As filed with the Securities and Exchange Commission on | ||
January 31, 2017 | ||
Securities Act File No. 333- | ||
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SECURITIES AND EXCHANGE COMMISSION | ||
WASHINGTON, D.C. 20549 | ||
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FORM N-14 | ||
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | / X / | |
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Pre-Effective Amendment No. // | / / | |
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Post-Effective Amendment No. // | / / | |
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(Check appropriate box or boxes) | ||
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PUTNAM EQUITY INCOME FUND | ||
(Exact Name of Registrant as Specified in Charter) | ||
One Post Office Square, Boston, Massachusetts 02109 | ||
(Address of Principal Executive Offices) | ||
(617) 292-1000 | ||
(Area Code and Telephone Number) | ||
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ROBERT T. BURNS, Vice President | ||
Putnam Equity Income Fund | ||
One Post Office Square | ||
Boston, Massachusetts 02109 | ||
(Name and address of agent for service) | ||
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Copy to: | ||
BRYAN CHEGWIDDEN, Esquire |
ROPES & GRAY LLP | ||
1211 Avenue of the Americas | ||
New York, New York 10036 |
Title of Securities Being Registered:
Class A
Class B
Class C
Class M
Class R
Class R6
Class Y
Approximate date of Proposed Offering: As soon as practicable after this Registration Statement becomes effective.
It is proposed that this filing will become effective on March 2, 2017 pursuant to Rule 488.
An indefinite amount of the Registrant’s securities have been registered under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940. In reliance upon such Rule, no filing fee is paid at this time.
A Message from the President and Chair
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The Putnam Fund for Growth and Income | (president photo) | (chair photo) | |
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[March 2], 2017 |
Dear Fellow Shareholder:
The Board of Trustees of The Putnam Fund for Growth and Income (“Putnam Growth and Income Fund”) is pleased to announce the upcoming merger of Putnam Growth and Income Fund with and into Putnam Equity Income Fund. In this merger, shares of Putnam Growth and Income Fund would, in effect, be exchanged for shares of Putnam Equity Income Fund with an equal total net asset value. The exchange is expected to be tax free for federal income tax purposes.
Both Putnam Growth and Income Fund and Putnam Equity Income Fund seek capital growth and current income. The funds have substantially similar investment strategies, investing mainly in common stocks of large U.S. companies, with a focus on value stocks that offer the potential for capital growth, current income, or both. Putnam Equity Income Fund also has the ability to invest a greater portion of its assets in midsize companies and has a policy (under normal circumstances) to invest at least 80% of its net assets in common stocks and other equity investments that offer the potential for current income.
Putnam Management has recommended the proposed merger because it believes that it is in the best interests of shareholders of Putnam Growth and Income Fund and Putnam Equity Income Fund. Putnam Equity Income Fund has a better performance record over multiple time periods than Putnam Growth and Income Fund. In addition, Putnam Management believes that merging Putnam Growth and Income Fund into Putnam Equity Income Fund could potentially enhance the commercial opportunity and asset growth potential for the combined Putnam Equity Income Fund. Because the portfolio management team for both funds is the same and the funds have the same investment goals and pursue substantially similar investment strategies, Putnam Management believes that the funds are appropriate merger partners. The merger is also expected to result in expense savings for Putnam Equity Income Fund shareholders as costs are spread over a larger, combined fund.
The Trustees of your fund have carefully reviewed the terms of the proposed merger and unanimously approved the proposed merger. We are not asking you for a proxy, and you are requested not to send a proxy. Details regarding the terms of the merger, and its potential benefits and costs to shareholders, are discussed in the prospectus, which we urge you to review carefully.
Sincerely yours,
(signature) | (signature) |
Robert L. Reynolds | Jameson A. Baxter, Chair |
President, The Putnam Funds | Board of Trustees |
President and Chief Executive Officer, | The Putnam Funds |
Putnam Investments |
Prospectus
[March 2], 2017 |
Acquisition of the assets of |
The Putnam Fund for Growth and Income |
One Post Office Square |
Boston, Massachusetts 02109 |
1-617-292-1000 |
by and in exchange for shares of |
Putnam Equity Income Fund |
One Post Office Square |
Boston, Massachusetts 02109 |
1-617-292-1000 |
Table of Contents
I. | Questions and Answers Regarding the Merger | [ ] |
II. | Risk Factors | [ ] |
III. | Information about the Merger | [ ] |
IV. | Additional Information about Putnam Equity Income Fund | [ ] |
V. | Other Information | [ ] |
Appendix A — Form of Agreement and Plan of Reorganization | A-1 |
This prospectus relates to the merger of The Putnam Fund for Growth and Income (“Putnam Growth and Income Fund”) with and into Putnam Equity Income Fund. In the merger, each shareholder of Putnam Growth and Income Fund will receive shares of the corresponding class of Putnam Equity Income Fund equal in aggregate value at the date of the exchange to the aggregate value of the shareholder’s Putnam Growth and Income Fund shares.
The prospectus explains what you should know about the merger and investing in Putnam Equity Income Fund, an open-end diversified management investment company. Please read this prospectus and keep it for future reference.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY
The statement of additional information relating to the merger, dated [March 2], 2017 (the “Merger SAI”) and the other documents identified below are incorporated into this prospectus by reference. Shareholders may obtain free copies of any document incorporated by reference into this prospectus, request other information about the funds or make shareholder inquiries by contacting their financial
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advisor, by visiting the Putnam Investments website at www.putnam.com, by calling Putnam toll-free at 1-800-225-1581, or by emailing Putnam at funddocuments@putnam.com. This information may also be obtained by contacting the Securities and Exchange Commission (the “SEC”), as described below.
The securities offered by this prospectus have not been approved or disapproved by the SEC, nor has the SEC passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Shares of Putnam Equity Income 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 amounts invested.
The following documents have been filed with the SEC and are incorporated into this prospectus by reference:
(i) the statement of additional information of Putnam Equity Income Fund, dated March 30, 2016, as supplemented;
(ii) the prospectus and statement of additional information of Putnam Growth and Income Fund, dated February 29, 2016, as supplemented;
(iii) the Merger SAI;
(iv) the Report of Independent Registered Public Accounting Firm, audited financial highlights and financial statements included in Putnam Equity Income Fund’s Annual Report to Shareholders for the fiscal year ended November 30, 2016; and
(v) the Report of Independent Registered Public Accounting Firm, audited financial highlights and financial statements included in Putnam Growth and Income Fund’s Annual Report to Shareholders for the fiscal year ended October 31, 2016.
Information regarding Putnam Equity Income Fund’s investment advisor and portfolio managers, the pricing, purchase, sale and redemption of Putnam Equity Income Fund shares, the tax treatment of distributions and tax consequences to shareholders of buying, holding, exchanging and selling Putnam Equity Income Fund shares, financial highlights, Putnam Equity Income Fund’s policy regarding frequent trading in Putnam Equity Income Fund shares and regarding dividends and distributions, sales charges and 12b-1 fees is included in this prospectus. This document will give you information about the merger. Much of the information is required under SEC rules; some of it is technical. If there is anything you do not understand, please contact Putnam Investor Services, Inc. (“Putnam Investor Services”) at its toll-free number, 1-800-225-1581, or call your financial advisor. Like Putnam Growth and Income Fund, Putnam Equity Income Fund is in the family of funds managed by Putnam Investment Management, LLC (“Putnam Management”). Putnam Equity Income Fund and Putnam Growth and Income Fund are collectively referred to as the “funds,” and each is referred to individually as a “fund.”
Putnam Growth and Income Fund and Putnam Equity Income Fund are subject to the informational requirements of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended (the “1940 Act”), and, as a result, file reports and other information with the SEC. You may review and copy information about the funds, including reports and the Merger SAI, at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may call the SEC at 202-551-8090 for information about the
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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 Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, DC 20549. You may also access reports and other information about the funds on the EDGAR database on the SEC’s website at www.sec.gov. You may need to refer to a fund’s file number.
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I. Questions and Answers Regarding the Merger
The responses to the questions that follow provide an overview of key points typically of concern to shareholders regarding a mutual fund merger. These responses are qualified in their entirety by the remainder of the prospectus, which contains additional information and further details about the merger.
WE A RE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY
1. What is happening?
The Trustees of The Putnam Funds have approved the merger of Putnam Growth and Income Fund into Putnam Equity Income Fund contemplated by the Agreement and Plan of Reorganization (the form of which is attached as Exhibit A and described in Part III). Upon the closing of the merger, all of the assets of Putnam Growth and Income Fund will be transferred to Putnam Equity Income Fund. In exchange, Putnam Equity Income Fund will issue and deliver shares of Putnam Equity Income Fund (the “ Merger Shares ”) to Putnam Growth and Income Fund and will also assume all of the liabilities of Putnam Growth and Income Fund. The Merger Shares will have an aggregate value equal to the value of Putnam Growth and Income Fund’s assets net of liabilities. Immediately after it receives the Merger Shares, Putnam Growth and Income Fund will distribute the Merger Shares to its shareholders, pro rata. Shareholders will receive Merger Shares of the same class as the Putnam Growth and Income Fund shares they held. It is currently anticipated that the merger will close on or about [May 15], 2017, with the net asset value of shares to be issued in the merger currently expected to be determined on or about [May 12], 2017.
2. What will happen to my shares of Putnam Growth and Income Fund as a result of the merger?
Your shares of Putnam Growth and Income Fund will, in effect, be exchanged for shares of Putnam Equity Income Fund of the same class and with an equal aggregate net asset value on the date of the merger. The merger is expected to be a tax-free reorganization for federal income tax purposes.
3. Why did the Trustees approve the merger?
Putnam Management has recommended the merger because it believes that it is in the best interests of shareholders of Putnam Growth and Income Fund and Putnam Equity Income Fund. The funds have identical investment objectives and substantially similar investment strategies, investing mainly in common stocks of large U.S. companies, with a focus on value stocks that offer the potential for capital growth, current income, or both. Putnam Equity Income Fund also has the ability to invest a greater portion of its assets in midsize companies and has a policy (under normal circumstances) to invest at least 80% of its net assets in common stocks and other equity investments that offer the potential for current income. The funds also share the same portfolio management team. Putnam Equity Income Fund has a better performance record over multiple time periods than Putnam Growth and Income Fund. Putnam Management believes that merging Putnam Growth and Income Fund into Putnam Equity Income Fund could potentially enhance the commercial opportunity and asset growth potential for the combined Putnam Equity Income Fund. Because the funds have the same portfolio management team, have the same investment goals and pursue substantially similar investment strategies, Putnam Management believes that the funds are appropriate merger partners. This merger is also expected to result in expense savings for shareholders of Putnam Equity Income Fund as costs are spread over a larger, combined fund. After the merger, Putnam Growth and Income Fund shareholders would be invested in a larger fund with only a slightly higher total expense ratio.
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The Trustees of The Putnam Funds serve as Trustees of each of the funds involved in the merger. The Trustees of your fund, including all of the Trustees who are not “interested persons” (as defined in the 1940 Act) of your fund or Putnam Management (referred to as “Independent Trustees” throughout this prospectus), have carefully considered the anticipated benefits and costs of the merger to the shareholders of your fund. The Trustees have determined that the merger is in the best interests of the shareholders of your fund.
4. How do the investment goals, strategies, policies and restrictions of the two funds compare?
Investment Goals and Strategies
The stated investment goals of the funds are identical and the funds pursue substantially similar investment strategies.
Putnam Growth and Income Fund | Putnam Equity Income Fund | |
Investment Goal | The fund seeks capital growth and | The fund seeks capital growth and |
current income. | current income. | |
Investment Strategies | The fund invests mainly in common | The fund invests mainly in common |
stocks of large U.S. companies, with a | stocks of midsize and large U.S. | |
focus on value stocks that offer the | companies, with a focus on value stocks | |
potential for capital growth, current | that offer the potential for capital | |
income, or both. | growth, current income, or both. Under | |
normal circumstances, the fund invests | ||
at least 80% of the fund’s net assets in | ||
common stocks and other equity | ||
investments that offer the potential for | ||
current income. This policy may be | ||
changed only after 60 days’ notice to | ||
shareholders. | ||
Value stocks are issued by companies | Value stocks are issued by companies | |
that Putnam Management believes are | that Putnam Management believes are | |
currently undervalued by the market. If | currently undervalued by the market. If | |
Putnam Management is correct and | Putnam Management is correct and | |
other investors ultimately recognize the | other investors ultimately recognize the | |
value of the company, the price of its | value of the company, the price of its | |
stock may rise. | stock may rise. | |
Putnam Management may consider, | Putnam Management may consider, | |
among other factors, a company’s | among other factors, a company’s | |
valuation, financial strength, growth | valuation, financial strength, growth | |
potential, competitive position in its | potential, competitive position in its | |
industry, projected future earnings, cash | industry, projected future earnings, cash | |
flows and dividends when deciding | flows and dividends when deciding | |
whether to buy or sell investments. | whether to buy or sell investments. |
Putnam Growth and Income Fund invests mainly in large U.S. companies, while Putnam Equity Income Fund invests mainly in midsize and large U.S. companies. Darren Jaroch and Walter Scully, the portfolio manager and assistant portfolio manager, respectively, for Putnam Equity Income Fund, commenced managing Putnam Growth and Income Fund on November 16, 2016. Putnam Management anticipates that Mr. Jaroch’s and Mr. Scully’s approach to managing the combined Putnam Equity Income Fund will
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be similar to their current investment approach for the fund, focusing on investments in large and midsize U.S. companies. Combining Putnam Growth and Income Fund and Putnam Equity Income Fund would facilitate the optimal deployment of investment management resources on behalf of shareholders.
The following table provides information about the funds’ investments, as of September 30, 2016, in companies of various market capitalizations. The capitalization ranges in the table are intended to reflect approximate capitalization ranges for small, midsize, and large company stocks, as currently assessed by Putnam Management. The sizes (and identities) of these companies, and thus the ranges used to identify small, midsize and large companies, will fluctuate over time and with market conditions.
Investments in | Investments in | Investments in | ||||
Small Companies | Midsize Companies | Large Companies | ||||
(approximately $3.7 | (approximately $3.7 | (approximately more | ||||
billion or less) | billion - $17 billion) | than $17 billion) | ||||
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% of net | % of net | % of net | ||||
millions | assets | millions | assets | millions | assets | |
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Putnam Growth and Income | ||||||
Fund | $198 | 4.15% | $656 | 13.74% | $3,844 | 80.53% |
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Putnam Equity Income Fund | $195 | 3.15% | $1,176 | 19.02% | $4,651 | 75.21% |
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Investment Policies and Restrictions
As described above, the funds invest mainly in common stocks of large U.S. companies, with a focus on value stocks that offer the potential for capital growth, current income, or both. Putnam Equity Income Fund also has the ability to invest a greater portion of its assets in midsize companies and has a policy (under normal circumstances) to invest at least 80% of its net assets in common stocks and other equity investments that offer the potential for current income. The funds also have substantially similar fundamental investment policies. Moreover, after giving effect to two changes to Putnam Growth and Income Fund’s fundamental investment policies approved by the fund’s Trustees, both of which are more restrictive than the fund’s current policies, the fundamental investment restrictions will not be materially different.
5. How do the management fees and other expenses of the funds compare, and what are they estimated to be following the merger?
Putnam Equity Income Fund’s shareholders are expected to benefit overall in terms of a lower total expense ratio as a result of the merger, while the expense ratio for the combined fund is expected to be only slightly higher than the expense ratio for Putnam Growth and Income Fund. The lower expense ratio will be realized only after the costs of the merger have been paid.
Each fund pays management fees which incorporate asset-level discounts based on the monthly average of the aggregate net assets of all open-end funds sponsored by Putnam Management (excluding net assets of funds that are invested in, or that are invested in by, other Putnam funds to the extent necessary to avoid “double counting” of those assets). At every asset level, Putnam Equity Income Fund pays the same management fee as a percentage of net assets as Putnam Growth and Income Fund.
As of September 30, 2016, each fund had a management fee rate of 0.48%. Following the merger, Putnam Management expects the management fee rate of the combined fund to be 0.48%.
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As of September 30, 2016, the total expenses of Putnam Growth and Income Fund and Putnam Equity Income Fund, not including any payments under Rule 12b-1 distribution and service plans, were 0.68% and 0.69%, respectively. The combined fund is expected to pay 0.68% in total expenses (not including any payments under Rule 12b-1 distribution and service plans), which does not reflect non-recurring expenses related to the merger. If these expenses had been reflected, the estimated total (non 12b-1) annual fund operating expenses would have been 0.69%.
For more detailed information about fees and expenses, please see “Information about the Merger—Fees and Expenses.”
6. How does the investment performance of the funds compare?
The performance information below gives some indication of the risks associated with investment in the fund by showing each fund’s performance year to year over time. The bar chart does not reflect the impact of sales charges. If it did, performance would be lower. Please remember that past performance is not necessarily an indication of future results. In this case, you should also consider that the current portfolio manager and assistant portfolio manager for Putnam Growth and Income Fund and Putnam Equity Income Fund, Darren Jaroch and Walter Scully, commenced managing Putnam Growth and Income Fund on November 16, 2016 and Putnam Equity Income Fund on August 29, 2012. Thus, the historical performance information presented below for Putnam Growth and Income Fund includes periods during which both Putnam Growth and Income Fund and Putnam Equity Income Fund were managed under a different portfolio manager. Monthly performance figures for the fund are available at putnam.com.
The chart shows year-to-year changes in the net asset value performance of one of the funds’ classes of shares, class A shares.
CALENDAR YEAR TOTAL RETURNS
Putnam Equity Income Fund
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3.44% | -31.28% | 27.20% | 12.37% | 1.77% | 19.02% | 31.63% | 12.44% | -3.18% | 13.55% |
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2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 |
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Putnam Growth and Income Fund
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-6.17% | -38.85% | 29.40% | 14.08% | -4.85% | 18.88% | 35.37% | 10.60% | -7.63% | 14.87% |
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2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 |
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During the periods shown in the bar chart, Putnam Equity Income Fund’s highest return for a quarter was 18.09% (quarter ending 6/30/09) and the lowest return for a quarter was -19.20% (quarter ending 12/31/08). During the periods shown in the bar chart, Putnam Growth and Income Fund’s highest return for a quarter was 19.25% (quarter ended 6/30/09) and the lowest return for a quarter was -21.42% (quarter ended 12/31/08).
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Share Class | ||||
Average Annual Total Returns | Inception | Past 1 year | Past 5 years | Past 10 years |
(for periods ended 12/31/16) | Date | |||
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Share Class | ||||
Average Annual Total Returns | Inception | Past 1 year | Past 5 years | Past 10 years |
(for periods ended 12/31/16) | Date | |||
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Putnam Equity Income Fund | ||||
Class A (before taxes) | 6/15/77 | 7.02% | 12.79% | 6.56% |
Class A (after taxes on distributions) | 6.43% | 11.26% | 5.46% | |
Class A (after taxes on distributions and | 4.43% | 10.09% | 5.12% | |
sale of fund shares) | ||||
Class B (before taxes) | 9/13/93 | 7.71% | 13.03% | 6.55% |
Class C (before taxes) | 2/1/99 | 11.72% | 13.28% | 6.39% |
Class M (before taxes) | 12/2/94 | 9.00% | 12.75% | 6.27% |
Class R (before taxes) | 1/21/03 | 13.27% | 13.84% | 6.91% |
Class R5 (before taxes) | 7/2/12 | 13.91% | 14.51% | 7.50% |
Class R6 (before taxes) | 7/2/12 | 14.02% | 14.60% | 7.55% |
Class Y (before taxes) | 10/1/98 | 13.84% | 14.42% | 7.46% |
Russell 1000 Value Index (no deduction | 17.34% | 14.80% | 5.72% | |
for fees, expenses or taxes) | ||||
Putnam Growth and Income Fund | ||||
Class A (before taxes) | 11/6/57 | 8.26% | 12.22% | 3.67% |
Class A (after taxes on distributions) | 7.82% | 11.86% | 3.05% | |
Class A (after taxes on distributions and | 5.01% | 9.75% | 2.80% | |
sale of fund shares) | ||||
Class B (before taxes) | 4/27/92 | 9.00% | 12.46% | 3.66% |
Class C (before taxes) | 7/26/99 | 13.03% | 12.70% | 3.51% |
Class M (before taxes) | 5/1/95 | 10.26% | 12.19% | 3.40% |
Class R (before taxes) | 1/21/03 | 14.60% | 13.27% | 4.03% |
Class R6 (before taxes) | 7/2/12 | 15.32% | 14.01% | 4.63% |
Class Y (before taxes) | 6/15/94 | 15.13% | 13.83% | 4.55% |
Russell 1000 Value Index (no deduction | 17.34% | 14.80% | 5.72% | |
for fees, expenses or taxes) |
For periods before the inception of class R5 shares of Putnam Equity Income Fund only and class R6 shares of each fund, performance shown for these classes in the table is based on the performance of the respective fund’s class Y shares and has not been adjusted for the lower investor servicing fees applicable to class R5 and R6 shares; had it, returns would have been higher. Each fund’s performance for portions of the periods benefited from Putnam Management’s agreement to limit the fund’s expenses.
