions.
A+, A, A- -- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk
during economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes.
Overall quality may move up or down frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate
widely according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD -- Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
Fitch Investors Service, Inc.
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
BB -- Bonds considered to be speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B -- Bonds are considered highly speculative. Bonds in this class are
lightly protected as to the obligor's ability to pay interest over the
life of the issue and repay principal when due.
CCC -- Bonds have certain characteristics which, with passing of time,
could lead to the possibility of default on either principal or interest
payments.
CC -- Bonds are minimally protected. Default in payment of interest and/
or principal seems probable.
C -- Bonds are in actual or imminent default in payment of interest or
principal.
DDD -- Bonds are in default and in arrears in interest and/or principal
payments. Such bonds are extremely speculative and should be valued only
on the basis of their value in liquidation or reorganization of the
obligor.
DEFINITIONS
"Putnam Management" -- Putnam Investment Management, LLC, the
fund's investment manager.
"Putnam Retail Management" -- Putnam Retail Management Limited
Partnership, the fund's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the fund's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a division
of Putnam Fiduciary Trust Company, the fund's
investor servicing agent.
"Putnam Investments" -- The name under which Putnam LLC, the
parent company of Putnam Management and its
affiliates, generally conducts business.
Appendix A
Proxy voting guidelines of the Putnam funds
The proxy voting guidelines below summarize the funds' positions on
various issues of concern to investors, and give a general indication of
how fund portfolio securities will be voted on proposals dealing with
particular issues. The funds' proxy voting service is instructed to
vote all proxies relating to fund portfolio securities in accordance
with these guidelines, except as otherwise instructed by the Proxy
Coordinator, a member of the Office of the Trustees who is appointed to
assist in the coordination and voting of the funds' proxies.
The proxy voting guidelines are just that - guidelines. The guidelines
are not exhaustive and do not include all potential voting issues.
Because proxy issues and the circumstances of individual companies are
so varied, there may be instances when the funds may not vote in strict
adherence to these guidelines. For example, the proxy voting service is
expected to bring to the Proxy Coordinator's attention proxy questions
that are company-specific and of a non-routine nature and that, even if
covered by the guidelines, may be more appropriately handled on a
case-by-case basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all fund portfolio holdings, are
responsible for monitoring significant corporate developments, including
proxy proposals submitted to shareholders, and notifying the Proxy
Coordinator of circumstances where the interests of fund shareholders
may warrant a vote contrary to these guidelines. In such instances, the
investment professionals will submit a written recommendation to the
Proxy Coordinator and the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
referral items pursuant to the funds' "Proxy Voting Procedures." The
Proxy Coordinator, in consultation with the funds' Senior Vice
President, Executive Vice President, and/or the Chair of the Board
Policy and Nominating Committee, as appropriate, will determine how the
funds' proxies will be voted. When indicated, the Chair of the Board
Policy and Nominating Committee may consult with other members of the
Committee or the full Board of Trustees.
The following guidelines are grouped according to the types of proposals
generally presented to shareholders. Part I deals with proposals that
have been put forth by management and approved and recommended by a
company's board of directors. Part II deals with proposals submitted by
shareholders for inclusion in proxy statements. Part III addresses
unique considerations pertaining to non-U.S. issuers.
The Putnam funds will disclose their proxy votes in accordance with the
timetable established by SEC rules (i.e., not later than August 31 of
each year for the most recent 12-month period ended June 30).
I. BOARD-APPROVED PROPOSALS
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by its
board of directors. In view of the enhanced corporate governance
practices currently being implemented in public companies and of the
funds' intent to hold corporate boards accountable for their actions in
promoting shareholder interests, the funds' proxies generally will be
voted for the decisions reached by majority independent boards of
directors, except as otherwise indicated in these guidelines.
Accordingly, the funds' proxies will be voted for board-approved
proposals, except as follows:
Matters relating to the Board of Directors
- ------------------------------------------
Uncontested Election of Directors
The funds' proxies will be voted for the election of a company's
nominees for the board of directors, except as follows:
* The funds will withhold votes for the entire board of directors if
* the board does not have a majority of independent directors,
* the board has not established independent nominating, audit, and
compensation committees, or
* the board has more than 19 members or fewer than five members, absent
special circumstances.