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After-tax returns reflect the historical highest individual federal marginal 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. These after-tax returns do not apply if you hold your fund shares through a 401(k) plan, an IRA, or another tax-advantaged arrangement.
Class B share performance reflects conversion to class A shares after eight years.
7. Will my dividends be affected by the merger?
The merger will not result in a change in dividend policy. The combined fund will continue to pay out a dividend based on the fund’s dividend policy which is determined using the current earnings level of the fund. As of December 30, 2016, the current dividend yields for Putnam Growth and Income Fund and Putnam Equity Income Fund were .99% and 1.42% respectively. The estimated dividend yield for the shares of Putnam Equity Income Fund on a pro forma basis, after giving effect to the merger would be 1.18%. Over the longer term, the level of dividends will depend on market conditions.
Putnam Equity Income Fund will not permit any holder of certificated Putnam Growth and Income Fund shares at the time of the merger to receive cash dividends or other distributions or to pledge Merger Shares until such certificates for Putnam Growth and Income Fund shares have been surrendered, or, in the case of lost certificates, until adequate surety bond has been posted. To obtain information on how to return your Putnam Growth and Income Fund share certificates after the merger (if approved) is completed, please call Putnam at 1-800-225-1581.
If a shareholder is not, for the reason above, permitted to receive cash dividends or other distributions on Merger Shares, Putnam Equity Income Fund will pay all of that shareholder’s dividends and distributions in additional shares, notwithstanding any election the shareholder may have made previously to receive dividends and distributions on Putnam Growth and Income Fund shares in cash.
8. What are the federal income tax consequences of the merger?
The merger is expected to be a tax-free reorganization for federal income tax purposes. Accordingly, no gain or loss is expected to be recognized by Putnam Growth and Income Fund or its shareholders as a direct result of the merger. The tax basis and holding period of a shareholder’s Putnam Growth and Income Fund shares are expected to carry over to the Putnam Equity Income Fund Merger Shares the shareholder receives in the merger. At any time before the consummation of the merger, a shareholder may redeem Putnam Growth and Income Fund shares, likely resulting in recognition of gain or loss to such shareholder for federal income tax purposes.
Because the merger will end the tax year of Putnam Growth and Income Fund, it will accelerate distributions to shareholders from Putnam Growth and Income Fund for its short tax year ending on the date of the merger. Those tax year-end distributions will be taxable and will include any capital gains resulting from portfolio turnover before the consummation of the merger (and not offset by capital losses) that were not previously distributed.
Certain other tax consequences are discussed below under “Information about the Merger—Federal Income Tax Consequences.”
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9. Is there any difference in the procedures for purchasing, redeeming and exchanging shares of the two funds?
No. The procedures for purchasing and redeeming shares of each fund, and for exchanging shares of each fund for shares of other Putnam funds, are identical.
Both Putnam Growth and Income Fund and Putnam Equity Income Fund make a continuous public offering of their shares; Putnam Growth and Income Fund and Putnam Equity Income Fund currently offer seven and eight classes of shares, respectively. Effective [March 1, 2017], Putnam Equity Income Fund also offers Class T shares. 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 dollar value of shares purchased. Reinvestment of distributions by the funds is made at net asset value for all classes of shares. With the plan to launch T shares on or about March 1, 2017, Putnam Equity Income Fund would have nine classes of shares at the time of the consummation of the merger.
Shares of each fund may be redeemed (in essence, sold to the fund) on any day the New York Stock Exchange is open at their net asset value next determined after receipt by the fund, either directly or through an investment dealer, of a properly completed redemption request, less any applicable deferred sales charge.
Each fund’s shareholders can generally exchange their shares for shares of the same class of another Putnam fund at net asset value. Not all Putnam funds offer all classes of shares or are open to new investors. Each fund reserves the right to revise or terminate the exchange privilege, limit the amount or number of exchanges, or reject any exchange.
10. Will the number of shares I own change after the merger?
Yes, the number of shares you own will change, but the total value of the shares of Putnam Equity Income Fund you receive will equal the total value of the shares of Putnam Growth and Income Fund that you hold at the time of the merger. Even though the net asset value per share of each fund is different, the total net asset value of your holdings at the time of the merger will not change as a result of the merger.
11. What are the costs associated with the merger?
The costs associated with the merger are estimated to be $1,102,467 of which an estimated $274,635 will be paid by Putnam Growth and Income Fund and an estimated $827,832 will be paid by Putnam Equity Income Fund. These fees and expenses, representing legal and accounting expenses, portfolio transfer taxes (if any), the costs of printing and mailing this prospectus or other similar expenses incurred in connection with the consummation of the merger, will be allocated evenly between the two funds, except that the costs of SEC registration fees will be allocated to Putnam Equity Income Fund. Because both funds are expected to benefit from the merger based on several quantitative and qualitative factors, Putnam Management determined that the allocation described above is a fair and objective manner of allocating the merger expenses.
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II. Risk Factors
What are the principal risks of Putnam Equity Income Fund, and how do they compare with those of Putnam Growth and Income Fund?
Although Putnam Equity Income Fund has a policy (under normal circumstances) to invest at least 80% of its net assets in common stocks and other equity investments that offer the potential for current income and has the ability to invest a greater portion of its assets in midsize companies, the funds have identical investment goals and substantially similar investment strategies, investing mainly in common stocks of large U.S. companies, with a focus on value stocks that offer the potential for capital growth, current income, or both. As a result, the principal risks of an investment in Putnam Equity Income Fund are substantially similar to the risks of an investment in Putnam Growth and Income Fund.
The main risks that could adversely affect the value of Putnam Equity Income Fund’s shares and the total return on an investment in Putnam Equity Income Fund include:
> the risk that the value of stocks in the fund’s portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including both general financial market conditions and factors related to a specific company or industry.
> the risk that value stocks may fail to rebound, and the market may not favor value-style investing.
> the risk that income provided by the fund may be reduced by changes in the dividend policies of, and the capital resources available at, the companies in which the fund invests
Because Putnam Equity Income Fund focuses its investments on both large and midsize companies, as opposed to Putnam Growth and Income Fund’s focus on large companies, it may be subject to greater risk than Putnam Growth and Income Fund if it has relatively larger holdings of midsize companies and there are factors or financial market developments that adversely affect midsize companies in particular.
You can lose money by investing in Putnam Equity Income Fund. The fund may not achieve its goal, and is not intended to be a complete investment program. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
What are the funds’ principal investment strategies and related risks?
Putnam Management pursues each fund’s goal by investing mainly in common stocks of large U.S. companies (large and midsize U.S. companies for Putnam Equity Income Fund), with a focus on value stocks that offer the potential for capital growth, current income, or both. Therefore, the related risks of investing in the funds are also similar.
• Common stocks. Common stock represents an ownership interest in a company. The value of a company’s stock may fall as a result of factors directly relating to that company, such as decisions made by its management or lower demand for the company’s products or services. A stock’s value may also fall because of factors affecting not just the company, but also other companies in the same industry or in a number of different industries, such as increases in production costs. From time to time, the funds may invest a significant portion of its assets in companies in one or more related industries or sectors, which would make the funds more vulnerable to adverse developments affecting those industries or sectors. The value of a company’s stock may also be affected by changes in financial markets that are relatively unrelated to the company or its industry, such as changes in interest rates or currency exchange rates. In addition, a company’s stock generally pays dividends only after the company invests in its own business
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and makes required payments to holders of its bonds and other debt. For this reason, the value of a company’s stock will usually react more strongly than its bonds and other debt to actual or perceived changes in the company’s financial condition or prospects. Stocks of smaller companies may be more vulnerable to adverse developments than those of larger companies.
Value stocks — Companies whose stocks Putnam Management believes are undervalued by the market may have experienced adverse business developments or may be subject to special risks that have caused their stocks to be out of favor. If Putnam Management’s assessment of a company’s prospects is wrong, or if other investors do not similarly recognize the value of the company, then the price of the company’s stock may fall or may not approach the value that Putnam Management has placed on it. Income provided by a fund may be reduced by changes in the dividend policies of the companies in which the fund invests and the capital resources available for payment at such companies.
• Small and midsize companies (Putnam Equity Income Fund only). These companies, some of which may have a market capitalization of less than $1 billion, are more likely than larger companies to have limited product lines, markets or financial resources, or to depend on a small, inexperienced management group. Stocks of these companies often trade less frequently and in limited volume, and their prices may fluctuate more than stocks of larger companies. Stocks of small and midsize companies may therefore be more vulnerable to adverse developments than those of larger companies.
• Foreign investments. Putnam Management may invest in foreign investments, although they do not represent a primary focus of the funds. Foreign investments involve certain special risks. For example, their values may decline in response to changes in currency exchange rates, unfavorable political and legal developments, unreliable or untimely information, and economic and financial instability. In addition, the liquidity of these investments may be more limited than for most U.S. investments, which means Putnam Management may at times be unable to sell them at desirable prices. Foreign settlement procedures may also involve additional risks. These risks are generally greater in the case of developing (also known as emerging) markets, which typically have less developed legal and financial systems. Certain of these risks may also apply to some extent to U.S.-traded investments that are denominated in foreign currencies, investments in U.S. companies that are traded in foreign markets, or investments in U.S. companies that have significant foreign operations.
• Derivatives. Putnam Management may engage in a variety of transactions involving derivatives, such as futures, options, warrants and swap contracts, although they do not represent a primary focus of the funds. Derivatives are financial instruments whose value depends upon, or is derived from, the value of something else, such as one or more underlying investments, pools of investments, indexes or currencies. Putnam Management may make use of “short” derivatives positions, the values of which typically move in the opposite direction from the price of the underlying investment, pool of investments, index or currency. Putnam Management may use derivatives both for hedging and non-hedging purposes, including as a substitute for a direct investment in the securities of one or more issuers. However, Putnam Management may also choose not to use derivatives based on its evaluation of market conditions or the availability of suitable derivatives. 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.
Derivatives involve special risks and may result in losses. The successful use of derivatives depends on Putnam Management’s ability to manage these sophisticated instruments. Some derivatives are “leveraged,” which means they provide the funds with investment exposure greater than the value of the funds’ investments in the derivatives. As a result, these derivatives may magnify or otherwise increase investment losses to the funds. The risk of loss from certain short derivatives positions is theoretically
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unlimited. The value of derivatives may move in unexpected ways due to the use of leverage or other factors, especially in unusual market conditions, and may result in increased volatility.
Other risks arise from the potential inability to terminate or sell derivatives positions. A liquid secondary market may not always exist for the funds’ derivatives positions. In fact, many over-the-counter instruments (investments not traded on an exchange) will not be liquid. Over-the-counter instruments also involve the risk that the other party to the derivatives transaction will not meet its obligations. For further information about additional types and risks of derivatives and the funds’ asset segregation policies, see Miscellaneous Investments, Investment Practices and Risks in Putnam Growth and Income Fund’s and Putnam Equity Income Fund’s Statement of Additional Information dated February 29, 2016 and March 30, 2016, respectively, as supplemented (“SAI”).
• Other investments. In addition to the main investment strategies described above, the funds may make other types of investments, such as investments in preferred stocks and convertible securities and, for Putnam Growth and Income Fund, debt instruments. The funds may also loan portfolio securities to earn income. These practices may be subject to other risks, as described under Miscellaneous Investments, Investment Practices and Risks in the SAI.
• Temporary defensive strategies. In response to adverse market, economic, political or other conditions, Putnam Management may take temporary defensive positions, such as investing some or all of the funds’ assets in cash and cash equivalents, that differ from the funds’ usual investment strategies. However, Putnam Management may choose not to use these temporary defensive strategies for a variety of reasons, even in very volatile market conditions. These strategies may cause the funds to miss out on investment opportunities, and may prevent the funds from achieving their goals. Additionally, while temporary defensive strategies are mainly designed to limit losses, these strategies may not work as intended.
• Changes in policies. The Trustees may change the funds’ goals, investment strategies and other policies set forth in this prospectus without shareholder approval, except as otherwise provided.
Portfolio turnover. Each fund pays transaction-related costs when it buys and sells securities (or “turns over” its portfolio). A higher turnover rate may indicate higher transaction costs and may result in higher taxes when a fund’s shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or the above example, affect fund performance. The turnover rate for Putnam Growth and Income Fund was [42]% for its most recent fiscal year, while Putnam Equity Income Fund’s turnover rate for its most recent fiscal year was [15]%.
Financial intermediary compensation. If you purchase shares of either fund through a broker/dealer or other financial intermediary (such as a bank or financial advisor), the fund and its related companies may pay that intermediary for the sale of fund shares and related services. Please bear in mind that these payments may create a conflict of interest by influencing the broker/dealer or other intermediary to recommend the fund over another investment. Ask your advisor or visit your advisor’s Web site for more information.
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III. Information about the Merger
General. Putnam Growth and Income Fund will merge with and into Putnam Equity Income Fund pursuant to an Agreement and Plan of Reorganization dated [ ] 2017 (the “Agreement”). The Agreement is attached to this prospectus 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 Putnam Growth and Income Fund to Putnam Equity Income Fund in exchange for the assumption by Putnam Equity Income Fund of all of the liabilities of Putnam Growth and Income Fund and for the issuance and delivery to Putnam Growth and Income Fund of shares of Putnam Equity Income Fund (the Merger Shares) equal in aggregate net asset value to the net value of the assets transferred to Putnam Equity Income Fund.
After receipt of the Merger Shares, Putnam Growth and Income Fund will distribute the Merger Shares to its shareholders, in proportion to their existing shareholdings, in complete liquidation of Putnam Growth and Income Fund, and the legal existence of Putnam Growth and Income Fund will be terminated. Each shareholder of Putnam Growth and 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 Putnam Growth and Income Fund shares.
Before the date of the transfer, Putnam Growth and 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 merger.
Putnam Management currently expects that Putnam Growth and Income Fund may make dispositions of certain portfolio holdings prior to the merger. (However, it is also possible that the combined fund’s portfolio managers could deem it appropriate in their discretion simply to combine the two funds’ portfolios, without disposing of securities in Putnam Growth and Income Fund.) These sales, which are not anticipated to commence until [April 12, 2017], would result in brokerage commissions and other transaction costs, and may result in the realization of capital gains that would be distributed to shareholders as taxable distributions. Please see “Federal Income Tax Consequences” for information about the expected tax consequences of the proposed merger.
Following the merger, Putnam Management anticipates that Putnam Equity Income Fund may incur brokerage commissions and other transaction costs in connection with reinvesting the proceeds of Putnam Growth and Income Fund’s dispositions. These possible transaction costs do not alter Putnam Management’s view that the proposed merger is in the best interests of each fund’s shareholders.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A P ROXY
Fees and Expenses. The following tables describe the fees and expenses you may pay if you buy and hold shares of the funds, the annual operating expenses for each fund as of September 30, 2016, and the pro forma expenses of Putnam Equity Income Fund, assuming consummation of the merger and based on pro forma combined assets as of September 30, 2016.
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Please see “Information about the Merger – Trustees’ Considerations Relating to the Merger” for information about the expenses of the merger. The shareholder fees (fees paid directly from your investment) are the same for each fund and will not change as a result of the merger. Annual fund operating expenses (expenses that are deducted from fund assets) are described in the table below, and, as shown, the annual fund operating expenses of the combined fund are expected to be only slightly higher than the current annual fund operating expenses for Putnam Growth and Income Fund and lower than the current annual fund operating expenses for Putnam Equity Income Fund. The lower expense ratio for Putnam Equity Income Fund will be achieved only after the costs of the merger have been paid.
You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Putnam funds. More information about these and other discounts is available from your financial advisor and in How do I buy fund shares? beginning on page 12 of each fund’s prospectus, in Appendix [ ] to this prospectus, and in How to buy shares beginning on page II-1 of each fund’s SAI.
Shareholder Fees (fees paid directly from your investment) (a)
| ||||||||
Class | Class | Class | Class | Class | Class | Class | Class | |
A | B | C | M | R | R5 | R6 | Y | |
| ||||||||
Maximum Sales Charge (Load) | ||||||||
Imposed on Purchases (as a | ||||||||
percentage of the offering price) | ||||||||
Putnam Growth and Income Fund | 5.75% | NONE | NONE | 3.50% | NONE | N/A | NONE | NONE |
Putnam Equity Income Fund | 5.75% | NONE | NONE | 3.50% | NONE | NONE | NONE | NONE |
(b) | (b) | |||||||
Maximum Deferred Sales Charge | ||||||||
(Load) (as a percentage of the | ||||||||
original purchase price or | ||||||||
redemption proceeds, whichever is | ||||||||
lower) | ||||||||
Putnam Growth and Income Fund | 1.00% | 5.00% | 1.00% | NONE | NONE | N/A | NONE | NONE |
(c) | (d) | (e) | ||||||
Putnam Equity Income Fund | 1.00% | 5.00% | 1.00% | NONE | NONE | NONE | NONE | NONE |
(c) | (d) | (e) |
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
|
|||||
Total Annual | |||||
Distribution | Fund | ||||
Management | and service | Other | Operating | ||
Fees | (12b-1) Fees | Expenses | Expenses | ||
|
|||||
Putnam Growth and | |||||
Income Fund | |||||
Class A | 0.48% | 0.25% | 0.20% | 0.93% | |
Class B | 0.48% | 1.00% | 0.20% | 1.68% | |
Class C | 0.48% | 1.00% | 0.20% | 1.68% | |
Class M | 0.48% | 0.75% | 0.20% | 1.43% | |
Class R | 0.48% | 0.50% | 0.20% | 1.18% |
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Total Annual | |||||
Distribution | Fund | ||||
Management | and service | Other | Operating | ||
Fees | (12b-1) Fees | Expenses | Expenses | ||
|
|||||
Class R6 | 0.48% | N/A | 0.09% | 0.57% | |
Class Y | 0.48% | N/A | 0.20% | 0.68% | |
Putnam Equity | |||||
Income Fund | |||||
Class A | 0.48% | 0.25% | 0.21% | 0.94% | |
Class B | 0.48% | 1.00% | 0.21% | 1.69% | |
Class C | 0.48% | 1.00% | 0.21% | 1.69% | |
Class M | 0.48% | 0.75% | 0.21% | 1.44% | |
Class R | 0.48% | 0.50% | 0.21% | 1.19% | |
Class R5 | 0.48% | N/A | 0.18% | 0.66% | |
Class R6 | 0.48% | N/A | 0.08% | 0.56% | |
Class Y | 0.48% | N/A | 0.21% | 0.69% | |
Putnam Equity | |||||
Income Fund (pro | |||||
forma combined) † | |||||
Class A | 0.48% | 0.25% | 0.20% | 0.93% | |
Class B | 0.48% | 1.00% | 0.20% | 1.68% | |
Class C | 0.48% | 1.00% | 0.20% | 1.68% | |
Class M | 0.48% | 0.75% | 0.20% | 1.43% | |
Class R | 0.48% | 0.50% | 0.20% | 1.18% | |
Class R5 | 0.48% | N/A | 0.18% | 0.66% | |
Class R6 | 0.48% | N/A | 0.08% | 0.56% | |
Class Y | 0.48% | N/A | 0.20% | 0.68% | |
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(a) 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 prospectus of Putnam Equity Income Fund, dated March 30, 2016, as supplemented, for details.
(b) This sales charge does not apply to the Merger Shares, but will apply to any additional class A or M shares of Putnam Equity Income Fund that a shareholder purchases after the merger.
(c) A deferred sales charge of 1.00% on class A shares may be imposed on certain redemptions of shares bought without an initial sales charge.
(d) The deferred sales charge on class B shares is 5.00% in the first year, declines to 1.00% in the sixth year, and is eliminated thereafter.
(e) The deferred sales charge on class C shares is eliminated after one year.
† Does not reflect non-recurring expenses related to the merger. If these expenses had been reflected, pro forma other expenses and total annual fund operating expenses would have been increased by 0.01%.
The tables are provided to help you understand the expenses of investing in the funds and your share of the operating expenses that each fund incurs and that Putnam Management expects the combined fund to incur in the first year following the merger.