* The funds will withhold votes for any nominee for director who:
* is considered an independent director by the company and who has
received compensation from the company other than for service as a
director (e.g., investment banking, consulting, legal, or financial
advisory fees),
* attends less than 75% of board and committee meetings without valid
reasons for the absences (e.g., illness, personal emergency, etc.), or
* as a director of a public company (Company A), is employed as a senior
executive of another public company (Company B) if a director of Company
B serves as a senior executive of Company A (commonly referred to as an
"interlocking directorate").
Commentary:
Board independence: Unless otherwise indicated, for the purposes of
determining whether a board has a majority of independent directors and
independent nominating, audit, and compensation committees, an "independent
director" is a director who (1) meets all requirements to serve as an
independent director of a company under the final NYSE Corporate Governance
Rules (e.g., no material business relationships with the company and no
present or recent employment relationship with the company (including
employment of an immediate family member as an executive officer)), and (2)
has not accepted directly or indirectly any consulting, advisory, or other
compensatory fee from the company other than in his or her capacity as a
member of the board of directors or any board committee. The funds'
Trustees believe that the receipt of compensation for services other than
service as a director raises significant independence issues.
Board size: The funds' Trustees believe that the size of the board of
directors can have a direct impact on the ability of the board to govern
effectively. Boards that have too many members can be unwieldy and
ultimately inhibit their ability to oversee management performance.
Boards that have too few members can stifle innovation and lead to
excessive influence by management.
Time commitment: Being a director of a company requires a significant
time commitment to adequately prepare for and attend the company's board
and committee meetings. Directors must be able to commit the time and
attention necessary to perform their fiduciary duties in proper fashion,
particularly in times of crisis. The funds' Trustees are concerned
about over-committed directors. In some cases, directors may serve on
too many boards to make a meaningful contribution. This may be
particularly true for senior executives of public companies (or other
directors with substantially full-time employment) who serve on more
than a few outside boards. The funds may withhold votes from such
directors on a case-by-case basis where it appears that they may be
unable to discharge their duties properly because of excessive
commitments.
Interlocking directorships: The funds' Trustees believe that
interlocking directorships are inconsistent with the degree of
independence required for outside directors of public companies.
Corporate governance practices: Board independence depends not only on
its members' individual relationships, but also on the board's overall
attitude toward management. Independent boards are committed to good
corporate governance practices and, by providing objective independent
judgment, enhancing shareholder value. The funds may withhold votes on
a case-by-case basis from some or all directors who, through their lack
of independence, have failed to observe good corporate governance
practices or, through specific corporate action, have demonstrated a
disregard for the interest of shareholders.
Contested Elections of Directors
* The funds will vote on a case-by-case basis in contested elections of
directors.
Classified Boards
* The funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the directors
are divided into three classes, with each class serving a three-year
term. The classified board structure results in directors serving
staggered terms, with usually only a third of the directors up for
re-election at any given annual meeting. The funds' Trustees generally
believe that it is appropriate for directors to stand for election each
year, but recognize that, in special circumstances, shareholder
interests may be better served under a classified board structure.
Other Board-Related Proposals
The funds will generally vote for board-approved proposals that have
been approved by a majority independent board, and on a case-by-case
basis on board-approved proposals where the board fails to meet the
guidelines' basic independence standards (i.e., majority of independent
directors and independent nominating, audit, and compensation
committees).
Executive Compensation
The funds generally favor compensation programs that relate executive
compensation to a company's long-term performance. The funds will vote
on a case-by-case basis on board-approved proposals relating to
executive compensation, except as follows:
* Except where the funds are otherwise withholding votes for the entire
board of directors, the funds will vote for stock option plans that will
result in an average annual dilution of 1.67% or less (based on a
10-year plan and including all equity-based plans).
* The funds will vote against stock option plans that permit the
replacing or repricing of underwater options (and against any proposal
to authorize such replacement or repricing of underwater options).
* The funds will vote against stock option plans that permit issuance of
options with an exercise price below the stock's current market price.
* Except where the funds are otherwise withholding votes for the entire
board of directors, the funds will vote for an employee stock purchase
plan that has the following features: (1) the shares purchased under
the plan are acquired for no less than 85% of their market value; (2)
the offering period under the plan is 27 months or less; and (3)
dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over the
longer term. Further, disclosure of compensation programs should
provide absolute transparency to shareholders regarding the sources and
amounts of, and the factors influencing, executive compensation.