Examples
The following hypothetical examples are intended to help you compare the cost of investing in either fund with the cost of investing in other funds. It assumes that you invest $10,000 in a fund for the time periods
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indicated and then, except as indicated, redeem all your shares at the end of those periods. It assumes a 5% return on your investment each year and that each fund’s operating expenses remain the same. Your actual costs may be higher or lower.
| ||||
1 Year | 3 Years | 5 Years | 10 Years | |
| ||||
Putnam Growth and Income Fund | ||||
Class A | $665 | $855 | $1,061 | $1,653 |
Class B | $671 | $830 | $1,113 | $1,789* |
Class B (no redemption) | $171 | $530 | $913 | $1,789* |
Class C | $271 | $530 | $913 | $1,988 |
Class C (no redemption) | $171 | $530 | $913 | $1,988 |
Class M | $491 | $787 | $1,105 | $2,004 |
Class R | $120 | $375 | $650 | $1,433 |
Class R6 | $58 | $183 | $318 | $714 |
Class Y | $70 | $218 | $379 | $848 |
Putnam Equity Income Fund | ||||
Class A | $665 | $858 | $1,066 | $1,664 |
Class B | $672 | $833 | $1,118 | $1,800* |
Class B (no redemption) | $172 | $533 | $918 | $1,800* |
Class C | $272 | $533 | $918 | $1,999 |
Class C (no redemption) | $172 | $533 | $918 | $1,999 |
Class M | $492 | $790 | $1,110 | $2,015 |
Class R | $121 | $378 | $655 | $1,444 |
Class R5 | $67 | $211 | $368 | $822 |
Class R6 | $57 | $179 | $313 | $701 |
Class Y | $71 | $221 | $385 | $860 |
Putnam Equity Income Fund (pro forma combined) | ||||
Class A | $665 | $855 | $1,061 | $1,653 |
Class B | $671 | $830 | $1,113 | $1,789* |
Class B (no redemption) | $171 | $530 | $913 | $1,789* |
Class C | $271 | $530 | $913 | $1,988 |
Class C (no redemption) | $171 | $530 | $913 | $1,988 |
Class M | $491 | $787 | $1,105 | $2,004 |
Class R | $120 | $375 | $650 | $1,433 |
Class R6 | $57 | $179 | $313 | $701 |
Class Y | $70 | $218 | $379 | $848 |
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* Reflects conversion of class B shares to class A shares, which pay lower 12b-1 fees. Such conversions occur automatically eight years after purchase.
Trustees’ Considerations Relating to the Merger. The Trustees of The Putnam Funds, who serve as Trustees of each of the funds involved in the merger, have carefully considered the anticipated benefits and costs of the merger from the perspective of each fund. Following their review, the Trustees, including all of the Independent Trustees, determined that the merger of Putnam Growth and Income
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Fund into Putnam Equity Income 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 merger. The Trustees unanimously approved the merger and the Agreement.
Investment matters. In evaluating the merger, the Trustees analyzed the underlying investment rationale articulated by Putnam Management. The Trustees noted that the funds invest mainly in common stocks of large U.S. companies, with a focus on value stocks that offer the potential for capital growth, current income, or both, but that Putnam Equity Income Fund also has the ability to invest a greater portion of its assets in midsize companies and has a policy (under normal circumstances) to invest at least 80% of its net assets in common stocks and other equity investments that offer the potential for current income. The Trustees also noted that the funds have substantially similar investment restrictions.
The Trustees considered that the funds’ portfolio managers, Darren Jaroch and Walter Scully, have served as the portfolio manager and assistant portfolio manager, respectively, of Putnam Equity Income Fund since August 29, 2012, and were appointed to serve as the portfolio managers of Putnam Growth and Income Fund commencing on November 16, 2016.
The Trustees also considered Putnam Management’s belief that merging Putnam Growth and Income into Putnam Equity Income Fund, which has a better performance record over multiple time periods as compared to Putnam Growth and Income Fund, could potentially enhance the commercial opportunity and asset growth potential for the combined Putnam Equity Income Fund.
Performance. The Trustees reviewed the historical investment performance of each fund and observed that, as of the periods ended September 30, 2016, Putnam Equity Income Fund had outperformed Putnam Growth and Income Fund over the one-, three-, five- and ten-year periods, but had underperformed Putnam Growth and Income Fund in terms of annualized return since inception of Putnam Equity Income Fund. Although the Trustees observed that in general past performance is no indication of future performance, they noted that Putnam Growth and Income Fund has the same portfolio management team, an identical investment goal, and a substantially similar investment strategy as Putnam Equity Income Fund and considered Putnam Management’s belief that it was advisable to manage a combined fund given the similarities between the funds.
Ongoing fund expenses. Putnam Management informed the Trustees that, as a result of the merger, the combined Putnam Equity Income Fund is expected to have only a slightly higher total expense ratio than the current total expense ratio for Putnam Growth and Income Fund. The Trustees reviewed the annual fund operating expenses that Putnam Growth and Income Fund shareholders were expected to experience as shareholders of the combined Putnam Equity Income Fund, based on Putnam Management’s unaudited estimates of the funds’ expense ratios as of September 30, 2016 and the expected pro forma expense ratios based on combined assets of the funds as of the same date. They noted that both funds pay management fees which incorporate asset-level breakpoints based on the size of all Putnam open-end mutual fund net assets (excluding net assets of funds that are invested in, or that are invested in by, other Putnam funds to the extent necessary to avoid “double counting” of those assets). At every asset level, the Trustees noted, Putnam Equity Income Fund pays the same management fee as a percentage of net assets as Putnam Growth and Income Fund.
Additional information that the Trustees considered is presented in “Questions and Answers Regarding the Merger—5. How do the management fees and other expenses of the funds compare, and what are they estimated to be following the merger?” and in “Information about the Merger—Fees and Expenses.”
Tax matters. The Trustees also considered the tax effects of the merger. The Trustees took into account the fact that, although this result is not free from doubt, the merger is expected to be a tax-free transaction
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for federal income tax purposes. They also took into account other anticipated tax effects of the merger, including the consequences that the blending of existing tax attributes of the two funds would have on taxable shareholders. These and other federal income tax consequences are discussed below under the heading “Federal Income Tax Consequences.”
Costs of the merger. The Trustees took into account the expected costs of the merger, including the costs of printing and mailing this prospectus, accounting fees and legal fees. The Trustees weighed these costs against the expected benefits of the merger. The Trustees considered Putnam Management’s recommendation that, since both funds are expected to benefit from the merger, legal and accounting expenses, as well as printing and mailing costs, should be allocated equally to the funds. Accordingly, the funds are expected to bear costs in the following approximate amounts:
| ||
Putnam Growth and | Putnam Equity Income | |
Expenses` | Income Fund | Fund |
| ||
Printing/Mailing | $143,135 | $143,135 |
Legal | $100,000 | $100,000 |
Audit | $31,500 | $31,500 |
SEC Registration Fees (24f-2 fees) | $0 | $553,197 |
Total Expenses | $274,635 | $827,832 |
Net Assets (at September 30, 2016) | $4,773,054,900 | $6,184,696,486 |
Total Expenses (as a % of Net Assets at September | 0.01% | 0.01% |
30, 2016) | ||
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Other factors. The Trustees also took into account a number of other factors, including: [(1) the classification and relative performance information for each fund by independent research firms such as Morningstar, Inc. and Thomson Reuters Lipper; (2) the performance history of each fund as compared to its benchmark index; (3) the volatility of each fund’s portfolio relative to the market; (4) the net assets of each fund and the market capitalization ranges of each fund’s investments; (5) the possibility that the combined fund may attract more attention from broker dealer platforms; (6) the possibility of additional economies of scale or reduced diseconomies of scale; and (7) the terms of the Agreement.]
Agreement and Plan of Reorganization. The merger will be governed by the Agreement, a copy of which is attached as Appendix A. The following discussion of the Agreement is qualified in its entirety by the full text of the Agreement.
The Agreement provides that Putnam Equity Income Fund will acquire all of the assets of Putnam Growth and Income Fund in exchange for the assumption by Putnam Equity Income Fund of all of the liabilities of Putnam Growth and Income Fund and for the issuance of full and fractional Merger Shares of each class equal in value to the value of the transferred assets attributable to shares of the corresponding class of Putnam Growth and Income Fund net of assumed liabilities attributable to the class. Valuations for the proposed merger will be determined at 4:00 p.m., Eastern Time, on [May 12], 2017, or such earlier or later time or date as may be agreed upon by the parties (the “Valuation Time”). The shares will be issued on the business day (the “Exchange Date”) following the Valuation Time.
Immediately following its receipt of the Merger Shares on the Exchange Date, Putnam Growth and Income Fund will distribute the full and fractional Merger Shares, pro rata, to its shareholders of record as of the close of business on the Exchange Date. Merger Shares of each class will be distributed to holders
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of shares of the corresponding class of Putnam Growth and Income Fund. As a result of the merger, each shareholder of Putnam Growth and Income Fund will receive a number of Merger Shares of each class equal in aggregate value at the Exchange Date to the value of Putnam Growth and Income Fund shares of the corresponding class held by the shareholder. Putnam Equity Income Fund will issue the Merger Shares, registered in the name of Putnam Growth and Income Fund, to Putnam Growth and Income Fund. Putnam Equity Income Fund will then, in accordance with written instructions furnished by Putnam Growth and Income Fund, re-register the Merger Shares in the names of the shareholders of Putnam Growth and Income Fund in an amount representing the respective number of full and fractional Merger Shares of each class due the shareholder.
The consummation of the merger is subject to the conditions set forth in the Agreement. The Agreement may be terminated and the merger abandoned at any time before the Exchange Date by mutual consent of Putnam Equity Income Fund and Putnam Growth and 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 that party.
Putnam Growth and Income Fund will liquidate any of its portfolio securities that Putnam Equity Income Fund indicates it does not wish to acquire. The Agreement provides that this liquidation will be substantially completed before the Exchange Date, unless Putnam Growth and Income Fund and Putnam Equity Income Fund agree otherwise. Putnam Growth and Income shareholders will bear the portfolio trading costs associated with this liquidation to the extent that it is completed before the Exchange Date. To the extent that the liquidation is not completed by the Exchange Date, shareholders of the combined fund will bear these costs.
The fees and expenses for the merger and related transactions are estimated to be $1,102,467 of which an estimated $274,635 will be paid by Putnam Growth and Income Fund and an estimated $827,832 will be paid by Putnam Equity Income Fund. These fees and expenses, representing legal and accounting expenses, the costs of printing and mailing this prospectus, portfolio transfer taxes (if any) or other similar expenses incurred in connection with the consummation of the merger and related transactions contemplated by the Agreement, will be allocated evenly between the two funds as of the Valuation Time, except that the costs of SEC registration fees will be allocated to Putnam Equity Income Fund. However, to the extent that any payment by either fund of such fees or expenses would result in the disqualification of Putnam Equity Income Fund or Putnam Growth and 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. The Merger Shares are class A, class B, class C, class M, class R, class R6 and class Y shares of Putnam Equity Income Fund. Each class of Merger Shares has identical characteristics to shares of the corresponding class of Putnam Growth and Income Fund. The Merger Shares do not include class T shares because these shares are not yet available for purchase. Putnam Growth and Income Fund shareholders receiving Merger Shares will not pay an initial sales charge on the shares. Your Merger Shares will be subject to a contingent deferred sales charge to the same extent that your Putnam Growth and Income Fund shares were subject to such a charge. In other words, your Merger Shares will be treated as having been purchased on the date you purchased your Putnam Growth and Income Fund shares and for the price you originally paid, potentially subject to certain adjustments. For purposes of determining the conversion date of the class B Merger Shares into class A shares of Putnam Equity Income Fund, the Merger Shares will be treated as having been purchased on the date you originally purchased your Putnam Growth and Income Fund shares (so that the conversion date of the shares will be unchanged by the merger). For more detail on the characteristics of each class of Merger Shares, please see the “How do I buy fund shares?” section of the prospectus of Putnam Equity Income Fund, dated March 30, 2016, as supplemented.
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Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of Putnam Equity Income Fund. However, the Amended and Restated Agreement and Declaration of Trust of Putnam Equity Income Fund disclaims shareholder liability for acts or obligations of Putnam Equity Income Fund and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by Putnam Equity Income Fund or its Trustees. The Amended and Restated 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 Putnam Equity Income Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which Putnam Equity Income Fund would be unable to meet its obligations. The likelihood of such circumstances is remote. The shareholders of Putnam Growth and 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 will be based on certain factual representations and customary assumptions and subject to certain qualifications), substantially to the effect that, although the matter is not free from doubt, on the basis of the existing provisions of the Code, Treasury regulations promulgated thereunder, current administrative rules and court decisions, generally for federal income tax purposes:
(i) the acquisition by Putnam Equity Income Fund of substantially all of the assets of Putnam Growth and Income Fund solely in exchange for Merger Shares and the assumption by Putnam Equity Income Fund of liabilities of Putnam Growth and Income Fund followed by the distribution by Putnam Growth and Income Fund to its shareholders of Merger Shares in complete liquidation of Putnam Growth and Income Fund, all pursuant to the Agreement, will constitute a reorganization within the meaning of Section 368(a) of the Code, and Putnam Growth and Income Fund and Putnam Equity Income Fund will each be a “party to a reorganization” within the meaning of Section 368(b) of the Code;
(ii) under Sections 361 and 357 of the Code, no gain or loss will be recognized by Putnam Growth and Income Fund upon the transfer of its assets to Putnam Equity Income Fund pursuant to the Agreement in exchange for Merger Shares and the assumption of Putnam Growth and Income Fund’s liabilities by Putnam Equity Income Fund or upon the distribution of Merger Shares by Putnam Growth and Income Fund to its shareholders in liquidation of Putnam Growth and Income Fund, except for (A) any gain or loss recognized on (1) “Section 1256 contracts” as defined in Section 1256(b) of the Code or (2) stock in a “passive foreign investment company” as defined in Section 1297(a) of the Code, and (B) any other gain or loss required to be recognized (1) as a result of the closing of the tax year of Putnam Growth and Income Fund, (2) upon the termination of a position, or (3) upon the transfer of an asset regardless of whether such a transfer would otherwise be a nontaxable transaction under the Code;
(iii) under Section 354 of the Code, no gain or loss will be recognized by shareholders of Putnam Growth and Income Fund upon the exchange of their shares of Putnam Growth and Income Fund for Merger Shares;
(iv) under Section 358 of the Code, the aggregate tax basis of the Merger Shares a Putnam Growth and Income Fund shareholder receives pursuant to the Agreement will be the same as the aggregate tax basis of the Putnam Growth and Income Fund shares exchanged therefor;
(v) under Section 1223(1) of the Code, a Putnam Growth and Income Fund shareholder’s holding period for the Merger Shares received pursuant to the Agreement will be determined by including the period during which such shareholder held or is treated for federal income tax
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purposes as having held the Putnam Growth and Income Fund shares exchanged therefor, provided that the shareholder held those Putnam Growth and Income Fund shares as capital assets;
(vi) under Section 1032 of the Code, no gain or loss will be recognized by Putnam Equity Income Fund upon the receipt of the assets of Putnam Growth and Income Fund in exchange for Merger Shares and the assumption by Putnam Equity Income Fund of the liabilities of Putnam Growth and Income Fund;
(vii) under Section 362(b) of the Code, Putnam Equity Income Fund’s tax basis in the assets of Putnam Growth and Income Fund transferred to Putnam Equity Income Fund pursuant to the Agreement will be the same as Putnam Growth and Income Fund’s tax basis immediately prior to the transfer, increased by any gain or decreased by any loss required to be recognized as described in (ii) above;
(viii) under Section 1223(2) of the Code, the holding period in the hands of Putnam Equity Income Fund of each Putnam Growth and Income Fund asset transferred to Putnam Equity Income Fund pursuant to the Agreement, other than certain assets with respect to which gain or loss is required to be recognized as described in (ii) above, will include the period during which such asset was held or treated for federal income tax purposes as held by Putnam Growth and Income Fund; and
(ix) Putnam Equity Income Fund will succeed to and take into account the items of Putnam Growth and 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 the regulations thereunder.
Putnam Equity Income Fund will file the tax opinion with the SEC shortly after completion of the merger. The opinion will be based on certain factual certifications made by officers of Putnam Growth and Income Fund and Putnam Equity Income Fund and will also be based on customary assumptions and subject to certain qualifications. The opinion will note and distinguish certain published precedent. The opinion is not a guarantee that the tax consequences of the merger will be as described above. There is no assurance that the Internal Revenue Service will agree with the opinion. If the merger were consummated but did not qualify as a tax-free reorganization, Putnam Growth and Income Fund shareholders would recognize a taxable gain or loss equal to the difference between their tax basis in their Putnam Growth and Income Fund shares and the fair market value of the shares of Putnam Equity Income Fund received.
Although the merger is expected to be a tax-free reorganization for federal income tax purposes, there will nonetheless be tax implications. Portfolio assets of Putnam Growth and Income Fund may be sold in connection with the merger. The actual tax impact of any such sales will depend on the difference between the price at which the portfolio assets are sold and Putnam Growth and Income Fund’s tax basis in the assets. If such sales take place prior to the date of the merger, any net capital gains recognized in these sales will be distributed to Putnam Growth and Income Fund’s shareholders as capital gain dividends (to the extent of net realized long-term capital gains over net-realized short-term capital losses) and/or ordinary dividends (to the extent of net realized short-term capital gains over net realized long-term capital losses) during or with respect to the year of sale. Such distributions will be taxable to shareholders. If such sales take place after the date of the merger, any net capital gains recognized in these sales will be distributed to shareholders of the combined fund and will be taxable to shareholders in the manner described in the immediately preceding sentence. Also, because the merger will end the tax year of Putnam Growth and Income Fund, it could accelerate distributions to shareholders from Putnam Growth and Income Fund for its short tax year ending on the date of the merger. Those tax year-end
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distributions will be taxable and will include any capital gains resulting from portfolio turnover prior to the merger.
Before consummating the merger, Putnam Growth and Income Fund will, and Putnam Equity Income Fund may, declare a distribution to shareholders that, together with all previous distributions, will have the effect of distributing to shareholders all of its investment company taxable income (computed without regard to the deduction for dividends paid) and net capital gains, including those realized on the disposition of portfolio securities, whether independent of or in connection with the merger, effected prior to the merger. Such distributions will be taxable to shareholders.
Furthermore, differences between the funds’ unrealized gains and losses and tax loss carryforwards, and tax rules limiting the use of certain of those losses to offset gains following the merger, may affect the timing and amount of future capital gain distributions paid to shareholders. Putnam Equity Income Fund’s ability to carry forward its or Putnam Growth and Income Fund’s pre-merger capital losses and to use them to offset future gains may be limited as a result of the merger. First, “pre-acquisition losses” of either Putnam Equity Income Fund or Putnam Growth and Income Fund (including capital loss carryforwards, net current-year capital losses, and unrealized losses that exceed certain thresholds) may become unavailable to offset gains of the combined fund. Second, one fund’s pre-acquisition losses cannot be used to offset unrealized gains in the other fund that are “built in” at the time of the merger and that exceed certain thresholds (“non-de minimis built-in gains”) for five tax years. Third, Putnam Growth and Income Fund’s loss carryforwards, as limited under the previous two rules, are permitted to offset only that portion of the income of Putnam Equity Income Fund for the taxable year of the merger that is equal to the portion of Putnam Equity Income Fund’s taxable year that follows the date of the merger (prorated according to number of days). Therefore, in certain circumstances, shareholders of either fund may pay taxes sooner, or pay more taxes, than they would have had the merger not occurred.
In addition, the combined fund resulting from the merger will have tax attributes that reflect a blending of the tax attributes of Putnam Equity Income Fund and Putnam Growth and Income Fund at the time of the merger (including as affected by the rules described above). Therefore, the shareholders of each fund will receive a proportionate share of any “built-in” (unrealized) gains in the other fund’s assets, as well as, in the case of Putnam Growth and Income Fund shareholders, any taxable gains realized by Putnam Equity Income Fund but not distributed to its shareholders before the merger, when Putnam Equity Income Fund eventually distributes those gains. As a result, shareholders of either fund may receive a greater amount of taxable distributions than they would have had the merger not occurred. Any pre-acquisition losses of Putnam Growth and Income Fund (whether realized or unrealized) remaining after the operation of the limitation rules described above will become potentially available to offset capital gains realized after the merger and thus may reduce subsequent capital gain distributions to a broader group of shareholders than would have been the case absent the merger, such that the benefit of those losses to Putnam Growth and Income Fund shareholders may be further reduced relative to what the benefit would have been had the merger not occurred.
The amount of realized and unrealized gains and losses of each fund, as well as the size of each fund, at the time of the merger will determine the extent to which the funds’ respective losses, both realized and unrealized, will be available to reduce gains realized by the combined fund following the merger, and consequently the extent to which the combined fund may be required to distribute gains to its shareholders earlier than would have been the case absent the merger. Thus, the impact of the rules described above will depend on factors that are currently unknown, and this impact cannot be calculated precisely before the merger.
The following paragraphs and tables provide a brief summary of the tax impacts, due to the above-described rules and the combination of the tax attributes of the two funds, of the merger had it occurred
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on September 30, 2016. The summary is based on the gain/loss characteristics of the funds as of September 30, 2016 and assumes that a hypothetical merger of the funds took place on that date. The gain/loss characteristics and net assets of each fund, and of the combined fund, on the actual date of the merger will differ, perhaps significantly, from those on September 30, 2016. For example, as a result of the potential portfolio turnover of Putnam Growth and Income Fund, that fund’s tax situation, and thus the actual tax impacts of the merger, could differ substantially from those described below. Because the tax impact of the merger depends on each fund’s relative tax situation at the time of the merger, which situation will be different, and perhaps significantly different, than the tax situation on September 30, 2016, the tax impacts of the merger will differ, perhaps significantly, from those described below.
As of September 30, 2016, Putnam Growth and Income Fund had net realized losses (capital loss carryforwards net of year-to-date (“YTD”) net realized gains), whereas Putnam Equity Income Fund had net realized gains (YTD net realized gains net of capital loss carryforwards). Specifically, Putnam Growth and Income Fund had realized losses equal to about $189.91 million, or roughly 4.00% of its own NAV, and built-in gains equal to about $522.07 million, or roughly 11.00% of its own NAV. Putnam Equity Income Fund had realized gains equal to about $37.38 million, or roughly 0.61% of its own NAV, and built-in gains equal to about $1,191.01 million, or roughly 19.42% of its own NAV. Had the merger occurred on September 30, 2016, the combined fund would have had built-in gains (net of realized losses) equal to approximately $1,560.54 million, or approximately 14.34% of the NAV of the combined fund. As a result of the spreading of the net realized and proportionally larger net unrealized gains of Putnam Equity Income Fund across all shareholders of the combined fund, the merger would have resulted in a very small tax cost to shareholders of Putnam Growth and Income Fund and a very small tax benefit to shareholders of Putnam Equity Income Fund. Putnam Growth and Income Fund’s $189.91 million of loss carryforwards would have been subject to an annual limitation of about $73.11 million per year, as increased by Putnam Growth and Income Fund’s unrealized built-in gains. All such losses would have expired at the end of the first taxable year of the combined fund following the merger. Given the very short expiration period of these losses and their size relative to the annual limitation, it would not have been possible for the combined fund to use these losses in full to offset gains of the combined fund before the losses expired. Given Putnam Growth and Income Fund’s significant unrealized gains, had the merger not occurred it may have been possible for Putnam Growth and Income Fund to use such losses in full to offset its own gains. The rules limiting the ability of the combined fund to use pre-merger losses of one fund to offset built-in gains of the other fund for five years following the merger would technically have applied to both funds, but would likely not have had a significant practical effect.
Summary Information (in $ Millions) |
| |||||
Capital Loss | |||||
Carryforwards, | |||||
Net of (including) | |||||
YTD Gain/(Loss) | |||||
YTD Net | or YTD Gain Net | Current Net | |||
Capital Loss | Realized | of Capital Loss | Unrealized | ||
Fund | Net Assets | Carryforwards | Gain/(Loss) | Carryforwards | Gain/(Loss) |
| |||||
Putnam Growth | $4,747.23 | ($194.78) | $4.87 | ($189.91) | $522.07 |
and Income Fund | |||||
| |||||
Putnam Equity | $6,133.78 | ($25.00) | $62.38 | $37.38 | $1,191.01 |
Income Fund | |||||
| |||||
Putnam Equity | $10,881.00 | - | - | ($152.53) | $1,713.08 |
Income Fund | |||||
(combined pro | |||||
|
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forma after merger |
and after Loss |
Limitation* |
|
* Showing merger of Putnam Growth and Income Fund into Putnam Equity Income Fund. The pro forma figures in this chart represent the position of each fund following a hypothetical merger on 9/30/2016. The amount shown as “Capital Loss Carryforwards, Net of (including) YTD Gain/(Loss) or YTD Gain Net of Capital Loss Carryforwards” represents the sum of the capital loss carryforwards, if any, and YTD realized gains/losses (the amounts that would be shown in the previous two columns) of the combined fund post-merger, after taking any Section 382 loss limitation and any expiration of losses as a result of the closing of Putnam Growth and Income Fund’s taxable year into account; this amount may not be fully available to the combined fund in any given year because the tax laws limit the use of Putnam Equity Income Fund’s and Putnam Growth and Income Fund’s pre-merger losses to offset gains realized by the combined fund. This number does not take into account potential limitations under Section 381 of the Code, which could limit the use of pre-merger losses of Putnam Equity Income Fund against post-merger current year gains of the combined fund in the year of the merger, and Section 384 of the Code, which prohibits the use of pre-merger losses of either fund to offset gains that were “built in” to the other fund at the time of the merger, if and when those gains are realized. Please note that the pro forma figures for post-merger losses may not be the sum of the pre-merger losses due to the limitations on the use of pre-merger losses and due to the potentially accelerated expiration of Putnam Growth and Income Fund’s losses as a result of the merger.
The tax principles described above are not expected to change. However, their application will change prior to the merger because of market developments and fluctuation, any pre-merger realignments or other sales of portfolio securities that might occur or that have already occurred, and shareholder activity in the funds, among other changes. This description of the federal income tax consequences of the merger is made without regard to the particular facts and circumstances of any shareholder, though it is applicable only to a situation when a fund’s shares are held in a taxable account. Shareholders are urged to consult their own tax advisors as to the specific consequences to them of the merger, including the applicability and effect of state, local and other tax laws.
Capitalization. The following table shows on an unaudited basis the capitalization of the funds as of November 30, 2016 and on a pro forma combined basis, giving effect to the merger as of that date:
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| |||||||||
Putnam Equity | |||||||||
Income Fund | |||||||||
Putnam Growth and Income | Putnam Equity | Pro Forma | Pro Forma | ||||||
(Unaudited) | Fund | Income Fund | Adjustment | Combined | |||||
| |||||||||
Net assets | |||||||||
(in thousands)* | |||||||||
Class A | $4,668,403,413 | $3,316,512,873 | (700,805) | $ 7,984,215,481 | |||||
Class B | $62,106,015 | $105,267,175 | (17,431) | $ 167,355,760 | |||||
Class C | $54,327,485 | $370,527,086 | (52,169) | $ 424,802,402 | |||||
Class M | $28,064,733 | $50,338,975 | (8,244) | $ 78,395,464 | |||||
Class R | $1,283,221 | $118,848,472 | (15,831) | $ 120,115,862 | |||||
Class R5 | N/A | $120,507,432 | (15,979) | $ 120,491,453 | |||||
Class R6 | $20,897,358 | $616,650,751 | (82,934) | $ 637,465,174 | |||||
Class Y | $76,331,436 | $1,544,573,160 | (209,074) | $ 1,620,695,522 | |||||
Total | $4,911,413,661 | $6,243,225,924 | ($1,102,466) | $11,153,537,119 | |||||
Shares outstanding | |||||||||
(in thousands) † | |||||||||
Class A | 213,309,719 | 157,221,025 | 7,986,008 | 378,516,752 | |||||
Class B | 2,892,635 | 5,052,130 | 87,878 | 8,032,642 | |||||
Class C | 2,496,185 | 17,783,939 | 111,189 | 20,391,313 | |||||
Class M | 1,293,897 | 2,417,680 | 53,920 | 3,765,497 | |||||
Class R | 58,940 | 5,679,726 | 2,381 | 5,741,047 | |||||
Class R5 | N/A | 5,710,467 | 0 | 5,710,467 | |||||
Class R6 | 951,808 | 29,214,480 | 38,171 | 30,204,459 | |||||
Class Y | 3,479,708 | 73,202,348 | 137,685 | 76,819,741 | |||||
Total | 224,482,892 | 296,281,795 | 8,417,232 | 529,181,919 |
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| |||||||||
Putnam Equity | |||||||||
Income Fund | |||||||||
Putnam Growth and Income | Putnam Equity | Pro Forma | Pro Forma | ||||||
(Unaudited) | Fund | Income Fund | Adjustment | Combined | |||||
| |||||||||
Net asset value per share | |||||||||
Class A | $21.89 | $21.09 | $21.09 | ||||||
Class B | $21.47 | $20.84 | $20.83 | ||||||
Class C | $21.76 | $20.83 | $20.83 | ||||||
Class M | $21.69 | $20.82 | $20.82 | ||||||
Class R | $21.77 | $20.93 | $20.92 | ||||||
Class R5 | N/A | $21.10 | $21.10 | ||||||
Class R6 | $21.96 | $21.11 | $21.11 | ||||||
Class Y | $21.94 | $21.10 | $21.10 | ||||||
|
* Pro forma combined net assets reflect that the costs associated with the merger are estimated to be $1,102,466 of which an estimated $274,634 will be paid by Putnam Growth and Income Fund and an estimated $827,831 will be paid by Putnam Equity Income Fund. These fees and expenses, representing legal and accounting expenses, portfolio transfer taxes (if any), the costs of printing and mailing this prospectus or other similar expenses incurred in connection with the consummation of the merger, will be allocated evenly between the two funds, except that the costs of SEC registration fees will be allocated to Putnam Equity Income Fund.
† Reflects the issuance of the following shares of Putnam Equity Income Fund in a tax-free exchange for the net assets of Putnam Growth and Income Fund as of November 30, 2016, less anticipated merger-related expenses:
Class A: 221,295,727
Class B: 2,980,512
Class C: 2,607,374
Class M: 1,347,817
Class R: 61,321
Class R6: 989,979
Class Y: 3,617,393
Unaudited narrative pro forma financial information of the funds for the twelve month period ended November 30, 2016 is included in the Merger SAI. Because the Agreement provides that Putnam Equity Income Fund will be the surviving fund following the merger and because Putnam Equity Income Fund’s investment objectives and policies will remain unchanged, the unaudited narrative pro forma financial information reflects the transfer of the assets and liabilities of Putnam Growth and Income Fund to Putnam Equity Income Fund as contemplated by the Agreement.
IV. Additional Information about Putnam Equity Income Fund
References to the “fund” in this section refer to Putnam Equity Income Fund.
Purchase and sale of fund shares
You can open an account, purchase and/or sell fund shares, or exchange them for shares of another Putnam fund by contacting your financial advisor or by calling Putnam Investor Services at 1-800-225-1581.
When opening an account, you must complete and mail a Putnam account application, along with a check made payable to the fund, to: Putnam Investor Services, P.O. Box 8383, Boston, MA 02266-8383. The
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minimum initial investment of $500 is currently waived, although Putnam reserves the right to reject initial investments under $500 at its discretion. There is no minimum for subsequent investments.
You can sell your shares back to the fund or exchange them for shares of another Putnam fund any day the New York Stock Exchange (NYSE) is open. Shares may be sold or exchanged by mail, by phone, or online at putnam.com. Some restrictions may apply.
Tax Information
The fund’s distributions will be taxed as ordinary income or capital gains unless you hold the shares through a tax-advantaged arrangement, in which case you will generally be taxed only upon withdrawal of monies from the arrangement.
Who oversees and manages the fund?
The fund’s Trustees. As a shareholder of a mutual fund, you have certain rights and protections, including representation by a Board of Trustees. The Putnam Funds’ Board of Trustees oversees the general conduct of the fund’s business and represents the interests of the Putnam fund shareholders. At least 75% of the members of the Putnam Funds’ Board of Trustees are independent, which means they are not officers of the fund or affiliated with Putnam Investment Management, LLC (Putnam Management).
The Trustees periodically review the fund’s investment performance and the quality of other services such as administration, custody, and investor services. At least annually, the Trustees review the fees paid to Putnam Management and its affiliates for providing or overseeing these services, as well as the overall level of the fund’s operating expenses. In carrying out their responsibilities, the Trustees are assisted by an administrative staff, auditors and legal counsel that are selected by the Trustees and are independent of Putnam Management and its affiliates.
Contacting the fund’s Trustees
Address correspondence to:
The Putnam Funds Trustees
One Post Office Square
Boston, MA 02109
The fund’s investment manager. The Trustees have retained Putnam Management, which has managed mutual funds since 1937, to be the fund’s investment manager, responsible for making investment decisions for the fund and managing the fund’s other affairs and business. The basis for the Trustees' approval of the fund’s management contract and the sub-management contract described below is discussed in the fund’s annual report to shareholders dated November 30, 2016.
The fund pays a monthly management fee to Putnam Management. The fee is calculated by applying a rate to the fund’s average net assets for the month. The rate is based on the monthly average of the aggregate net assets of all open-end funds sponsored by Putnam Management (excluding net assets of funds that are invested in, or that are invested in by, other Putnam funds to the extent necessary to avoid “double counting” of those assets), and generally declines as the aggregate net assets increase.
The fund paid Putnam Management a management fee (after any applicable waivers) of 0.47% of average net assets for the fund’s last fiscal year.
Putnam Management’s address is One Post Office Square, Boston, MA 02109.
Putnam Management has retained its affiliate Putnam Investments Limited (PIL) to make investment decisions for such fund assets as may be designated from time to time for its management by Putnam Management. PIL is not currently managing any fund assets. If PIL were to manage any fund assets, Putnam Management (and not the fund) would pay a quarterly sub-management fee to PIL for its services
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at the annual rate of 0.35% of the average net asset value (NAV) of any fund assets managed by PIL. PIL, which provides a full range of international investment advisory services to institutional clients, is located at Cassini House, 57-59 St James’s Street, London, England, SW1A 1LD.
Pursuant to this arrangement, Putnam investment professionals who are based in foreign jurisdictions may serve as portfolio managers of the fund or provide other investment services, consistent with local regulations.
Portfolio managers. The officers of Putnam Management identified below are primarily responsible for the day-to-day management of the fund’s portfolio.
Portfolio manager | Joined fund | Employer | Positions over past five years |
Darren Jaroch | 2012 | Putnam Management | Portfolio Manager |
1999 - Present | |||
Assistant portfolio manager | Joined fund | Employer | Positions over past five years |
Walter Scully | 2012 | Putnam Management | Analyst and Assistant Portfolio Manager |
1996 - Present |
The fund’s SAI provides information about these individuals’ compensation, other accounts managed by these individuals and these individuals’ ownership of securities in the fund.
Portfolio holdings. The SAI includes a description of the fund’s policies with respect to the disclosure of its portfolio holdings. For more specific information on the fund’s portfolio, you may visit the Putnam Investments website, putnam.com/individual, where the fund’s top 10 holdings and related portfolio information may be viewed monthly beginning approximately 15 days after the end of each month, and full portfolio holdings may be viewed beginning on the last business day of the month after the end of each calendar quarter. This information will remain available on the website until the fund files a Form N-CSR or N-Q with the SEC for the period that includes the date of the information, after which such information can be found on the SEC’s website at http://www. sec. gov.
How does the fund price its shares?
The price of the fund’s shares is based on its NAV. The NAV per share of each class equals the total value of its assets, less its liabilities, divided by the number of its outstanding shares. Shares are only valued as of the scheduled close of regular trading on the NYSE each day the exchange is open.
The fund values its investments for which market quotations are readily available at market value. It values all other investments and assets at their fair value, which may differ from recent market prices. For example, the fund may value a stock traded on a U.S. exchange at its fair value when the exchange closes early or trading in the stock is suspended. It may also value a stock at fair value if recent transactions in the stock have been very limited or if, in the case of a security traded on a market that closes before the NYSE closes, material information about the issuer becomes available after the close of the relevant market.
The fund translates prices for its investments quoted in foreign currencies into U.S. dollars at current exchange rates, which are generally determined as of 4:00 p.m. Eastern Time each day the NYSE is open. As a result, changes in the value of those currencies in relation to the U.S. dollar may affect the fund’s NAV. Because foreign markets may be open at different times than the NYSE, the value of the fund’s shares may change on days when shareholders are not able to buy or sell them. Many securities markets and exchanges outside the U.S. close before the close of the NYSE and, therefore, the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close
29 |
but before the close of the NYSE. As a result, the fund has adopted fair value pricing procedures, which, among other things, require the fund to fair value foreign equity securities if there has been a movement in the U.S. market that exceeds a specified threshold that may change from time to time. As noted above, the value determined for an investment using the fund’s fair value pricing procedures may differ from recent market prices for the investment.
The fund’s most recent NAV is available on Putnam Investments' website at putnam.com/individual or by contacting Putnam Investor Services at 1-800-225-1581.
How do I buy fund shares?
Opening an account
You can open a fund account and purchase class A, B, C, M (and T shares as of [March 1, 2017]) by contacting your financial representative or Putnam Investor Services at 1-800-225-1581 and obtaining a Putnam account application. The completed application, along with a check made payable to the fund, must then be returned to Putnam Investor Services at the following address:
Putnam Investor Services
P.O. Box 8383
Boston, MA 02266-8383
You can open a fund account with as little as $500. The minimum investment is waived if you make regular investments weekly, semi-monthly or monthly through automatic deductions from your bank checking or savings account. Although Putnam is currently waiving the minimum, it reserves the right to reject initial investments under the minimum at its discretion.
The fund sells its shares at the offering price, which is the NAV plus any applicable sales charge (class A, class M and, as of [March 1, 2017], class T shares only). Your financial representative or Putnam Investor Services generally must receive your completed buy order before the close of regular trading on the NYSE for your shares to be bought at that day’s offering price.
If you participate in an employer-sponsored retirement plan that offers the fund, please consult your employer for information on how to purchase shares of the fund through the plan, including any restrictions or limitations that may apply.
Mutual funds must obtain and verify information that identifies investors opening new accounts. If the fund is unable to collect the required information, Putnam Investor Services may not be able to open your account. Investors must provide their full name, residential or business address, Social Security or tax identification number, and date of birth. Entities, such as trusts, estates, corporations and partnerships, must also provide other identifying information. Putnam Investor Services may share identifying information with third parties for the purpose of verification. If Putnam Investor Services cannot verify identifying information after opening your account, the fund reserves the right to close your account.
Also, the fund may periodically close to new purchases of shares or refuse any order to buy shares if the fund determines that doing so would be in the best interests of the fund and its shareholders.
Purchasing additional shares
Once you have an existing account, you can make additional investments at any time in any amount in the following ways:
• Through a financial representative. Your representative will be responsible for furnishing all necessary documents to Putnam Investor Services and may charge you for his or her services.
• Through Putnam’s Systematic Investing Program. You can make regular investments weekly, semi-monthly or monthly through automatic deductions from your bank checking or savings account.
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• Via the Internet or phone. If you have an existing Putnam fund account and you have completed and returned an Electronic Investment Authorization Form, you can buy additional shares online at putnam.com or by calling Putnam Investor Services at 1-800-225-1581.
• By mail. You may also request a book of investment stubs for your account. Complete an investment stub and write a check for the amount you wish to invest, payable to the fund. Return the check and investment stub to Putnam Investor Services.
• By wire transfer. You may buy fund shares by bank wire transfer of same-day funds. Please call Putnam Investor Services at 1-800-225-1581 for wiring instructions. Any commercial bank can transfer same-day funds by wire. The fund will normally accept wired funds for investment on the day received if they are received by the fund’s designated bank before the close of regular trading on the NYSE. Your bank may charge you for wiring same-day funds. Although the fund’s designated bank does not currently charge you for receiving same-day funds, it reserves the right to charge for this service. You cannot buy shares for employer-sponsored retirement plans by wire transfer.
Which class of shares is best for me? The fund’s prospectus offers you four classes of fund shares: A, B, C and M. Employer-sponsored retirement plans may also choose class R, R5 or R6 shares, and certain investors described below may also choose class Y shares. Class T shares will also be offered as of [March 1, 2017]. Each share class represents investments in the same portfolio of securities, but each class has its own sales charge and expense structure, as illustrated in the Fund summary - Fees and expenses section, allowing you and your financial representative to choose the class that best suits your investment needs. When you purchase shares of a fund, you must choose a share class. Deciding which share class best suits your situation depends on a number of factors that you should discuss with your financial representative, including:
• How long you expect to hold your investment. Class B shares charge a contingent deferred sales charge (CDSC) on redemptions that is phased out over the first six years; class C shares charge a CDSC on redemptions in the first year.
• How much you intend to invest. While investments of less than $100,000 can be made in any share class, classes A and M offer sales charge discounts starting at $50,000. Class T will offer sales charge discounts starting at investments of $250,000.
• Total expenses associated with each share class. Each share class offers a different combination of up-front and ongoing expenses. Generally, the lower the up-front sales charge, the greater the ongoing expenses.
Here is a summary of the differences among the classes of shares
Class A shares
• Initial sales charge of up to 5.75%
• Lower sales charges available for investments of $50,000 or more
• No deferred sales charge (except that a deferred sales charge of 1.00% may be imposed on certain redemptions of shares bought without an initial sales charge)
• Lower annual expenses, and higher dividends, than class B, C or M shares because of lower 12b-1 fees.
• Potential for higher initial sales charge than class T shares; however, right of accumulation and statement of intention discounts (described in this prospectus) are not applicable to class T shares.
Class B shares
• No initial sales charge; your entire investment goes to work immediately
• Deferred sales charge of up to 5.00% if shares are sold within six years of purchase
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• Higher annual expenses, and lower dividends, than class A, M or T shares because of higher 12b-1 fees
• Convert automatically to class A shares after eight years, thereby reducing future 12b-1 fees
• Orders for class B shares of one or more Putnam funds will be refused when the total value of the purchase, plus existing account balances that are eligible to be linked under a right of accumulation for purchases of class A shares (as described below), is $100,000 or more. Investors considering cumulative purchases of $100,000 or more should consider whether class A shares would be more advantageous and consult their financial representative.