Appropriately designed equity-based compensation plans can be an
effective way to align the interests of long-term shareholders with the
interests of management. The funds may vote against executive
compensation proposals on a case-by-case basis where compensation is
excessive by reasonable corporate standards, or where a company fails to
provide transparent disclosure of executive compensation. In voting on
a proposal relating to executive compensation, the funds will consider
whether the proposal has been approved by an independent compensation
committee of the board.
Capitalization
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the issuance of stock,
the repurchase of outstanding stock, or the approval of a stock split.
The management of a company's capital structure involves a number of
important issues, including cash flow, financing needs, and market
conditions that are unique to the circumstances of the company. As a
result, the funds will vote on a case-by-case basis on board-approved
proposals involving changes to a company's capitalization, except that
where the funds are not otherwise withholding votes from the entire
board of directors:
* The funds will vote for proposals relating to the authorization and
issuance of additional common stock (except where such proposals relate
to a specific transaction).
* The funds will vote for proposals to effect stock splits (excluding
reverse stock splits).
* The funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are best
left to the board of directors and senior management. The funds will
vote on a case-by-case basis, however, on other proposals to change a
company's capitalization, including the authorization of common stock
with special voting rights, the authorization or issuance of common
stock in connection with a specific transaction (e.g., an acquisition,
merger or reorganization), or the authorization or issuance of preferred
stock. Actions such as these involve a number of considerations that
may affect a shareholder's investment and that warrant a case-by-case
determination.
Acquisitions, Mergers, Reincorporations, Reorganizations and Other
Transactions
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations involving
business combinations, liquidations, and the sale of all or
substantially all of a company's assets, which may require their
consent. Voting on such proposals involves considerations unique to
each transaction. As a result, the funds will vote on a case-by-case
basis on board-approved proposals to effect these types of transactions,
except as follows:
* The funds will vote for mergers and reorganizations involving business
combinations designed solely to reincorporate a company in Delaware.
Commentary: A company may reincorporate into another state through a
merger or reorganization by setting up a "shell" company in a different
state and then merging the company into the new company. While
reincorporation into states with extensive and established corporate
laws - notably Delaware - provides companies and shareholders with a
more well-defined legal framework, shareholders must carefully consider
the reasons for a reincorporation into another jurisdiction, including
especially an offshore jurisdiction.
Anti-Takeover Measures
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company without
the approval of the company's board of directors. These include the
adoption of a shareholder rights plan, requiring supermajority voting on
particular issues, the adoption of fair price provisions, the issuance
of blank check preferred stock, and the creation of a separate class of
stock with disparate voting rights. Such proposals may adversely affect
shareholder rights, lead to management entrenchment, or create conflicts
of interest. As a result, the funds will vote against board-approved
proposals to adopt such anti-takeover measures, except as follows:
* The funds will vote on a case-by-case basis on proposals to ratify or
approve shareholder rights plans (commonly referred to as "poison
pills"); and
* The funds will vote on a case-by-case basis on proposals to adopt fair
price provisions.
Commentary: The funds' Trustees recognize that poison pills and fair
price provisions may enhance shareholder value under certain
circumstances. As a result, the funds will consider proposals to
approve such matters on a case-by-case basis.
Other Business Matters
Many proxies involve approval of routine business matters, such as
changing a company's name, ratifying the appointment of auditors, and
procedural matters relating to the shareholder meeting. For the most
part, these routine matters do not materially affect shareholder
interests and are best left to the board of directors and senior
management of the company. The funds will vote for board-approved
proposals approving such matters, except as follows:
* The funds will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments necessary or
to effect stock splits to change a company's name or to authorize
additional shares of common stock).
* The funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
* The funds will vote on a case-by-case basis on other business matters
where the funds are otherwise withholding votes for the entire board of
directors.
Commentary: Charter and bylaw amendments and the transaction of other
unidentified, substantive business at a shareholder meeting may directly
affect shareholder rights and have a significant impact on shareholder
value. As a result, the funds do not view such items as routine
business matters. Putnam Management's investment professionals and the
funds' proxy voting service may also bring to the Proxy Coordinator's
attention company-specific items that they believe to be non-routine and
warranting special consideration. Under these circumstances, the funds
will vote on a case-by-case basis.