Class C shares
• No initial sales charge; your entire investment goes to work immediately
• Deferred sales charge of 1.00% if shares are sold within one year of purchase
• Higher annual expenses, and lower dividends, than class A, M or T shares because of higher 12b-1 fees
• No conversion to class A shares, so no reduction in future 12b-1 fees
• Orders for class C shares of one or more Putnam funds, other than class C shares sold to employer-sponsored retirement plans, will be refused when the total value of the purchase, plus existing account balances that are eligible to be linked under a right of accumulation for purchases of class A shares (as described below), is $1,000,000 or more. Investors considering cumulative purchases of $1,000,000 or more should consider whether class A shares would be more advantageous and consult their financial representative.
Class M shares
• Initial sales charge of up to 3.50%
• Lower sales charges available for investments of $50,000 or more
• No deferred sales charge
• Lower annual expenses, and higher dividends, than class B or C shares because of lower 12b-1 fees
• Higher annual expenses, and lower dividends, than class A or T shares because of higher 12b-1 fees
• No conversion to class A shares, so no reduction in future 12b-1 fees
• Orders for class M shares of one or more Putnam funds, other than class M shares sold to employer-sponsored retirement plans, will be refused when the total value of the purchase, plus existing account balances that are eligible to be linked under a right of accumulation for purchases of class A shares (as described below), is $1,000,000 or more. Investors considering cumulative purchases of $1,000,000 or more should consider whether class A shares would be more advantageous and consult their financial representative.
Class R shares (available only to employer-sponsored retirement plans)
• No initial sales charge; your entire investment goes to work immediately
• No deferred sales charge
• Lower annual expenses, and higher dividends, than class B, C or M shares because of lower 12b-1 fees
• Higher annual expenses, and lower dividends, than class A or T shares because of higher 12b-1 fees
• No conversion to class A shares, so no reduction in future 12b-1 fees.
Class R5 shares (available only to employer-sponsored retirement plans)
• No initial sales charge; your entire investment goes to work immediately
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• No deferred sales charge
• Lower annual expenses, and higher dividends, than class A, B, C, M or R shares because of no 12b-1 fees and lower investor servicing fees
• Lower annual expenses, and higher dividends, than class Y shares because of lower investor servicing fees
• Higher annual expenses, and lower dividends, than class R6 shares because of higher investor servicing fees.
Class T shares
• Initial sales charge of up to 2.50%
• Lower sales charges available for investments of $250,000 or more
• No deferred sales charge
• Lower annual expenses, and higher dividends, than class B, C or M shares because of lower 12b-1 fees
• Potential for lower initial sales charge than class A shares, however, right of accumulation and statement of intention discounts (described in this prospectus) are not applicable to class T shares.
Class R6 shares (available only to employer-sponsored retirement plans)
• No initial sales charge; your entire investment goes to work immediately
• No deferred sales charge
• Lower annual expenses, and higher dividends, than class A, B, C, M or R shares because of no 12b-1 fees and lower investor servicing fees
• Lower annual expenses, and higher dividends, than class R5 or Y shares because of lower investor servicing fees.
Class Y shares (available only to investors listed below)
• The following investors may purchase class Y shares if approved by Putnam:
- employer-sponsored retirement plans that are clients of third-party administrators (including affiliates of Putnam) that have entered into agreements with Putnam and offer institutional share class pricing (no sales charge or 12b-1 fee);
- bank trust departments and trust companies that have entered into agreements with Putnam and offer institutional share class pricing to their clients;
- corporate IRAs administered by Putnam, if another retirement plan of the sponsor is eligible to purchase class Y shares;
- college savings plans that qualify for tax-exempt treatment under Section 529 of the Internal Revenue Code;
- other Putnam funds and Putnam investment products;
- investors purchasing shares through an asset-based fee program that regularly offers institutional share classes and that is sponsored by a registered broker-dealer or other financial institution;
- clients of a financial representative who are charged a fee for consulting or similar services;
- corporations, endowments and foundations that have entered into an arrangement with Putnam;
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- fee-paying clients of a registered investment advisor (RIA) who initially invests for clients an aggregate of at least $100,000 in Putnam funds;
- investment companies (whether registered or private), both affiliated and unaffiliated with Putnam;
- current and retired Putnam employees and their immediate family members (including an employee’s spouse, domestic partner, fiancé(e), or other family members who are living in the same household) as well as, in each case, Putnam-offered health savings accounts, individual retirement accounts (IRAs), and other similar tax-advantaged plans solely owned by the foregoing individuals; current and retired directors of Putnam Investments, LLC; current and retired Great-West Life & Annuity Insurance Company employees; and current and retired Trustees of the fund. Upon the departure of any member of this group of individuals from Putnam, Great-West Life & Annuity Insurance Company, or the fund’s Board of Trustees, the member’s class Y shares convert automatically to class A shares, unless the member’s departure is a retirement, as determined by Putnam in its discretion for employees and directors of Putnam and employees of Great-West Life & Annuity Insurance Company and by the Board of Trustees in its discretion for Trustees; provided that conversion will not take place with respect to class Y shares held by former Putnam employees and their immediate family members in health savings accounts where it is not operationally practicable due to platform or other limitations; and
- personal and family member IRAs of registered representatives and other employees of broker-dealers and other financial institutions having a sales agreement with Putnam Retail Management, if (1) the registered representative or other employee is the broker of record or financial representative for the account, (2) the broker-dealer or other financial institution’s policies prohibit the use of class A shares or other classes of fund shares that pay 12b-1 fees in such accounts to avoid potential prohibited transactions under Internal Revenue Service rules due to the account owners’ status as “disqualified persons” under those rules, and (3) the broker-dealer or other financial institution has an agreement with Putnam Retail Management related to the use of class Y shares in these accounts.
Trust companies or bank trust departments that purchased class Y shares for trust accounts may transfer them to the beneficiaries of the trust accounts, who may continue to hold them or exchange them for class Y shares of other Putnam funds. Defined contribution plans (including corporate IRAs) that purchased class Y shares under prior eligibility criteria may continue to purchase class Y shares.
• No initial sales charge; your entire investment goes to work immediately
• No deferred sales charge
• Lower annual expenses, and higher dividends, than class A, B, C, M, R or T shares because of no 12b-1 fees
• Higher annual expenses, and lower dividends, than class R5 or R6 shares because of higher investor servicing fees
Initial sales charges for class A and M shares
Class A sales charge as a | Class M sales charge as a | |||
percentage of*: | percentage of*: | |||
Amount of purchase at | Net amount | Offering | Net amount | Offering |
offering price ($) | invested | price** | invested | price** |
Under 50,000 | 6.10% | 5.75% | 3.63% | 3.50% |
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50,000 but under 100,000 | 4.71 | 4.50 | 2.56 | 2.50 |
100,000 but under 250,000 | 3.63 | 3.50 | 1.52 | 1.50 |
250,000 but under 500,000 | 2.56 | 2.50 | 1.01 | 1.00 |
500,000 but under 1,000,000 | 2.04 | 2.00 | 1.01 | 1.00 |
1,000,000 and above | NONE | NONE | N/A*** | N/A*** |
* Because of rounding in the calculation of offering price and the number of shares purchased, actual sales charges you pay may be more or less than these percentages.
** Offering price includes sales charge.
*** The fund will not accept purchase orders for class M shares (other than by employer-sponsored retirement plans) where the total of the current purchase, plus existing account balances that are eligible to be linked under a right of accumulation (as described below) is $1 million or more.
Initial sales charges for class T shares
Class T sales charge as a | ||||
percentage of*: | ||||
Amount of purchase at | Net amount | Offering | ||
offering price (Transaction Level)($) | invested | price** | ||
Under 249,000 | [ ]% | 2.50% | ||
250,000 but under 499,999 | [ ]% | 2.00% | ||
500,000 but under 999,999 | [ ]% | 1.50% | ||
1,000,000 and above | [ ]% | 1.00% |
* Because of rounding in the calculation of offering price and the number of shares purchased, actual sales charges you pay may be more or less than these percentages.
** Offering price includes sales charge.
Reducing your class A or class M sales charge
The fund offers two principal ways for you to qualify for discounts on initial sales charges on class A and class M shares, often referred to as “breakpoint discounts”:
Right of accumulation. You can add the amount of your current purchases of class A or class M shares of the fund and other Putnam funds to the value of your existing accounts in the fund and other Putnam funds. Individuals can also include purchases by, and accounts owned by, their spouse and minor children, including accounts established through different financial representatives. For your current purchases, you will pay the initial sales charge applicable to the total value of the linked accounts and purchases, which may be lower than the sales charge otherwise applicable to each of your current purchases. Shares of Putnam money market funds, other than money market fund shares acquired by exchange from other Putnam funds, are not included for purposes of the right of accumulation.
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To calculate the total value of your existing accounts and any linked accounts, the fund will use the higher of (a) the current maximum public offering price of those shares or (b) if you purchased the shares after December 31, 2007, the initial value of the total purchases, or, if you held the shares on December 31, 2007, the market value at maximum public offering price on that date, in either case, less the market value on the applicable redemption date of any of those shares that you have redeemed.
Statement of intention. A statement of intention is a document in which you agree to make purchases of class A or class M shares in a specified amount within a period of 13 months. For each purchase you make under the statement of intention, you will pay the initial sales charge applicable to the total amount you have agreed to purchase. While a statement of intention is not a binding obligation on you, if you do not purchase the full amount of shares within 13 months, the fund will redeem shares from your account in an amount equal to the difference between the higher initial sales charge you would have paid in the absence of the statement of intention and the initial sales charge you actually paid.
Account types that may be linked with each other to obtain breakpoint discounts using the methods described above include:
•Individual accounts
•Joint accounts
•Accounts established as part of a retirement plan and IRA accounts (some restrictions may apply)
•Shares of Putnam funds owned through accounts in the name of your dealer or other financial intermediary (with documentation identifying beneficial ownership of shares)
•Accounts held as part of a Section 529 college savings plan managed by Putnam Management (some restrictions may apply).
In order to obtain a breakpoint discount, you should inform your financial representative at the time you purchase shares of the existence of other accounts or purchases that are eligible to be linked for the purpose of calculating the initial sales charge. The fund or your financial representative may ask you for records or other information about other shares held in your accounts and linked accounts, including accounts opened with a different financial representative. Restrictions may apply to certain accounts and transactions. Further details about breakpoint discounts can be found on Putnam Investments' website at putnam.com/individual by selecting Mutual Funds, then Pricing and performance, and then About fund costs, and in the fund’s SAI.
Additional reductions and waivers of sales charges. In addition to the breakpoint discount methods described above for class A and class M shares, the fund may sell the classes of shares specified below without a sales charge or CDSC under the circumstances described below. The sales charge and CDSC waiver categories described below do not apply to customers purchasing shares of the fund through any of the financial intermediaries specified in Appendix [ ] to this prospectus (each, a “Specified Intermediary”).
Different financial intermediaries may impose different sales charges. Please refer to Appendix [ ] for the sales charge or CDSC waivers that are applicable to each Specified Intermediary.
Class A and class M shares
The fund may sell class A and class M shares without a sales charge under the following circumstances:
(i) to current and former Trustees of the fund, their family members, business and personal associates; current and former employees of Putnam Management and certain current and former corporate affiliates, their family members, business and personal associates; employer-sponsored retirement plans for the
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foregoing; and partnerships, trusts or other entities in which any of the foregoing has a substantial interest;
(ii) to clients of administrators or other service providers of employer-sponsored retirement plans which have entered into agreements with Putnam Retail Management or Putnam Investor Services, Inc. or an affiliate (for purposes of this waiver, employer-sponsored retirement plans do not include SEP IRAs, SIMPLE IRAs or SARSEPs) (not applicable to tax-exempt funds);
(iii) to 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 immediate family members (spouses and children under age 21, including stepchildren and adopted children);
(iv) to 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;
(v) to clients of (i) broker-dealers, financial institutions, financial intermediaries or registered investment advisors that are approved by Putnam Retail Management and charge a fee for advisory or investment services or (ii) broker-dealers, financial institutions, or financial intermediaries that have entered into an agreement with Putnam Retail Management to offer shares through a fund “supermarket” or retail self directed brokerage account with or without the imposition of a transaction fee;
(vi) to college savings plans that qualify for tax-exempt treatment under Section 529 of the Internal Revenue Code of 1986, as amended (the “Code”); and
(vii) to Shareholders reinvesting the proceeds from a Putnam Corporate IRA Plan distribution into a nonretirement plan account.
Class B and class C shares
A CDSC is waived in the event of a redemption under the following circumstances:
(i) A withdrawal from a Systematic Withdrawal Plan (“SWP”) of up to 12% of the net asset value of the account (calculated as set forth in the SAI);
(ii) a redemption of shares that are no longer subject to the CDSC holding period therefor;
(iii) a redemption of shares that were issued upon the reinvestment of distributions by the fund;
(iv) a redemption of shares that 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 or Putnam Short Duration Income Fund) will continue to remain subject to the CDSC, if applicable, until the applicable holding period expires;
(v) 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
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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.
Class T shares
The fund may sell class T shares without a sales charge under the following circumstances:
(i) upon reinvestment of distributions by the fund; and
(ii) upon exchange of shares of other classes of the fund.
The methods of reducing the sales charge through the right of accumulation and the statement of intention described above with respect to class A and M shares do not apply to class T shares.
Additional information about reductions and waivers of sales charges, including deferred sales charges, is included in the SAI. You may consult your financial representative or Putnam Retail Management for assistance.
How do I sell or exchange fund shares? You can sell your shares back to the fund or exchange them for shares of another Putnam fund any day the NYSE is open, either through your financial representative or directly to the fund.
If you redeem your shares shortly after purchasing them, your redemption payment for the shares may be delayed until the fund collects the purchase price of the shares, which may be up to 10 calendar days after the purchase date.
Regarding exchanges, not all Putnam funds offer all classes of shares or may be open to new investors. If you exchange shares otherwise subject to a deferred sales charge, the transaction will not be subject to the deferred sales charge. When you redeem the shares acquired through the exchange, however, the redemption may be subject to the deferred sales charge, depending upon when and from which fund you originally purchased the shares. The deferred sales charge will be computed using the schedule of any fund into or from which you have exchanged your shares that would result in your paying the highest deferred sales charge applicable to your class of shares. For purposes of computing the deferred sales charge, the length of time you have owned your shares will be measured from the date of original purchase, unless you originally purchased the shares from another Putnam fund that does not directly charge a deferred sales charge, in which case the length of time you have owned your shares will be measured from the date you exchange those shares for shares of another Putnam fund that does charge a deferred sales charge, and will not be affected by any subsequent exchanges among funds.
Selling or exchanging shares through your financial representative. Your representative must receive your request in proper form before the close of regular trading on the NYSE for you to receive that day’s NAV, less any applicable deferred sales charge. Your representative will be responsible for furnishing all necessary documents to Putnam Investor Services on a timely basis and may charge you for his or her services.
Selling or exchanging shares directly with the fund. Putnam Investor Services must receive your request in proper form before the close of regular trading on the NYSE in order to receive that day’s NAV, less any applicable deferred sales charge.
By mail. Send a letter of instruction signed by all registered owners or their legal representatives to Putnam Investor Services. If you have certificates for the shares you want to sell or exchange, you must return them unendorsed with your letter of instruction.
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By telephone. You may use Putnam’s telephone redemption privilege to redeem shares valued at less than $100,000 unless you have notified Putnam Investor Services of an address change within the preceding 15 days, in which case other requirements may apply. Unless you indicate otherwise on the account application, Putnam Investor Services will be authorized to accept redemption instructions received by telephone. A telephone exchange privilege is currently available for amounts up to $500,000. Sale or exchange of shares by telephone is not permitted if there are certificates for your shares. The telephone redemption and exchange privileges may be modified or terminated without notice.
Via the Internet. You may also exchange shares via the Internet at putnam.com/individual.
Shares held through your employer's retirement plan. For information on how to sell or exchange shares of the fund that were purchased through your employer’s retirement plan, including any restrictions and charges that the plan may impose, please consult your employer.
Additional requirements. In certain situations, for example, if you sell shares with a value of $100,000 or more, the signatures of all registered owners or their legal representatives must be guaranteed by a bank, broker-dealer or certain other financial institutions. In addition, Putnam Investor Services usually requires additional documents for the sale of shares by a corporation, partnership, agent or fiduciary, or surviving joint owner. For more information concerning Putnam’s signature guarantee and documentation requirements, contact Putnam Investor Services.
The fund also reserves the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange. The fund into which you would like to exchange may also reject your exchange. These actions may apply to all shareholders or only to those shareholders whose exchanges Putnam Management determines are likely to have a negative effect on the fund or other Putnam funds. Consult Putnam Investor Services before requesting an exchange. Ask your financial representative or Putnam Investor Services for prospectuses of other Putnam funds. Some Putnam funds are not available in all states.
Deferred sales charges for class B, class C and certain class A shares
If you sell (redeem) class B shares within six years of purchase, you will generally pay a deferred sales charge according to the following schedule:
Year after purchase | 1 | 2 | 3 | 4 | 5 | 6 | 7+ |
| |||||||
Charge | 5% | 4% | 3% | 3% | 2% | 1% | 0% |
A deferred sales charge of 1.00% will apply to class C shares if redeemed within one year of purchase. Class A shares that are part of a purchase of $1 million or more (other than by an employer-sponsored retirement plan) will be subject to a 1.00% deferred sales charge if redeemed within nine months of purchase.
Deferred sales charges will be based on the lower of the shares’ cost and current NAV. Shares not subject to any charge will be redeemed first, followed by shares held longest. You may sell shares acquired by reinvestment of distributions without a charge at any time.
Payment information. The fund generally sends you payment for your shares the business day after your request is received. Under unusual circumstances, the fund may suspend redemptions, or postpone payment for more than seven days, as permitted by federal securities law. You will not receive interest on uncashed redemption checks. Redemption proceeds may be paid in securities or other property rather than in cash.
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Redemption by the fund. If you own fewer shares than the minimum set by the Trustees (presently 20 shares), the fund may redeem your shares without your permission and send you the proceeds after providing you with at least 60 days’ notice to attain the minimum. To the extent permitted by applicable law, the fund may also redeem shares if you own more than a maximum amount set by the Trustees. There is presently no maximum, but the Trustees could set a maximum that would apply to both present and future shareholders.
Policy on excessive short-term trading
• Risks of excessive short-term trading . Excessive short-term trading activity may reduce the fund’s performance and harm all fund shareholders by interfering with portfolio management, increasing the fund’s expenses and diluting the fund’s NAV. Depending on the size and frequency of short-term trades in the fund’s shares, the fund may experience increased cash volatility, which could require the fund to maintain undesirably large cash positions or to buy or sell portfolio securities it would not have bought or sold otherwise. The need to execute additional portfolio transactions due to these cash flows may also increase the fund’s brokerage and administrative costs and, for investors in taxable accounts, may increase taxable distributions received from the fund.
When the fund invests in foreign securities, its performance may be adversely impacted and the interests of longer-term shareholders may be diluted as a result of time-zone arbitrage, a short-term trading practice that seeks to exploit changes in the value of the fund’s investments that result from events occurring after the close of the foreign markets on which the investments trade, but prior to the later scheduled close of trading on the NYSE, the time as of which the fund determines its NAV. If an arbitrageur is successful, he or she may dilute the interests of other shareholders by trading shares at prices that do not fully reflect their fair value.
When the fund invests in securities that may trade infrequently or may be more difficult to value, such as securities of smaller companies, it may be susceptible to trading by short-term traders who seek to exploit perceived price inefficiencies in the fund’s investments. In addition, the market for securities of smaller companies may at times show “market momentum,” in which positive or negative performance may continue from one day to the next for reasons unrelated to the fundamentals of the issuer. Short-term traders may seek to capture this momentum by trading frequently in the fund’s shares, which will reduce the fund’s performance and may dilute the interests of other shareholders. Because securities of smaller companies may be less liquid than securities of larger companies, the fund may also be unable to buy or sell these securities at desirable prices when the need arises (for example, in response to volatile cash flows caused by short-term trading). Similar risks may apply if the fund holds other types of less liquid securities, including below-investment-grade bonds.
• Fund policies. In order to protect the interests of long-term shareholders of the fund, Putnam Management and the fund’s Trustees have adopted policies and procedures intended to discourage excessive short-term trading. The fund seeks to discourage excessive short-term trading by using fair value pricing procedures to value investments under some circumstances. In addition, Putnam Management monitors activity in those shareholder accounts about which it possesses the necessary information in order to detect excessive short-term trading patterns and takes steps to deter excessive short-term traders.
• Account monitoring. Putnam Management’s Compliance Department currently uses multiple reporting tools to detect short-term trading activity occurring in accounts for investors held directly with the Putnam funds as well as within accounts held through certain financial intermediaries. Putnam Management measures excessive short-term trading in the fund by the number of “round trip” transactions above a specified dollar amount within a specified period of time. A “round trip” transaction is defined as a purchase or exchange into a fund followed, or preceded by, a redemption or exchange out of the same fund. Generally, if an investor has been identified as having completed two “round trip” transactions with values above a specified amount within a rolling 90-day period, Putnam Management
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will issue the investor and/or his or her financial intermediary, if any, a written warning. Putnam Management’s practices for measuring excessive short-term trading activity and issuing warnings may change from time to time. Certain types of transactions are exempt from monitoring, such as those in connection with systematic investment or withdrawal plans and reinvestment of dividend and capital gain distributions.
• Account restrictions. In addition to these monitoring practices, Putnam Management and the fund reserve the right to reject or restrict purchases or exchanges for any reason. Continued excessive short-term trading activity by an investor or intermediary following a warning may lead to the termination of the exchange privilege for that investor or intermediary. Putnam Management or the fund may determine that an investor’s trading activity is excessive or otherwise potentially harmful based on various factors, including an investor’s or financial intermediary’s trading history in the fund, other Putnam funds or other investment products, and may aggregate activity in multiple accounts in the fund or other Putnam funds under common ownership or control for purposes of determining whether the activity is excessive. If the fund identifies an investor or intermediary as a potential excessive trader, it may, among other things, require future trades to be submitted by mail rather than by phone or over the Internet, impose limitations on the amount, number, or frequency of future purchases or exchanges, or temporarily or permanently bar the investor or intermediary from investing in the fund or other Putnam funds. The fund may take these steps in its discretion even if the investor’s activity does not fall within the fund’s current monitoring parameters.
• Limitations on the fund’s policies. There is no guarantee that the fund will be able to detect excessive short-term trading in all accounts. For example, Putnam Management currently does not have access to sufficient information to identify each investor’s trading history, and in certain circumstances there are operational or technological constraints on its ability to enforce the fund’s policies. In addition, even when Putnam Management has sufficient information, its detection methods may not capture all excessive short-term trading.
In particular, many purchase, redemption and exchange orders are received from financial intermediaries that hold omnibus accounts with the fund. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among retirement plans and financial intermediaries such as brokers, advisers and third-party administrators. The fund is generally not able to identify trading by a particular beneficial owner within an omnibus account, which makes it difficult or impossible to determine if a particular shareholder is engaging in excessive short-term trading. Putnam Management monitors aggregate cash flows in omnibus accounts on an ongoing basis. If high cash flows or other information indicate that excessive short-term trading may be taking place, Putnam Management will contact the financial intermediary, plan sponsor or recordkeeper that maintains accounts for the beneficial owner and attempt to identify and remedy any excessive trading. However, the fund’s ability to monitor and deter excessive short-term traders in omnibus accounts ultimately depends on the capabilities and cooperation of these third-party financial firms. A financial intermediary or plan sponsor may impose different or additional limits on short-term trading.
Distribution plans and payments to dealers. Putnam funds are distributed primarily through dealers (including any broker, dealer, bank, bank trust department, registered investment advisor, financial planner, retirement plan administrator, and any other institution having a selling, services, or any similar agreement with Putnam Retail Management or one of its affiliates). In order to pay for the marketing of fund shares and services provided to shareholders, the fund has adopted distribution and service (12b-1) plans, which increase the annual operating expenses you pay each year in certain share classes, as shown in the table of annual fund operating expenses in the section Fund summary - Fees and expenses of the fund’s prospectus . Putnam Retail Management and its affiliates also make additional payments to dealers that do not increase your fund expenses, as described below.
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• Distribution and service (12b-1) plans. The fund’s 12b-1 plans provide for payments at annual rates (based on average net assets) of up to 0.35% on class A shares, 1.00% on class B, class C, class M and class R shares and 0.25% on class T shares. The Trustees currently limit payments on class A, class M and class R shares to 0.25%, 0.75% and 0.50% of average net assets, respectively. Because these fees are paid out of the fund’s assets on an ongoing basis, they will increase the cost of your investment. The higher fees for class B, class C, class M and class R shares may cost you more over time than paying the initial sales charge for class A and class T shares. Because class C, class M and class R shares, unlike class B shares, do not convert to class A shares, class C, class M and class R shares may cost you more over time than class B shares. Class R5, class R6 and class Y shares, for shareholders who are eligible to purchase them, will be less expensive than other classes of shares because they do not bear sales charges or 12b-1 fees.
• Payments to dealers. If you purchase your shares through a dealer, your dealer generally receives payments from Putnam Retail Management representing some or all of the sales charges and distribution and service (12b-1) fees, if any, shown in the tables under Fund summary - Fees and expenses in the fund’s prospectus.
Putnam Retail Management and its affiliates also pay additional compensation to selected dealers in recognition of their marketing support and/or program servicing (each of which is described in more detail below). These payments may create an incentive for a dealer firm or its representatives to recommend or offer shares of the fund or other Putnam funds to its customers. These additional payments are made by Putnam Retail Management and its affiliates and do not increase the amount paid by you or the fund as shown under Fund summary - Fees and expenses in the fund’s prospectus.
The additional payments to dealers by Putnam Retail Management and its affiliates are generally based on one or more of the following factors: average net assets of a fund attributable to that dealer, sales or net sales of a fund attributable to that dealer, reimbursement of ticket charges (fees that a dealer firm charges its representatives for effecting transactions in fund shares), or on the basis of a negotiated lump sum payment for services provided.
Marketing support payments are generally available to most dealers engaging in significant sales of Putnam fund shares. These payments are individually negotiated with each dealer firm, taking into account the marketing support services provided by the dealer, including business planning assistance, educating dealer personnel about the Putnam funds and shareholder financial planning needs, placement on the dealer’s preferred or recommended fund company list, and access to sales meetings, sales representatives and management representatives of the dealer, as well as the size of the dealer’s relationship with Putnam Retail Management. Although the total amount of marketing support payments made to dealers in any year may vary, on average, the aggregate payments are not expected, on an annual basis, to exceed 0.085% of the average net assets of Putnam’s retail mutual funds attributable to the dealers.
Program servicing payments, which are paid in some instances to dealers in connection with investments in the fund through dealer platforms and other investment programs, are not expected, with certain limited exceptions, to exceed 0.20% of the total assets in the program on an annual basis. These payments are made for program or platform services provided by the dealer, including shareholder recordkeeping, reporting, or transaction processing, as well as services rendered in connection with dealer platform development and maintenance, fund/investment selection and monitoring, or other similar services.
You can find a list of all dealers to which Putnam made marketing support and/or program servicing payments in 2015 in the SAI, which is on file with the SEC and is also available on Putnam’s website at putnam.com. You can also find other details in the SAI about the payments made by Putnam Retail Management and its affiliates and the services provided by your dealer. Your dealer may charge you fees or commissions in addition to those disclosed in this prospectus. You can also ask your dealer about any
42 |
payments it receives from Putnam Retail Management and its affiliates and any services your dealer provides, as well as about fees and/or commissions it charges.
• Other payments. Putnam Retail Management and its affiliates may make other payments (including payments in connection with educational seminars or conferences) or allow other promotional incentives to dealers to the extent permitted by SEC and NASD (as adopted by FINRA) rules and by other applicable laws and regulations. The fund’s transfer agent may also make payments to certain financial intermediaries in recognition of subaccounting or other services they provide to shareholders or plan participants who invest in the fund or other Putnam funds through their retirement plan. See the discussion in the SAI under Management - Investor Servicing Agent for more details.
Fund distributions and taxes. The fund normally distributes any net investment income quarterly and any net realized capital gains annually. You may choose to reinvest distributions from net investment income, capital gains or both in additional shares of your fund or other Putnam funds, or you may receive them in cash in the form of a check or an electronic deposit to your bank account. If you do not select an option when you open your account, all distributions will be reinvested. If you choose to receive distributions in cash, but correspondence from the fund or Putnam Investor Services is returned as “undeliverable,” the distribution option on your account may be converted to reinvest future distributions in the fund. You will not receive interest on uncashed distribution checks.
For shares purchased through your employer’s retirement plan, the terms of the plan will govern how the plan may receive distributions from the fund.
For federal income tax purposes, distributions of net investment income are generally taxable to you as ordinary income. Taxes on distributions of capital gains are determined by how long the fund owned (or is deemed to have owned) the investments that generated them, rather than by how long you have owned (or are deemed to have owned) your shares. Distributions that the fund properly reports to you as gains from investments that the fund owned for more than one year are generally taxable to you as long-term capital gains includible in net capital gain and taxed to individuals at reduced rates. Distributions of gains from investments that the fund owned for one year or less and gains on the sale of or payment on bonds characterized as market discount are generally taxable to you as ordinary income. Distributions that the fund properly reports to you as “qualified dividend income” are taxable at the reduced rates applicable to your net capital gain provided that both you and the fund meet certain holding period and other requirements. Distributions are taxable in the manner described in this paragraph whether you receive them in cash or reinvest them in additional shares of this fund or other Putnam funds.
Distributions by the fund to retirement plans that qualify for tax-advantaged treatment under federal income tax laws will not be taxable. Special tax rules apply to investments through such plans. You should consult your tax advisor to determine the suitability of the fund as an investment through such a plan and the tax treatment of distributions (including distributions of amounts attributable to an investment in the fund) from such a plan.
Unless you are investing through a tax-advantaged retirement account (such as an IRA), you should consider avoiding a purchase of fund shares shortly before the fund makes a distribution because doing so may cost you money in taxes. Distributions are taxable to you even if they are paid from income or gains earned by the fund before your investment (and thus were included in the price you paid). Contact your financial representative or Putnam to find out the distribution schedule for your fund.
The fund’s investments in foreign securities, if any, may be subject to foreign withholding or other taxes. In that case, the fund’s return on those investments would be decreased. Shareholders generally will not be entitled to claim a credit or deduction with respect to these foreign taxes. In addition, the fund’s investments in foreign securities or foreign currencies may increase or accelerate the fund’s recognition of ordinary income and may affect the timing or amount of the fund’s distributions.
43 |
The fund’s use of derivatives, if any, may affect the amount, timing and character of distributions to shareholders and, therefore, may increase the amount of taxes payable by shareholders.
Any gain resulting from the sale or exchange of your shares generally also will be subject to tax.
The above is a general summary of the tax implications of investing in the fund. Please refer to the fund’s SAI for further details. You should consult your tax advisor for more information on your own tax situation, including possible foreign, state and local taxes.
V. Other Information
Putnam Growth and Income Fund
Share Ownership. At November 30, 2016, the officers and Trustees of the fund as a group owned less than 1% of the outstanding shares of each class of the fund, except class Y, of which they owned 6.25%, 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.
| |||
Assuming | |||
Completion of | |||
Percentage | the Proposed | ||
Class | Shareholder name and address | owned | Merger* |
| |||
PERSHING, LLC | |||
A | 1 PERSHING PLZ | 7.29% | 4.26% |
JERSEY CITY NJ 07399-0001 | |||
| |||
WFCS, LLC | |||
SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF | |||
A | CUSTOMER | 5.89% | 3.44% |
2801 MARKET ST | |||
SAINT LOUIS MO 63103-2523 | |||
| |||
NATIONAL FINANCIAL SERVICES LLC | |||
FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS | |||
A | 499 WASHINGTON BLVD | 5.71% | 3.34% |
ATTN: MUTUAL FUNDS DEPT 4TH FL | |||
JERSEY CITY NJ 07310-2010 | |||
| |||
CHARLES SCHWAB & CO INC | |||
CLEARING ACCOUNT | |||
A | FOR THE EXCLUSIVE BENEFIT OF THEIR CUSTOMERS | 5.17% | 3.02% |
101 MONTGOMERY ST | |||
SAN FRANCISCO CA 94104-4151 | |||
| |||
PERSHING, LLC | |||
B | 1 PERSHING PLZ | 9.83% | 3.65% |
JERSEY CITY NJ 07399-0001 | |||
| |||
WFCS, LLC | |||
B | SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF | 5.91% | 2.20% |
CUSTOMER | |||
|
44 |
| |||
2801 MARKET ST | |||
SAINT LOUIS MO 63103-2523 | |||
| |||
CHARLES SCHWAB & CO INC | |||
CLEARING ACCOUNT | |||
B | FOR THE EXCLUSIVE BENEFIT OF THEIR CUSTOMERS | 5.09% | 1.89% |
101 MONTGOMERY ST | |||
SAN FRANCISCO CA 94104-4151 | |||
| |||
UBS WM USA | |||
0O0 11011 6100 | |||
C | OMNI ACCOUNT M/F | 14.03% | 1.80% |
SPEC CDY A/C EXCL BEN CUST UBSFSI | |||
1000 HARBOR BLVD | |||
WEEHAWKEN NJ 07086-6761 | |||
| |||
WFCS, LLC | |||
SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF | |||
C | CUSTOMER | 8.23% | 1.05% |
2801 MARKET ST | |||
SAINT LOUIS MO 63103-2523 | |||
| |||
PERSHING, LLC | |||
C | 1 PERSHING PLZ | 6.47% | 0.83% |
JERSEY CITY NJ 07399-0001 | |||
| |||
MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | |||
C | ATTN FUND ADMINISTRATION | 5.66% | 0.72% |
4800 DEER LAKE DR E FL 3 | |||
JACKSONVILLE FL 32246-6484 | |||
| |||
MORGAN STANLEY SMITH BARNEY | |||
C | HARBORSIDE FINANCIAL CENTER | 5.01% | 0.64% |
PLAZA 2, 3RD FLOOR | |||
JERSEY CITY NJ 07311 | |||
| |||
EDWARD D JONES & CO | |||
FOR THE BENEFIT OF CUSTOMERS | |||
M | 12555 MANCHESTER RD | 7.24% | 2.59% |
SAINT LOUIS MO 63131-3729 | |||
| |||
WFCS, LLC | |||
SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF | |||
M | CUSTOMER | 6.68% | 2.39% |
2801 MARKET ST | |||
SAINT LOUIS MO 63103-2523 | |||
| |||
CAPITAL BANK & TRUST COMPANY TTEE | |||
HK RESEARCH CORP PSP | |||
R | C/O FASCORE LLC | 51.70% | 0.55% |
8563 E ORCHARD RD # 2T2 | |||
GREENWOOD VLG CO 80111 | |||
| |||
CAPITAL BANK & TRUST CO TRUSTEE | |||
FBO CVL CONSULTANTS OF COLORADO INC | |||
R | C/O FASCORE LLC | 15.39% | 0.16% |
8515 E ORCHARD RD # 2T2 | |||
GREENWOOD VLG CO 80111-5002 | |||
| |||
ASCENSUS TRUST COMPANY | |||
FBO JOYCE & MCFARLAND LLP RETIREMENT TR | |||
R | 224615 | 8.45% | 0.09% |
PO BOX 10758 | |||
FARGO ND 58106-0758 | |||
| |||
LEO H DELONG JR & WANDA J DELONG TTEES | |||
R | BUCKS DEV & CONTR CORP | 8.20% | 0.09% |
|
45 |
| |||
401(K) P/S/P & TRUST | |||
559 MAIN ST | |||
BETHLEHEM PA 18018-5862 | |||
| |||
GREAT-WEST TRUST COMPANY, LLC - | |||
R6 | THE PUTNAM RETIREMENT PLAN | 86.07% | 2.82% |
8515 E ORCHARD RD 2T2 | |||
GREENWOOD VILLAGE CO 80111-5002 | |||
| |||
GREAT-WEST TRUST COMPANY, LLC - | |||
R6 | RECORDKEEPING FOR VARIOUS BENEFIT PLANS | 13.14% | 0.43% |
8525 E ORCHARD RD 2T2 | |||
GREENWOOD VILLAGE CO 80111-5002 | |||
| |||
GREAT-WEST TRUST COMPANY, LLC - | |||
Y | RECORDKEEPING FOR VARIOUS BENEFIT PLANS | 12.14% | 0.55% |
8525 E ORCHARD RD 2T2 | |||
GREENWOOD VILLAGE CO 80111-5002 | |||
| |||
MORGAN STANLEY SMITH BARNEY | |||
Y | HARBORSIDE FINANCIAL CENTER | 11.96% | 0.55% |
PLAZA 2, 3RD FLOOR | |||
JERSEY CITY NJ 07311 | |||
| |||
UBS WM USA | |||
0O0 11011 6100 | |||
Y | OMNI ACCOUNT M/F | 10.71% | 0.49% |
SPEC CDY A/C EXCL BEN CUST UBSFSI | |||
1000 HARBOR BLVD | |||
WEEHAWKEN NJ 07086-6761 | |||
| |||
MERRILL LYNCH FOR THE SOLE BENEFIT OF ITS CUSTOMERS | |||
Y | ATTN FUND ADMINISTRATION | 10.12% | 0.46% |
4800 DEER LAKE DR E FL 3 | |||
JACKSONVILLE FL 32246-6484 | |||
| |||
WFCS, LLC | |||
SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF | |||
Y | CUSTOMER | 7.82% | 0.36% |
2801 MARKET ST | |||
SAINT LOUIS MO 63103-2523 | |||
| |||
CHARLES SCHWAB & CO INC | |||
CLEARING ACCOUNT | |||
Y | FOR THE EXCLUSIVE BENEFIT OF THEIR CUSTOMERS | 7.46% | 0.34% |
101 MONTGOMERY ST | |||
SAN FRANCISCO CA 94104-4151 | |||
|
* Percentage owned assuming completion of the proposed merger on [ ], 2017.
Putnam Equity Income Fund
Share ownership. At November 30, 2016, 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.