II. SHAREHOLDER PROPOSALS
SEC regulations permit shareholders to submit proposals for inclusion in
a company's proxy statement. These proposals generally seek to change
some aspect of the company's corporate governance structure or to
change some aspect of its business operations. The funds generally will
vote in accordance with the recommendation of the company's board of
directors on all shareholder proposals, except as follows:
* The funds will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.
* The funds will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.
* The funds will vote for shareholder proposals that are consistent with
the funds' proxy voting guidelines for board-approved proposals.
* The funds will vote on a case-by-case basis on other shareholder
proposals where the funds are otherwise withholding votes for the entire
board of directors.
Commentary: In light of the substantial reforms in corporate governance
that are currently underway, the funds' Trustees believe that effective
corporate reforms should be promoted by holding boards of directors -
and in particular their independent directors - accountable for their
actions, rather than imposing additional legal restrictions on board
governance through piecemeal proposals. Generally speaking, shareholder
proposals relating to business operations are often motivated primarily
by political or social concerns, rather than the interests of
shareholders as investors in an economic enterprise. As stated above,
the funds' Trustees believe that boards of directors and management are
responsible for ensuring that their businesses are operating in
accordance with high legal and ethical standards and should be held
accountable for resulting corporate behavior. Accordingly, the funds
will generally support the recommendations of boards that meet the basic
independence and governance standards established in these guidelines.
Where boards fail to meet these standards, the funds will generally
evaluate shareholder proposals on a case-by-case basis.
III. VOTING SHARES OF NON-U.S. ISSUERS
Many of the Putnam funds invest on a global basis, and, as a result,
they may be required to vote shares held in non-U.S. issuers - i.e.,
issuers that are incorporated under the laws of foreign jurisdictions
and that are not listed on a U.S. securities exchange or the NASDAQ
stock market. Because non-U.S. issuers are incorporated under the laws
of countries and jurisdictions outside the U.S., protection for
shareholders may vary significantly from jurisdiction to jurisdiction.
Laws governing non-U.S. issuers may, in some cases, provide
substantially less protection for shareholders. As a result, the
foregoing guidelines, which are premised on the existence of a sound
corporate governance and disclosure framework, may not be appropriate
under some circumstances for non-U.S. issuers.
In many non-U.S. markets, shareholders who vote proxies of a non-U.S.
issuer are not able to trade in that company's stock on or around the
shareholder meeting date. This practice is known as "share blocking."
In countries where share blocking is practiced, the funds will vote
proxies only with direction from Putnam Management's investment
professionals.
In addition, some non-U.S. markets require that a company's shares be
re-registered out of the name of the local custodian or nominee into the
name of the shareholder for the meeting. This practice is known as
"share re-registration." As a result, shareholders, including the
funds, are not able to trade in that company's stock until the shares
are re-registered back in the name of the local custodian or nominee.
In countries where share re-registration is practiced, the funds will
generally not vote proxies.
The funds will vote proxies of non-U.S. issuers in accordance with the
foregoing guidelines where applicable, except as follows:
Uncontested Election of Directors
Japan
* For companies that have established a U.S.-style corporate structure,
the funds will withhold votes for the entire board of directors if
* the board does not have a majority of outside directors,
* the board has not established nominating and compensation committees
composed of a majority of outside directors, or
* the board has not established an audit committee composed of a
majority of independent directors.
* The funds will withhold votes for the appointment of members of a
company's board of statutory auditors if a majority of the members of
the board of statutory auditors is not independent.
Commentary:
Board structure: Recent amendments to the Japanese Commercial Code give
companies the option to adopt a U.S.-style corporate structure (i.e., a
board of directors and audit, nominating, and compensation committees).
The funds will vote for proposals to amend a company's articles of
incorporation to adopt the U.S.-style corporate structure.
Definition of outside director and independent director: Corporate
governance principles in Japan focus on the distinction between outside
directors and independent directors. Under these principles, an outside
director is a director who is not and has never been a director,
executive, or employee of the company or its parent company,
subsidiaries or affiliates. An outside director is "independent" if
that person can make decisions completely independent from the managers
of the company, its parent, subsidiaries, or affiliates and does not
have a material relationship with the company (i.e., major client,
trading partner, or other business relationship; familial relationship
with current director or executive; etc.). The guidelines have
incorporated these definitions in applying the board independence
standards above.