| |||
Assuming | |||
Completion of | |||
Percentage | the Proposed | ||
Class | Shareholder name and address | owned | Merger* |
| |||
A | EDWARD D JONES & CO | 10.81% | 4.49% |
|
46 |
| |||
FOR THE BENEFIT OF CUSTOMERS | |||
12555 MANCHESTER RD | |||
SAINT LOUIS MO 63131-3729 | |||
| |||
NATIONAL FINANCIAL SERVICES LLC | |||
FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS | |||
A | 499 WASHINGTON BLVD | 8.68% | 3.61% |
ATTN: MUTUAL FUNDS DEPT 4TH FL | |||
JERSEY CITY NJ 07310-2010 | |||
| |||
PERSHING, LLC | |||
A | 1 PERSHING PLZ | 6.45% | 2.68% |
JERSEY CITY NJ 07399-0001 | |||
| |||
PERSHING, LLC | |||
B | 1 PERSHING PLZ | 12.17% | 7.65% |
JERSEY CITY NJ 07399-0001 | |||
| |||
CHARLES SCHWAB & CO INC | |||
CLEARING ACCOUNT | |||
B | FOR THE EXCLUSIVE BENEFIT OF THEIR CUSTOMERS | 9.12% | 5.74% |
101 MONTGOMERY ST | |||
SAN FRANCISCO CA 94104-4151 | |||
| |||
MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | |||
B | ATTN FUND ADMINISTRATION | 6.71% | 4.22% |
4800 DEER LAKE DR E FL 3 | |||
JACKSONVILLE FL 32246-6484 | |||
| |||
NATIONAL FINANCIAL SERVICES LLC | |||
FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS | |||
B | 499 WASHINGTON BLVD | 6.29% | 3.95% |
ATTN: MUTUAL FUNDS DEPT 4TH FL | |||
JERSEY CITY NJ 07310-2010 | |||
| |||
WFCS, LLC | |||
SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF | |||
B | CUSTOMER | 6.10% | 3.84% |
2801 MARKET ST | |||
SAINT LOUIS MO 63103-2523 | |||
| |||
MORGAN STANLEY SMITH BARNEY | |||
B | HARBORSIDE FINANCIAL CENTER | 5.92% | 3.72% |
PLAZA 2, 3RD FLOOR | |||
JERSEY CITY NJ 07311 | |||
| |||
MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | |||
C | ATTN FUND ADMINISTRATION | 13.43% | 11.71% |
4800 DEER LAKE DR E FL 3 | |||
JACKSONVILLE FL 32246-6484 | |||
| |||
PERSHING, LLC | |||
C | 1 PERSHING PLZ | 11.01% | 9.61% |
JERSEY CITY NJ 07399-0001 | |||
| |||
MORGAN STANLEY SMITH BARNEY | |||
C | HARBORSIDE FINANCIAL CENTER | 10.81% | 9.43% |
PLAZA 2, 3RD FLOOR | |||
JERSEY CITY NJ 07311 | |||
| |||
WFCS, LLC | |||
SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF | |||
C | CUSTOMER | 10.63% | 9.27% |
2801 MARKET ST | |||
SAINT LOUIS MO 63103-2523 | |||
| |||
RAYMOND JAMES | |||
C | OMNIBUS FOR MUTUAL FUNDS | 6.67% | 5.82% |
|
47 |
| |||
HOUSE ACCT FIRM 92500015 | |||
ATTN: COURTNEY WALLER | |||
880 CARILLON PKWY | |||
ST PETERSBURG FL 33716-1100 | |||
| |||
UBS WM USA | |||
0O0 11011 6100 | |||
C | OMNI ACCOUNT M/F | 6.41% | 5.59% |
SPEC CDY A/C EXCL BEN CUST UBSFSI | |||
1000 HARBOR BLVD | |||
WEEHAWKEN NJ 07086-6761 | |||
| |||
NATIONAL FINANCIAL SERVICES LLC | |||
FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS | |||
C | 499 WASHINGTON BLVD | 5.79% | 5.05% |
ATTN: MUTUAL FUNDS DEPT 4TH FL | |||
JERSEY CITY NJ 07310-2010 | |||
| |||
EDWARD D JONES & CO | |||
M | FOR THE BENEFIT OF CUSTOMERS | 23.24% | 14.92% |
12555 MANCHESTER RD | |||
SAINT LOUIS MO 63131-3729 | |||
| |||
PERSHING, LLC | |||
M | 1 PERSHING PLZ | 7.47% | 4.80% |
JERSEY CITY NJ 07399-0001 | |||
| |||
DCGT TRUSTEE & OR CUSTODIAN | |||
PLIC VARIOUS RETIREMENT PLANS OMNI | |||
M | ATTN NPIO TRADE DESK | 7.11% | 4.57% |
711 HIGH ST | |||
DES MOINES IA 50392-0001 | |||
| |||
STATE STREET BK & TR TTEE &/OR CUST | |||
R | ADP ACCESS PRODUCT | 29.64% | 29.32% |
1 LINCOLN ST | |||
BOSTON MA 02111-2901 | |||
| |||
HARTFORD LIFE INSURANCE CO | |||
DC III SEPARATE ACCT CL R | |||
R | ATTN UIT OPERATIONS | 29.38% | 29.07% |
1 GRIFFIN RD N | |||
WINDSOR CT 06095-1512 | |||
| |||
MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | |||
R | ATTN FUND ADMINISTRATION | 10.12% | 10.01% |
4800 DEER LAKE DR E FL 3 | |||
JACKSONVILLE FL 32246-6484 | |||
| |||
CHARLES SCHWAB & CO INC | |||
CLEARING ACCOUNT | |||
R5 | FOR THE EXCLUSIVE BENEFIT OF THEIR CUSTOMERS | 53.60% | 53.60% |
101 MONTGOMERY ST | |||
SAN FRANCISCO CA 94104-4151 | |||
| |||
GREAT-WEST TRUST COMPANY, LLC - | |||
R5 | RECORDKEEPING FOR VARIOUS BENEFIT PLANS | 28.70% | 28.70% |
8525 E ORCHARD RD. | |||
GREENWOOD VILLAGE, CO 80111-5002 | |||
| |||
NFS LLC | |||
FBO FIIOC AS AGENT FOR | |||
R5 | QUALIFIED EMPLOYEE BENEFIT | 7.73% | 10.01% |
PLANS (401K) FINOPS-IC FUNDS | |||
100 MAGELLAN WAY # KW1C | |||
COVINGTON KY 41015-1987 | |||
|
48 |
| |||
VANGUARD FIDUCIARY TRUST CO | |||
R6 | FBO 401K CLIENTS | 21.99% | 21.27% |
PO BOX 2600 | |||
VALLEY FORGE PA 19482-2600 | |||
| |||
R6** | DEFERRED SALARY PLAN OF ELECTRICAL INDUSTRY LOCAL 3 | 15.23% | 14.73% |
| |||
R6** | MARSH & MCLENNAN SUPPLEMENTAL RETIREMENT PLAN | 10.48% | 10.13% |
| |||
NFS LLC | |||
FBO FIIOC AS AGENT FOR | |||
R6 | QUALIFIED EMPLOYEE BENEFIT | 9.77% | 9.45% |
PLANS (401K) FINOPS-IC FUNDS | |||
100 MAGELLAN WAY # KW1C | |||
COVINGTON KY 41015-1987 | |||
| |||
GREAT-WEST TRUST COMPANY, LLC - | |||
R6 | RECORDKEEPING FOR VARIOUS BENEFIT PLANS | 5.03% | 4.86% |
8515 E ORCHARD RD. 2T2 | |||
GREENWOOD VILLAGE, CO 80111-5002 | |||
| |||
GREAT-WEST TRUST COMPANY, LLC - | |||
Y | RECORDKEEPING FOR VARIOUS BENEFIT PLANS | 13.30% | 12.68% |
8515 E ORCHARD RD. 2T2 | |||
GREENWOOD VILLAGE, CO 80111-5002 | |||
| |||
NATIONAL FINANCIAL SERVICES LLC | |||
FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS | |||
Y | 499 WASHINGTON BLVD | 13.13% | 12.53% |
ATTN: MUTUAL FUNDS DEPT 4TH FL | |||
JERSEY CITY NJ 07310-2010 | |||
| |||
UBS WM USA | |||
0O0 11011 6100 | |||
Y | OMNI ACCOUNT M/F | 7.77% | 7.41% |
SPEC CDY A/C EXCL BEN CUST UBSFSI | |||
1000 HARBOR BLVD | |||
WEEHAWKEN NJ 07086-6761 | |||
| |||
PERSHING, LLC | |||
Y | 1 PERSHING PLZ | 6.62% | 6.31% |
JERSEY CITY NJ 07399-0001 | |||
| |||
MERRILL LYNCH FOR THE SOLE BENEFIT OF ITS CUSTOMERS | |||
Y | ATTN FUND ADMINISTRATION | 6.01% | 5.73% |
4800 DEER LAKE DR E FL 3 | |||
JACKSONVILLE FL 32246-6484 | |||
| |||
CHARLES SCHWAB & CO INC | |||
CLEARING ACCOUNT | |||
Y | FOR THE EXCLUSIVE BENEFIT OF THEIR CUSTOMERS | 5.98% | 5.70% |
101 MONTGOMERY ST | |||
SAN FRANCISCO CA 94104-4151 | |||
| |||
WFCS, LLC | |||
SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF | |||
Y | CUSTOMER | 5.38% | 5.13% |
2801 MARKET ST | |||
SAINT LOUIS MO 63103-2523 | |||
|
* Percentage owned assuming completion of the proposed merger on [ ], 2017.
** The address for the name listed is: c/o Mercer Trust Company, as trustee or agent, Investors Way, Norwood, MA 02062. Duplicate mailings. As permitted by SEC rules, Putnam Management’s policy is to send a single copy of the prospectus to shareholders who share the same last name and address, unless a shareholder previously has requested otherwise. If you would prefer to receive your own copy of the prospectus, please contact
49 |
Putnam Investor Services by phone at 1-800-225-1581 or by mail at P.O. Box 8383, Boston, MA 02266-8383.
Financial information. Your fund’s Clerk will furnish to you, upon request and without charge, a copy of the fund’s annual report for its most recent fiscal year, and a copy of its semiannual report for any subsequent semiannual period. You may direct these requests to Putnam Investor Services, P.O. Box 8383, Boston, MA 02266-8383 or by phone at 1-800-225-1581. You may also access copies of these reports by visiting Putnam’s website at www.putnam.com/individual.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY
50 |
Appendix A |
Form of |
AGREEMENT AND PLAN OF REORGANIZATION |
This Agreement and Plan of Reorganization (the “Agreement”) is made as of [ ], 2017 in Boston, Massachusetts, by and between PUTNAM EQUITY INCOME FUND, a Massachusetts business trust (the “Trust”) (the “Acquiring Fund”), and THE PUTNAM FUND FOR GROWTH AND INCOME, a Massachusetts business trust (the “Acquired Fund”).
PLAN OF REORGANIZATION
(a) Acquired Fund agrees to 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 4(f)). In consideration therefor, Acquiring Fund agrees, on the Exchange Date, to assume all of the liabilities of Acquired Fund existing at the Valuation Time and to 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, (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, (v) a number of full and fractional Class R shares of beneficial interest of Acquiring Fund (the “Class R Merger Shares”) having an aggregate net asset value equal to the value of the assets of Acquired Fund attributable to Class R shares of Acquired Fund transferred to Acquiring Fund on such date less the value of the liabilities of Acquired Fund attributable to Class R shares of Acquired Fund assumed by Acquiring Fund on such date, (vi) a number of full and fractional Class R6 shares of beneficial interest of Acquiring Fund (the “Class R6 Merger Shares”) having an aggregate net asset value equal to the value of the assets of Acquired Fund attributable to Class R6 shares of Acquired Fund transferred to Acquiring Fund on such date less the value of the liabilities of Acquired Fund attributable to Class R6 shares of Acquired Fund assumed by Acquiring Fund on such date, and (vii) a number of full and fractional Class Y shares of beneficial interest of Acquiring Fund (the “Class Y Merger Shares”) having an aggregate net asset value equal to the value of the assets of Acquired Fund attributable to Class Y shares of Acquired Fund transferred to Acquiring Fund on such date less the value of the liabilities of Acquired Fund attributable to Class Y shares of Acquired Fund assumed by Acquiring Fund on such date. The Class A Merger Shares, Class B Merger Shares, Class C Merger Shares, Class M Merger Shares, Class R Merger Shares, Class R6 Merger Shares, and Class Y Merger Shares are referred to collectively as the “Merger Shares.” The reorganization described in this Plan is intended to be a reorganization within the
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meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the “Code”). Before 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 will distribute in complete liquidation to its Class A, Class B, Class C, Class M, Class R, Class R6, and Class Y shareholders of record as of the Exchange Date the Merger Shares, each shareholder being entitled to receive that proportion of Class A Merger Shares, Class B Merger Shares, Class C Merger Shares, Class M Merger Shares, Class R Merger Shares, Class R6 Merger Shares, and Class Y Merger Shares that the number of Class A, Class B, Class C, Class M, Class R, Class R6, and Class Y shares of beneficial interest of Acquired Fund held by such shareholder bears to the number of Class A, Class B, Class C, Class M, Class R, Class R6, or Class Y shares of Acquired Fund outstanding on such date.
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 voluntary association with transferable shares 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 its 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 November 30, 2016, audited by [ ], the Acquiring Fund’s independent registered public accounting firm. The statement of assets and liabilities and schedule of investments fairly present the financial position of Acquiring Fund as of the dates thereof and the 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 U.S. generally accepted accounting principles.
(d) The prospectus and statement of additional information dated March 30, 2016, 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 before 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 which may, if successfully prosecuted to their conclusion, result in liability on the part of Acquiring Fund, other than as have been disclosed in the Registration Statement (defined below), the Acquiring Fund Prospectus or otherwise disclosed in writing to Acquired Fund.
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(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 November 30, 2016 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 will 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, 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 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 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 none of the representations and warranties in this subsection shall apply to statements in or omissions from the Registration Statement or the Prospectus made in reliance upon and in conformity with information furnished by Acquired Fund for use in the Registration Statement or the Prospectus.
(i) There are no material contracts outstanding to which Acquiring Fund is a party, other than as disclosed in the Registration Statement or the Prospectus.
(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) For each taxable year of its operation, Acquiring Fund has qualified 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 timely filed or will timely file (taking into account extensions) all federal, state and other tax returns or reports which are required to be filed by Acquiring Fund and all such tax returns and reports are or will be true, correct and complete in all material respects. Acquiring Fund has timely paid or will timely pay all federal, state and other taxes shown to be due or required to be shown as 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 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
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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 voluntary association with transferable shares 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 its 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 October 31, 2016, audited by [ ], the Acquired Fund’s independent registered public accounting firm. The statement of assets and liabilities and schedule of investments fairly present the financial position of Acquired Fund as of the dates thereof, and the 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 U.S. generally accepted accounting principles.
(d) The prospectus and statement of additional information dated February 29, 2016, 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 before 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 which 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 October 31, 2016 and those incurred in the ordinary course of Acquired Fund’s business as an investment company since such date. Before the Exchange Date, Acquired Fund will advise Acquiring Fund of all material liabilities, contingent or otherwise, incurred by it subsequent to October 31, 2016, 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 and the Prospectus, 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
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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 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 or the Prospectus, or omissions to state in any thereof a material fact relating to Acquired Fund, as such Registration Statement and Prospectus 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 Prospectus.
(i) There are no material contracts outstanding to which Acquired Fund is a party, other than as disclosed in the Acquired Fund’s registration statement (including any post-effective amendment) filed with the Commission on Form N-1A or the Acquired Fund’s Prospectus.
(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) For each taxable year of its operation (including the taxable year ending on the Exchange Date), Acquired Fund has qualified 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 timely filed or will timely file (taking into account extensions) all federal, state and other tax returns or reports which are required to be filed by Acquired Fund on or before the Exchange Date, and all such tax returns and reports are or will be true, correct and complete in all material respects. Acquiring Fund has timely paid or will timely pay all federal, state and other taxes shown to be due or required to be shown as 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 (defined below) 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 restrictions previously disclosed to Acquiring Fund by Acquired Fund). As used in this Agreement, the term “Investments” means Acquired Fund’s investments shown on the schedule of its investments as of October 31, 2016 referred to in Section 2(c) hereof, as supplemented with such changes as Acquired Fund makes 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
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Agreement, Acquiring Fund will remain in compliance with its investment restrictions as set forth in the Registration Statement.
3. Reorganization.
(a) Subject 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 October 31, 2016 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
Merger Shares, Class B Merger Shares, Class C Merger Shares, Class M Merger Shares, Class R Merger Shares, Class R6 Merger Shares, and Class Y Merger Shares received by it to the Class A, Class B, Class C, Class M, Class R, Class R6, and Class Y shareholders, respectively, of Acquired Fund, in complete liquidation of Acquired Fund.
(b) As soon as practicable, Acquired Fund will, at its expense, liquidate such of its portfolio securities as Acquiring Fund indicates it does not wish to acquire. This liquidation will be substantially completed before the Exchange Date, unless otherwise agreed by Acquired Fund and Acquiring Fund.
(c) Acquired Fund agrees to 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. Any such distribution will be deemed included in the assets transferred to Acquiring Fund at the Exchange Date and will not be separately valued unless the securities in respect of which such distribution is made have gone “ex” before the Valuation Time, in which case any such distribution which remains unpaid at the Exchange Date will be included in the determination of the value of the assets of Acquired Fund acquired by Acquiring Fund.
4. Exchange date; valuation time.
On the Exchange Date, Acquiring Fund will deliver to Acquired Fund, determined in each case as provided hereafter in Section 4, (i) a number of full and fractional 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 that date less the value of the liabilities of Acquired Fund attributable to 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 that 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 that 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; (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
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of Acquired Fund transferred to Acquiring Fund on that date less the value of the liabilities of Acquired Fund attributable to Class M shares of Acquired Fund assumed by Acquiring Fund on that date; (v) a number of full and fractional Class R Merger Shares having an aggregate net asset value equal to the value of the assets of Acquired Fund attributable to Class R shares of Acquired Fund transferred to Acquiring Fund on that date less the value of the liabilities of Acquired Fund attributable to Class R shares of Acquired Fund assumed by Acquiring Fund on that date; (vi) a number of full and fractional Class R6 Merger Shares having an aggregate net asset value equal to the value of the assets of Acquired Fund attributable to Class R6 shares of Acquired Fund transferred to Acquiring Fund on that date less the value of the liabilities of Acquired Fund attributable to Class R6 shares of Acquired Fund assumed by Acquiring Fund on that date; and (vii) a number of full and fractional Class Y Merger Shares having an aggregate net asset value equal to the value of the assets of Acquired Fund attributable to Class Y shares of Acquired Fund transferred to Acquiring Fund on that date less the value of the liabilities of Acquired Fund attributable to Class Y shares of Acquired Fund assumed by Acquiring Fund on that date.
(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, Class M, Class R, Class R6 and Class Y shares of Acquired Fund and the value of the liabilities attributable to the Class A, Class B, Class C, Class M, Class R, Class R6 and Class Y shares of Acquired Fund to be assumed by Acquiring Fund will in each case be determined as of the Valuation Time 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.
(b) No adjustment will 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.
(c) The investment restrictions of Acquired Fund will be temporarily amended to the extent necessary to effect the transactions contemplated by this Agreement.
(d) Acquiring Fund will issue the Merger Shares, registered in the name of Acquired Fund, to Acquired Fund. Acquiring Fund will then, in accordance with written instructions furnished by Acquired Fund, re-register the Class A Merger Shares in the names of the Class A shareholders of Acquired Fund, re-register the Class B Merger Shares in the names of the Class B shareholders of Acquired Fund, re-register the Class C Merger Shares in the names of the Class C shareholders of Acquired Fund, re-register the Class M Merger Shares in the names of the Class M shareholders of Acquired Fund, re-register the Class R Merger Shares in the names of the Class R shareholders of Acquired Fund, re-register the Class R6 Merger Shares in the names of the Class R6 shareholders of Acquired Fund, and re-register the Class Y Merger Shares in the names of the Class Y shareholders of Acquired Fund. Acquiring Fund will not permit any Acquired Fund shareholder holding share certificates as of the Exchange Date to receive dividends and other distributions on the Merger Shares (although such dividends and other distributions will be credited to the account of such shareholder) or pledge the 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 is not permitted to receive dividends and other distributions on the Merger Shares as provided in the preceding sentence, Acquiring Fund will pay any such dividends or distributions in additional shares, notwithstanding any election such shareholder has 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.
(e) Acquiring Fund will 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.
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(f) The Valuation Time is 4:00 p.m. Eastern Time on [May 12], 2017 or such earlier or later time and day as may be mutually agreed upon in writing by the parties (the “Valuation Time”).
5. Expenses, fees, etc.
(a) All direct fees and expenses, including legal and accounting expenses, portfolio transfer taxes (if any), the costs of printing and mailing the Prospectus 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 below, “Expenses”) will be allocated evenly between Acquiring Fund and Acquired Fund as of the Valuation Time, except that (i) the costs of SEC registration fees will be allocated to the Acquiring 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 before the Exchange Date shall be allocated to Acquired Fund; and provided that such Expenses will in any event be allocated to the party directly incurring such Expenses if and to the extent that the allocation to 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 (i) 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 (ii) the nonfulfillment or failure of any condition to Acquired Fund’s obligations referred to in Section 9, Acquiring Fund will 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 (i) 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 (ii) the nonfulfillment or failure of any condition to Acquiring Fund’s obligations referred to in Section 8, Acquired Fund will 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 will 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 The Putnam Funds, One Post Office Square, 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. Dissolution.
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(a) Reserved.
(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 will not conduct any business except in connection with its liquidation and dissolution.
(c) Acquiring Fund will file 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 to be set forth in the Registration Statement, including the Prospectus.
8. Conditions to Acquiring Fund’s obligations.
The obligations of Acquiring Fund hereunder are subject to the following conditions:
(a) That this Agreement is adopted and the transactions contemplated hereby are 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) and (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).
(b) That Acquired Fund will have furnished to Acquiring Fund (i) 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, 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 or Associate Treasurer), and a certificate of both 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 Acquired Fund since October 31, 2016, 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; (ii) a statement of the tax basis of each Investment transferred by Acquired Fund to Acquiring Fund; and (iii) copies of all relevant tax books and records.
(c) That Acquired Fund will 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 or Associate 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 there is no material litigation pending with respect to the matters contemplated by this Agreement.
(e) That Acquiring Fund will 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 voluntary association with transferable shares 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 and the Prospectus comply with the 1933 Act, the 1934 Act and the 1940 Act and assuming due authorization, execution and delivery of
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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 whose responsibility it is to advise Acquired 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 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.
(f) That Acquiring Fund will have received an opinion of Ropes & Gray LLP dated the Exchange Date (which opinion would be based upon certain factual representations and customary assumptions and subject to certain qualifications and would note and distinguish certain published precedent), in a form reasonably satisfactory to each of Acquired Fund and Acquiring Fund, substantially to the effect that although the matter is not free from doubt,, on the basis of the existing provisions of the Code, Treasury regulations promulgated thereunder, current administrative rules and court decisions, generally 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 by Acquired Fund to its shareholders of Merger Shares in complete liquidation of Acquired Fund, all pursuant to this Agreement, will constitute 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) under Sections 361 and 357 of the Code, no gain or loss will be recognized by Acquired Fund upon the transfer of its assets to Acquiring Fund pursuant to this Agreement in exchange for Merger Shares and the assumption of Acquired Fund’s liabilities by Acquiring Fund or upon the distribution of Merger Shares by Acquired Fund to its shareholders in liquidation of Acquired Fund, except for (A) any gain or loss recognized on (1) “Section 1256 contracts” as defined in Section 1256(b) of the Code or (2) stock in a “passive foreign investment company” as defined in Section 1297(a) of the Code, and (B) any other gain or loss required to be recognized (1) as a result of the closing of the tax year of Acquired Fund, (2) upon the termination of a position, or (3) upon the transfer of an asset regardless of whether such a transfer would otherwise be a nontaxable transaction under the Code, (iii) under Section 354 of the Code, no gain or loss will be recognized by shareholders of Acquired Fund upon the exchange of their shares of Acquired Fund for Merger Shares, (iv) under Section 358 of the Code, the aggregate tax basis of the Merger Shares an Acquired Fund shareholder receives pursuant to this Agreement will be the same as the aggregate tax basis of the Acquired Fund shares exchanged therefor, (v) under Section 1223(1) of the Code, an Acquired Fund shareholder’s holding period for the Merger Shares received pursuant to this Agreement will be determined by including the period during which such shareholder held or is treated for federal income tax purposes as having held the Acquired Fund shares exchanged therefor, provided that, the shareholder held those Acquired Fund shares as capital assets, (vi) under Section 1032 of the Code, no gain or loss will be recognized by Acquiring Fund upon the receipt of the assets of Acquired Fund in exchange for Merger Shares and the assumption by Acquiring Fund of the liabilities of Acquired Fund, (vii) under Section 362(b) of the Code,
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Acquiring Fund’s tax basis in the assets of Acquired Fund transferred to Acquiring Fund pursuant to this Agreement will be the same as Acquired Fund’s tax basis immediately prior to the transfer, increased by any gain or decreased by any loss required to be recognized as described in (ii) above, (viii) under Section 1223(2) of the Code, the holding period in the hands of Acquiring Fund of each Acquired Fund asset transferred to Acquiring Fund pursuant to this Agreement, other than certain assets with respect to which gain or loss is required to be recognized as described in (ii) above, will include the period during which such asset was held or treated for federal income tax purposes as held by Acquired Fund, and (ix) 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 the regulations thereunder.