Korea
* The funds will withhold votes for the entire board of directors if
* the board does not have a majority of outside directors,
* the board has not established a nominating committee composed of at
least a majority of outside directors, or
* the board has not established an audit committee composed of at least
three members and in which at least two-thirds of its members are
outside directors.
Commentary: For purposes of these guideline, an "outside director" is
a director that is independent from the management or controlling
shareholders of the company, and holds no interests that might impair
performing his or her duties impartially from the company, management or
controlling shareholder. In determining whether a director is an
outside director, the funds will also apply the standards included in
Article 415-2(2) of the Korean Commercial Code (i.e., no employment
relationship with the company for a period of two years before serving
on the committee, no director or employment relationship with the
company's largest shareholder, etc.) and may consider other business
relationships that would affect the independence of an outside director.
United Kingdom
* The funds will withhold votes for the entire board of directors if
* the board does not have at least a majority of independent
non-executive directors,
* the board has not established nomination committees composed of a
majority of independent non-executive directors, or
* the board has not established compensation and audit committees
composed of (1) at least three directors (in the case of smaller
companies, two directors) and (2) solely of independent non-executive
directors.
* The funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has received
compensation from the company other than for service as a director
(e.g., investment banking, consulting, legal, or financial advisory
fees).
Commentary:
Application of guidelines: Although the U.K.'s Combined Code on
Corporate Governance ("Combined Code") has adopted the "comply and
explain" approach to corporate governance, the funds' Trustees believe
that the guidelines discussed above with respect to board independence
standards are integral to the protection of investors in U.K. companies.
As a result, these guidelines will be applied in a prescriptive manner.
Definition of independence: For the purposes of these guidelines, a
non-executive director shall be considered independent if the director
meets the independence standards in section A.3.1 of the Combined Code
(i.e., no material business or employment relationships with the
company, no remuneration from the company for non-board services, no
close family ties with senior employees or directors of the company,
etc.), except that the funds do not view service on the board for more
than nine years as affecting a director's independence.
Smaller companies: A smaller company is one that is below the FTSE 350
throughout the year immediately prior to the reporting year.
Canada
In January 2004, Canadian securities regulators issued proposed policies
that would impose new corporate governance requirements on Canadian
public companies. The recommended practices contained in these new
corporate governance requirements mirror corporate governance reforms
that have been adopted by the NYSE and other U.S. national securities
exchanges and stock markets. As a result, the funds will vote on
matters relating to the board of directors of Canadian issuers in
accordance with the guidelines applicable to U.S. issuers.
Commentary: Like the U.K.'s Combined Code, the proposed policies on
corporate governance issued by Canadian securities regulators embody the
"comply and explain" approach to corporate governance. Because the
funds' Trustees believe that the board independence standards contained
in the proxy voting guidelines are integral to the protection of
investors in Canadian companies, these standards will be applied in a
prescriptive manner.
Other Matters
* The funds will vote for shareholder proposals calling for a majority
of a company's directors to be independent of management.
* The funds will vote for shareholder proposals seeking to increase the
independence of board nominating, audit, and compensation committees.
* The funds will vote for shareholder proposals that implement corporate
governance standards similar to those established under U.S. federal law
and the listing requirements of U.S. stock exchanges, and that do not
otherwise violate the laws of the jurisdiction under which the company
is incorporated.
* The funds will vote on a case-by-case basis on proposals relating to
(1) the issuance of common stock in excess of 20% of the company's
outstanding common stock where shareholders do not have preemptive
rights, or (2) the issuance of common stock in excess of 100% of the
company's outstanding common stock where shareholders have preemptive
rights.
As adopted May 14, 2004
Proxy voting procedures of the Putnam funds
The proxy voting procedures below explain the role of the funds'
Trustees, the proxy voting service and the Proxy Coordinator, as well as
how the process will work when a proxy question needs to be handled on a
case by case basis, or when there may be a conflict of interest.
The role of the funds' Trustees
The Trustees of the Putnam funds exercise control of the voting of
proxies through their Board Policy and Nominating Committee, which is
composed entirely of independent Trustees. The Board Policy and
Nominating Committee oversees the proxy voting process and participates,
as needed, in the resolution of issues that need to be handled on a
case-by-case basis. The Committee annually reviews and recommends, for
Trustee approval, guidelines governing the funds' proxy votes, including
how the funds vote on specific proposals and which matters are to be
considered on a case-by-case basis. The Trustees are assisted in this
process by their independent administrative staff ("Fund
Administration"), independent legal counsel, and an independent proxy
voting service. The Trustees also receive assistance from Putnam
Investment Management, LLC ("Putnam Management"), the funds' investment
advisor, on matters involving investment judgments. In all cases, the
ultimate decision on voting proxies rests with the Trustees, acting as
fiduciaries on behalf of the shareholders of the funds.
The role of the proxy voting service
The funds have engaged an independent proxy voting service to assist in
the voting of proxies. The proxy voting service is responsible for
coordinating with the funds' custodians to ensure that all proxy
materials received by the custodians relating to the funds' portfolio
securities are processed in a timely fashion. To the extent applicable,
the proxy voting service votes all proxies in accordance with the proxy
voting guidelines established by the Trustees. The proxy voting service
will refer proxy questions to the Proxy Coordinator (described below)
for instructions under circumstances where: (1) the application of the
proxy voting guidelines is unclear; (2) a particular proxy question is
not covered by the guidelines; or (3) the guidelines call for specific
instructions on a case-by-case basis. The proxy voting service is also
requested to call to the Proxy Coordinator's attention specific proxy
questions that, while governed by a guideline, appear to involve unusual
or controversial issues. The funds also utilize research services
relating to proxy questions provided by the proxy voting service and by
other firms.
The role of the Proxy Coordinator
Each year, a member of Fund Administration is appointed Proxy
Coordinator to assist in the coordination and voting of the funds'
proxies. The Proxy Coordinator will deal directly with the proxy voting
service and, in the case of proxy questions referred by the proxy voting
service, will solicit voting recommendations and instructions from Fund
Administration, the Chair of the Board Policy and Nominating Committee,
and Putnam Management's investment professionals, as appropriate. The
Proxy Coordinator is responsible for ensuring that these questions and
referrals are responded to in a timely fashion and for transmitting
appropriate voting instructions to the proxy voting service.
Voting procedures for referral items
As discussed above, the proxy voting service will refer proxy questions
to the Proxy Coordinator under certain circumstances. When the
application of the proxy voting guidelines is unclear or a particular
proxy question is not covered by the guidelines (and does not involve
investment considerations), the Proxy Coordinator will assist in
interpreting the guidelines and, as appropriate, consult with the Senior
Vice President of Fund Administration, the Executive Vice President of
Fund Administration, and the Chair of the Board Policy and Nominating
Committee on how the funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve
investment considerations, the Proxy Coordinator will refer such
questions, through a written request, to Putnam Management's investment
professionals for a voting recommendation. Such referrals will be made
in cooperation with the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
such referral items. In connection with each such referral item, the
Legal and Compliance Department will conduct a conflicts of interest
review, as described below under "Conflicts of Interest," and provide a
conflicts of interest report (the "Conflicts Report") to the Proxy
Coordinator describing the results of such review. After receiving a
referral item from the Proxy Coordinator, Putnam Management's investment
professionals will provide a written recommendation to the Proxy
Coordinator and the person or persons designated by the Legal and
Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted; (2)
the basis and rationale for such recommendation; and (3) any contacts
the investment professionals have had with respect to the referral item
with non-investment personnel of Putnam Management or with outside
parties (except for routine communications from proxy solicitors). The
Proxy Coordinator will then review the investment professionals'
recommendation and the Conflicts Report with the Senior Vice President
and/or Executive Vice President in determining how to vote the funds'
proxies. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to Putnam Management's investment
professionals, the voting recommendation, and the Conflicts Report.
In some situations, the Proxy Coordinator, the Senior Vice President,
and/or the Executive Vice President may determine that a particular
proxy question raises policy issues requiring consultation with the
Chair of the Board Policy and Nominating Committee, who, in turn, may
decide to bring the particular proxy question to the Committee or the
full Board of Trustees for consideration.
Conflicts of interest
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest
may exist, for example, if Putnam Management has a business relationship
with (or is actively soliciting business from) either the company
soliciting the proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a
particular outcome of a proxy vote. Any individual with knowledge of a
personal conflict of interest (e.g., familial relationship with company
management) relating to a particular referral item shall disclose that
conflict to the Proxy Coordinator and the Legal and Compliance
Department and otherwise remove himself or herself from the proxy voting
process. The Legal and Compliance Department will review each item
referred to Putnam Management's investment professionals to determine if
a conflict of interest exists and will provide the Proxy Coordinator
with a Conflicts Report for each referral item that (1) describes any
conflict of interest; (2) discusses the procedures used to address such
conflict of interest; and (3) discloses any contacts from parties
outside Putnam Management (other than routine communications from proxy
solicitors) with respect to the referral item not otherwise reported in
an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an
investment professional provided under circumstances where a conflict of
interest exists was made solely on the investment merits and without
regard to any other consideration.
As adopted March 14, 2003
PUTNAM TAX-FREE HIGH YIELD FUND
A SERIES OF PUTNAM TAX-FREE INCOME TRUST
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification
The information required by this item is incorporated herein by
reference from the Registrant's Initial Registration Statement on Form
N-1A under the Investment Company Act of 1940 (File Nos. 2-98790 and
811-4345) (the "Registration Statement").
Item 16. Exhibits:
(1) Agreement and Declaration of Trust, as amended and restated July 21,
1993 -- Incorporated by reference to Post-Effective Amendment No. 10 to
the Registration Statement.
(2) Bylaws, as amended July 21, 2000 -- Incorporated by reference to
Post-Effective Amendment No. 18 to the Registration Statement.
(3) Not applicable.
(4) Agreement and Plan of Reorganization - Constitutes Appendix A to part
A hereof.
(5)(a) Portions of Agreement and Declaration of Trust Relating to
Shareholder's Rights -- Incorporated by reference to Post-Effective
Amendment No. 10 to the Registration Statement.
(5)(b) Portions of Bylaws Relating to Shareholder's Rights --
Incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement.
(6) Management Contract for Putnam Tax-Free Income Trust dated as of
July 26, 1985, as amended and restated July 1, 1999 -- Incorporated by
reference to Post-Effective Amendment No. 17 to the Registration
Statement.
(7)(a) Distributors' Contract for Putnam Tax-Free Insured Fund dated
May 6, 1994 -- Incorporated by reference to Post-Effective Amendment No.
11 to the Registration Statement.
(7)(b) Distributors' Contract for Putnam Tax-Free High Yield Fund --
Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement.
(7)(c) Form of Dealer Sales Contract -- Incorporated by reference to
Post-Effective Amendment No. 8 to the Registration Statement.
(7)(d) Form of Financial Institution Sales Contract -- Incorporated by
reference to Post-Effective Amendment No. 8 to the Registration
Statement.
(8) Trustee Retirement Plan dated October 4, 1996 and amended July 21, 2000
- -- Incorporated by reference to the Registrant's Registration Statement on
Form N-14 (333-120361), filed with the SEC on November 10, 2004
("Registration Statement on Form N-14").
(9) Custodian Agreement with Putnam Fiduciary Trust Company dated May 3,
1991, as amended June 1, 2001. - Incorporated by reference to
Post-Effective Amendment No. 19 to the Registration Statement.
(10)(a) Class A Distribution Plan and Agreement dated April 1, 2000 --
Incorporated by reference to Post-Effective Amendment No. 18 to the
Registration Statement.
(10)(b) Class B Distribution Plan and Agreement for dated April 1, 2000 --
Incorporated by reference to Post-Effective Amendment No. 18 to the
Registration Statement.
(10)(c) Class C Distribution Plan and Agreement dated April 1, 2000 --
Incorporated by reference to Post-Effective Amendment No. 18 to the
Registration Statement.
(10)(d) Class M Distribution Plan and Agreement dated April 1, 2000 --
Incorporated by reference to Post-Effective Amendment No. 18 to the
Registration Statement.
(10)(e) Form of Dealer Service Agreement -- Incorporated by reference to
Post-Effective Amendment No. 8 to the Registration Statement.
(10)(f) Form of Financial Institution Service Agreement -- Incorporated by
reference to Post-Effective Amendment No. 8 to the Registration Statement.
(10)(g) Rule 18f-3(d) Plan -- Incorporated by reference to Post-Effective
Amendment No. 21 to the Registration Statement.
(11)(a) Form of Opinion of Ropes & Gray LLP -- Incorporated by reference to
the Registrant's Registration Statement on Form N-14.
(11)(b) Consent of Ropes & Gray LLP -- Incorporated by reference to the
Registrant's Registration Statement on Form N-14.
(12) Opinion of Ropes & Gray LLP with respect to tax matters - Filed herewith.
(13)(a) Investor Servicing Agency Agreement dated June 3, 1991 with Putnam
Fiduciary Trust Company -- Incorporated by reference to Post-Effective
Amendment No. 8 to the Registration Statement.
(13)(b) Letter of Indemnity dated December 18, 2003 with Putnam Investment
Management, LLC -- Incorporated by reference to the Registrant's
Registration Statement on Form N-14.
(13)(c) Liability Insurance Allocation Agreement -- Incorporated by
reference to the Registrant's Registration Statement on Form N-14.
(14)(a) Consent of PricewaterhouseCoopers LLP -- Incorporated by reference
to the Registrant's Registration Statement on Form N-14.
(14)(b) Consent of KMPG LLP -- Incorporated by reference to the
Registrant's Registration Statement on Form N-14.
(16) Powers of Attorney -- Incorporated by reference to the Registrant's
Registration Statement on Form N-14.
(17) Not applicable.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus
which is a part of this registration statement by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c)
under the Securities Act of 1933, as amended, the reoffering prospectus
will contain the information called for by the applicable registration
form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (a) above will be filed as a part of an amendment
to this registration statement and will not be used until the amendment
is effective, and that, in determining any liability under the Act, each
post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of the
Registrant is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this registration
statement has been executed on behalf of the Registrant by an officer of
the Registrant as an officer and not individually, and the obligations
of or arising out of this registration statement are not binding upon
any of the Trustees, officers, or shareholders of the Registrant
individually, but are binding only upon the assets and property of the
Registrant.
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed on behalf of the Registrant, in the City of
Boston and The Commonwealth of Massachusetts on the 18th day of
April, 2005.
PUTNAM TAX-FREE HIGH YIELD FUND
By: /s/ Charles E. Porter
Executive President and Associate Treasurer
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and
on the dates indicated.
Signature Title
/S/ JOHN A. HILL Chairman of the Trustees
- -----------------------
John A. Hill
/S/ GEORGE PUTNAM, III President; Trustee
- -----------------------
George Putnam, III
/S/ CHARLES E. PORTER Executive Vice President; Associate
- ----------------------- Treasurer; Principal Executive Officer
Charles E. Porter
/S/ STEVEN D. KRICHMAR Vice President and Principal Financial
- ----------------------- Officer
Steven D. Krichmar
/S/ MICHAEL T. HEALY Assistant Treasurer and Principal
- ----------------------- Accounting Officer
Michael T. Healy
/S/ JAMESON A. BAXTER Trustee
- -----------------------
Jameson A. Baxter
/S/ CHARLES B. CURTIS Trustee
- -----------------------
Charles B. Curtis
/S/ MYRA R. DRUCKER Trustee
- -----------------------
Myra R. Drucker
/S/ CHARLES E. HALDEMAN, JR. Trustee
- -----------------------
Charles E. Haldeman, Jr.
/S/ RONALD J. JACKSON Trustee
- -----------------------
Ronald J. Jackson
/S/ PAUL L. JOSKOW Trustee
- -----------------------
Paul L. Joskow
/S/ ELIZABETH T. KENNAN Trustee
- -----------------------
Elizabeth T. Kennan
/S/ JOHN H. MULLIN, III Trustee
- -----------------------
John H. Mullin, III
/S/ ROBERT E. PATTERSON Trustee
- -----------------------
Robert E. Patterson
/S/ W. THOMAS STEPHENS Trustee
- -----------------------
W. Thomas Stephens
/S/ RICHARD B. WORLEY Trustee
- -----------------------
Richard B. Worley
By: /s/ Charles E. Porter, as Attorney-in-Fact
Dated: April 18, 2005
EXHIBIT INDEX
(12) Opinion of Ropes & Gray LLP as to Tax Matters - Exhibit 1.