(g) 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.
(h) That the Registration Statement will have become effective under the 1933 Act, and no stop order suspending such effectiveness will have been instituted or, to the knowledge of Acquiring Fund, threatened by the Commission.
(i) That Acquiring Fund will have received from the Commission, any relevant state securities administrator 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 and any applicable state securities or blue sky laws in connection with the transactions contemplated hereby, and that all such orders will be in full force and effect.
(j) That all proceedings taken by Acquired Fund in connection with the transactions contemplated by this Agreement and all documents incidental thereto are satisfactory in form and substance to Acquiring Fund and Ropes & Gray LLP.
(k) That, before the Exchange Date, Acquired Fund declares a dividend or dividends which, together with all previous distributions qualifying for the dividends-paid deduction, has the effect of distributing to the shareholders of Acquired Fund, in distributions qualifying for the dividends-paid deduction, (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), and (iii) all of its net capital gain realized after reduction by any capital loss carryover; the amounts in (i), (ii) and (iii) shall in each case be computed without regard to the dividends-paid deduction and shall include amounts in respect of both (x) Acquired Fund’s taxable year that will end on the Exchange Date and (y) any prior taxable year of Acquired Fund, to the extent such dividend or dividends are eligible to be treated as paid during such prior year under Section 855(a) of the Code.
(l) That Acquired Fund’s custodian has delivered to Acquiring Fund a certificate identifying all of the assets of Acquired Fund held by such custodian as of the Valuation Time.
(m) That Acquired Fund’s transfer agent has 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.
(n) That all of the issued and outstanding shares of beneficial interest of Acquired Fund will 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 will have revealed otherwise, either (i) Acquired Fund will have taken all actions that in
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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.
(o) That Acquired Fund will 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 is adopted and the transactions contemplated hereby are 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) and (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).
(b) That Acquiring Fund will 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 or Associate 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, 2016, 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 will 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 will 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 or Associate 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 is no material litigation pending or threatened with respect to the matters contemplated by this Agreement.
(f) That Acquired Fund will 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 voluntary association with transferable shares 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
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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 Acquiring Fund, and, assuming that the Prospectus and the Registration 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 will have received an opinion of Ropes & Gray LLP dated the Exchange Date (which opinion would be based upon certain factual representations and customary assumptions and subject to certain qualifications and would note and distinguish certain published precedent), in a form reasonably satisfactory to each of Acquired Fund and Acquiring Fund, substantially to the effect that although the matter is not free from doubt,, on the basis of the existing provisions of the Code, Treasury regulations promulgated thereunder, current administrative rules and court decisions, generally 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 by Acquired Fund to its shareholders of Merger Shares in complete liquidation of Acquired Fund, all pursuant to this Agreement, will constitute 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) under Sections 361 and 357 of the Code, no gain or loss will be recognized by Acquired Fund upon the transfer of its assets to Acquiring Fund pursuant to this Agreement in exchange for Merger Shares and the assumption of Acquired Fund’s liabilities by Acquiring Fund or upon the distribution of Merger Shares by Acquired Fund to its shareholders in liquidation of Acquired Fund, except for (A) any gain or loss recognized on (1) “Section 1256 contracts” as defined in Section 1256(b) of the Code or (2) stock in a “passive foreign investment company” as defined in Section 1297(a) of the Code, and (B) any other gain or loss required to be recognized (1) as a result of the closing of the tax year of Acquired Fund, (2) upon the termination of a position, or (3) upon the transfer of an asset regardless of whether such a transfer would otherwise be a nontaxable transaction under the Code, (iii) under Section 354 of the Code, no gain or loss will be recognized by shareholders of Acquired Fund upon the exchange of their shares of Acquired Fund for Merger Shares, (iv) under Section 358 of the Code, the aggregate tax basis of the Merger Shares an Acquired Fund shareholder receives pursuant to this Agreement will be the same as the aggregate tax basis of the Acquired Fund shares exchanged therefor, (v) under Section 1223(1) of the Code, an Acquired Fund shareholder’s holding period for the Merger Shares received
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pursuant to this Agreement will be determined by including the period during which such shareholder held or is treated for federal income tax purposes as having held the Acquired Fund shares exchanged therefor, provided that, the shareholder held those Acquired Fund shares as capital assets, (vi) under Section 1032 of the Code, no gain or loss will be recognized by Acquiring Fund upon the receipt of the assets of Acquired Fund in exchange for Merger Shares and the assumption by Acquiring Fund of the liabilities of Acquired Fund, (vii) under Section 362(b) of the Code, the Acquiring Fund’s tax basis in the assets of Acquired Fund transferred to Acquiring Fund pursuant to this Agreement will be the same as Acquired Fund’s tax basis immediately prior to the transfer, increased by any gain or decreased by any loss required to be recognized as described in (ii) above, (viii) under Section 1223(2) of the Code, the holding period in the hands of Acquiring Fund of each Acquired Fund asset transferred to Acquiring Fund pursuant to this Agreement, other than certain assets with respect to which gain or loss is required to be recognized as described in (ii) above, will include the period during which such asset was held or treated for federal income tax purposes as held by Acquired Fund, and (ix) 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 the regulations thereunder.
(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 will be satisfactory in form and substance to Acquired Fund and Ropes & Gray LLP.
(i) That the Registration Statement is effective under the 1933 Act, and no stop order suspending such effectiveness will 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 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 and any applicable state securities or blue sky laws in connection with the transactions contemplated hereby, and that all such orders shall be in full force and effect.
10. Indemnification.
(a) Acquired Fund agrees to 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, 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
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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 constitutes 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 agrees to 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, 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 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 constitutes 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, on behalf of the Acquiring Fund, 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], 2017, this Agreement shall automatically terminate on that date unless a later date is agreed to by Acquired Fund and the Trust, on behalf of the Acquiring Fund.
13. 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.
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14. 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.
15. Agreement and declaration of trust.
Copies of the Agreements and Declarations of Trust, as amended, of Acquired Fund and the Trust are on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed by the Trustees 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 Acquiring Fund 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 EQUITY INCOME FUND | |
By: ______________________ | |
Jonathan S. Horwitz | |
Executive Vice President, Principal Executive Officer and Compliance Liaison | |
THE PUTNAM FUND FOR GROWTH AND INCOME | |
By: ______________________ | |
Jonathan S. Horwitz | |
Executive Vice President, Principal Executive Officer and Compliance Liaison |
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Appendix [ ]
Financial intermediary specific sales charge waiver information
As described in the prospectus, class A, M and T shares may be subject to an initial sales charge and class B and C shares may be subject to a CDSC. Certain financial intermediaries may impose different initial sales charges or waive the initial sales charge or CDSC in certain circumstances. This Appendix details the variations in sales charge waivers by financial intermediary. You should consult your financial representative for assistance in determining whether you may qualify for a particular sales charge waiver.
MERRILL LYNCH
Effective [April 10, 2017], if you purchase fund shares through a Merrill Lynch platform or account held at Merrill Lynch, you will be eligible only for the following sales charge waivers (front-end sales charge waivers and CDSC waivers) and discounts, which may differ from those disclosed elsewhere in the funds prospectus or SAI. It is your responsibility to notify your financial representative at the time of purchase of any relationship or other facts qualifying you for sales charge waivers or discounts.
Front-end Sales Charge Waivers on Class A Shares available through Merrill Lynch
Employer-sponsored retirement, deferred compensation and employee benefit plans (including health savings accounts) and trusts used to fund those plans, provided that the shares are not held in a commission-based brokerage account and shares are held for the benefit of the plan
Shares purchased by college savings plans that qualify for tax-exempt treatment under Section 529 of the Internal Revenue Code of 1986, as amended
Shares purchased through a Merrill Lynch-affiliated investment advisory program
Shares purchased by third party investment advisors on behalf of their advisory clients through Merrill Lynchs platform
Shares of funds purchased through the Merrill Edge Self-Directed platform
Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the fund (but not any other Putnam fund)
Shares exchanged from Class C shares of the same fund in the month of or following the 10-year anniversary of the purchase date
Employees and registered representatives of Merrill Lynch or its affiliates and their family members
Trustees of the fund, and employees of Putnam Management or any of its affiliates, as described in the funds prospectus
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Shares purchased from the proceeds of redemptions from a Putnam fund, provided (1) the repurchase occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed shares were subject to a front-end or deferred sales charge (known as Rights of Reinstatement)
CDSC Waivers on A, B and C Shares available through Merrill Lynch
Death or disability of the shareholder
Shares sold as part of a systematic withdrawal plan as described in the fund’s prospectus
Return of excess contributions from an IRA Account
Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching age 70½
Shares sold to pay Merrill Lynch fees but only if the transaction is initiated by Merrill Lynch
Shares acquired through a right of reinstatement
Shares held in retirement brokerage accounts that are exchanged for a share class with lower operating expenses due to transfer to certain fee based accounts or platforms (applicable to A and C shares only)
Front-end Sales Charge Discounts available through Merrill Lynch: Breakpoints, Rights of Accumulation & Letters of Intent
Breakpoints as described in the fund’s prospectus and SAI
Rights of Accumulation (ROA), which entitle you to breakpoint discounts, will be automatically calculated based on the aggregated holding of fund family assets held by accounts within your household at Merrill Lynch. Eligible Putnam fund assets not held at Merrill Lynch may be included in the ROA calculation only if you notify your financial representative about such assets
Letters of Intent (LOI), which allow for breakpoint discounts based on anticipated purchases of Putnam funds, through Merrill Lynch, over a 13-month period
[[FINANCIAL INTERMEDIARY]
Class T shares
Class T shares are available for purchase by [FINANCIAL INTERMEDIARY] clients with the front-end sales charge waived as follows:
• Employer-sponsored retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans and defined benefit plans). For purposes of this provision, employer-sponsored retirement plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans; however these plans are eligible to purchase class T shares through a transactional brokerage account.
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• [FINANCIAL INTERMEDIARY] employee and employee-related accounts according to [FINANCIAL INTERMEDIARY]’s account linking rules.
• Shares purchased through reinvestment of dividends and capital gains distributions when purchasing shares of the same fund.
• Mutual fund shares exchanged from an existing position in the same fund as part of a share class exchange instituted by [FINANCIAL INTERMEDIARY].]
[Additional financial intermediary-specific sales charge waivers, if any, to be inserted.]
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Putnam Equity Income Fund |
FORM N-14 |
PART B |
STATEMENT OF ADDITIONAL INFORMATION (“SAI”) |
[March 2], 2017 |
This Statement of Additional Information (“SAI”) contains material that may be of interest to investors but that is not included in the Prospectus of Putnam Equity Income Fund (“Equity Income Fund”) dated [March 2], 2017 (the “Prospectus”) relating to the sale of all or substantially all of the assets of The Putnam Fund for Growth and Income (“Growth and Income Fund”) to Equity Income Fund. Unaudited narrative pro forma financial information for Equity Income Fund and Growth and Income Fund as of November 30, 2016, and for the twelve-month period then ended,] are included in the SAI. Part I of Equity Income Fund’s Statement of Additional Information dated March 30, 2016, as supplemented, and Part II of the funds’ Statement of Additional Information are attached to this SAI as Appendix A and Appendix B, respectively. This SAI is not a prospectus and is authorized for distribution only when it accompanies or follows delivery of the Prospectus. This SAI should be read in conjunction with the Prospectus. Investors may obtain a free copy of the Prospectus by writing Putnam Investor Services, P.O. Box 8383, Boston, MA 02266-8383, or by calling 1-800-225-1581.
TABLE OF CONTENTS | |
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND | 1 |
CHARGES AND EXPENSES | 1 |
PORTFOLIO MANAGERS | 7 |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS | 8 |
PRO FORMA FINANCIAL INFORMATION | 9 |
APPENDIX A | A-1 |
APPENDIX B | B-1 |
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND
This SAI is accompanied by the Statement of Additional Information of Equity Income Fund dated March 30, 2016, as supplemented (the “Acquiring Fund SAI”), which has been filed with the Securities and Exchange Commission. The information regarding Equity Income Fund contained in the Acquiring Fund SAI is hereby incorporated by reference into this SAI.
CHARGES AND EXPENSES
Management fees
Under the management contract, the fund pays a monthly fee to Putnam Management. The fee is calculated by applying a rate to the fund’s average net assets for the month. The rate is based on the monthly average of the aggregate net assets of all open-end funds sponsored by Putnam Management (excluding net assets of funds that are invested in, or that are invested in by, other Putnam funds to the extent necessary to avoid “double counting” of those assets) (“Total Open-End Mutual Fund Average Net Assets”), as determined at the close of each business day during the month, as set forth below:
0.630% of the first $5 billion of Total Open-End Mutual Fund Average Net Assets;
0.580% of the next $5 billion of Total Open-End Mutual Fund Average Net Assets;
0.530% of the next $10 billion of Total Open-End Mutual Fund Average Net Assets;
0.480% of the next $10 billion of Total Open-End Mutual Fund Average Net Assets;
0.430% of the next $50 billion of Total Open-End Mutual Fund Average Net Assets;
0.410% of the next $50 billion of Total Open-End Mutual Fund Average Net Assets;
0.400% of the next $100 billion of Total Open-End Mutual Fund Average Net Assets;
0.395% of any excess thereafter.
For the past three fiscal years, pursuant to the management contract, the fund incurred the following fees:
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||||||
Management | ||||||
Fiscal year | fee paid | |||||
|
||||||
2016 | $28,492,971 | |||||
|
||||||
2015 | $28,483,206 | |||||
|
||||||
2014 | $26,296,947 | |||||
|
Brokerage commissions
The following table shows brokerage commissions paid during the fiscal years indicated:
1 |
|
||||||
Brokerage | ||||||
Fiscal year | Commissions | |||||
|
||||||
2016 | $[ ] | |||||
|
||||||
2015 | $2,072,879 | |||||
|
||||||
2014 | $2,250,438 | |||||
|
The following table shows transactions placed with brokers and dealers during the most recent fiscal year to recognize research services received by Putnam Management and its affiliates:
|
||||
Dollar value of these | Percentage of total | Amount of | ||
transactions | transactions | commissions | ||
|
||||
$2,227,395,085 | 80.59% | $1,698,343 | ||
|
At the end of fiscal 2016, the fund held the following securities of its regular broker-dealers (or affiliates of such broker-dealers):
|
|||
Broker-dealers or affiliates | Value of securities held | ||
|
|||
Bank of America Corp. | $90,039,894 | ||
|
|||
Citigroup, Inc. | $128,324,360 | ||
|
|||
Goldman Sachs Group, Inc. (The) | $40,588,272 | ||
|
|||
JPMorgan Chase & Co. | $136,673,996 | ||
|
Administrative expense reimbursement
The fund reimbursed Putnam Management for administrative services during fiscal 2016, including compensation of certain fund officers and contributions to the Putnam Retirement Plan for their benefit, as follows:
|
|||
Total | Portion of total reimbursement for | ||
reimbursement | compensation and contributions | ||
|
|||
$156,708 | $107,057 | ||
|
The table below shows the value of each Trustee's holdings in the fund and in all of the Putnam Funds as of December 31, 2016.
| ||
Name of Trustee | Dollar range of Putnam | Aggregate dollar range of shares |
Equity Income Fund shares | held in all of the Putnam funds | |
owned | overseen by Trustee | |
| ||
Liaquat Ahamed | over $100,000 | over $100,000 |
| ||
Ravi Akhoury | $1-$10,000 | over $100,000 |
|
2 |
Barbara M. Baumann | $50,001-$100,000 | over $100,000 |
| ||
Jameson A. Baxter | over $100,000 | over $100,000 |
| ||
Robert J. Darretta | $1-$10,000 | over $100,000 |
| ||
Katinka Domotorffy | $1-$10,000 | over $100,000 |
| ||
John A. Hill | over $100,000 | over $100,000 |
| ||
Paul L. Joskow | over $100,000 | over $100,000 |
| ||
Kenneth R. Leibler | $1-$10,000 | over $100,000 |
| ||
Robert E. Patterson | $50,001-$100,000 | over $100,000 |
| ||
George Putnam, III | over $100,000 | over $100,000 |
| ||
W. Thomas Stephens | $1-$10,000 | over $100,000 |
| ||
* Robert L. Reynolds | $1-$10,000 | over $100,000 |
|
* Trustee who is an “interested person” (as defined in the Investment Company Act of 1940) of the fund and Putnam Management. Mr. Reynolds is deemed an “interested person” by virtue of his positions as an officer of the fund and Putnam Management. Mr. Reynolds is the President and Chief Executive Officer of Putnam Investments, LLC and President of your fund and each of the other Putnam funds. None of the other Trustees is an “interested person”.
The standing committees of the Board of Trustees, and the number of times each committee met during your fund's most recently completed fiscal year, are shown in the table below:
Audit, Compliance and Distributions Committee | 15 | |||||
|
||||||
Board Policy and Nominating Committee | 5 | |||||
|
||||||
Brokerage Committee | 4 | |||||
|
||||||
Contract Committee | 9 | |||||
|
||||||
Executive Committee | 1 | |||||
|
||||||
Investment Oversight Committees | ||||||
Investment Oversight Committee A | 77 | |||||
Investment Oversight Committee B | ||||||
|
||||||
Pricing Committee | 7 | |||||
|
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 2016, and the fees paid to each Trustee by all of the Putnam funds during calendar year 2016:
3 |
COMPENSATION TABLE |
|
Pension or | ||||
retirement | Total | |||
benefits | Estimated annual | compensation | ||
Aggregate | accrued | benefits from all | from all | |
compensation | as part of | Putnam funds | Putnam | |
Trustees/Year | from the fund | fund expenses | upon retirement(1) | funds(2) |
| ||||
Liaquat | $24,556 | N/A | N/A | $315,000.00 |
Ahamed/2012(3) | ||||
| ||||
Ravi Akhoury/2009 | $23,543 | N/A | N/A | $302,500.00 |
| ||||
Barbara M. | $24,556 | N/A | N/A | $315,000.00 |
Baumann/2010(3) | ||||
| ||||
Jameson A. | $33,941 | $6,477 | $110,533.00 | $482,031.00 |
Baxter/1994(3)(4) | ||||
| ||||
Robert J. | $26,508 | N/A | N/A | $340,000.00 |
Darretta/2007(3) | ||||
| ||||
Katinka | $24,556 | N/A | N/A | $315,000.00 |
Domotorffy/2012(3) | ||||
| ||||
John A. Hill/1985(3) | $22,648 | $11,406 | $161,667.00 | $290,000.00 |
| ||||
Paul L. | $24,556 | $4,423 | $113,417.00 | $315,000.00 |
Joskow/1997(3) | ||||
| ||||
Kenneth R. | $25,174 | N/A | N/A | $322,500.00 |
Leibler/2006 | ||||
| ||||
Robert E. | $23,644 | $7,173 | $106,542.00 | $302,500.00 |
Patterson/1984 | ||||
| ||||
George Putnam, | $26,508 | $7,463 | $130,333.00 | $340,000.00 |
III/1984 | ||||
| ||||
W. Thomas | $24,556 | $4,343 | $107,125.00 | $315,000.00 |
Stephens/1997(5) | ||||
| ||||
Robert L. | N/A | N/A | N/A | N/A |
Reynolds/2008(6) |
(1) Estimated benefits for each Trustee are based on Trustee fee rates for calendar years 2003, 2004 and 2005.
(2) As of December 31, 2016, there were 114 funds in the Putnam family.
4 |
(3) Certain Trustees are also owed compensation deferred pursuant to a Trustee Compensation Deferral Plan. As of December 31, 2016, the total amounts of deferred compensation payable by the fund, including income earned on such amounts, to these Trustees were: Mr. Ahamed - $22,098; Ms. Baumann - $22,098; Ms. Baxter - $115,759; Mr. Darretta - $85,009; Ms. Domotorffy - $12,802; Mr. Hill - $229,786; and Dr. Joskow - $81,653.
(4) Includes additional compensation to Ms. Baxter for service as Chair of the Trustees of the Putnam funds.
(5) Mr. Stephens retired from the Board of Trustees of the Putnam funds on March 31, 2008. Upon his retirement in 2008, Mr. Stephens became entitled to receive annual retirement benefit payments from the funds commencing on January 15, 2009. Mr. Stephens was reappointed to the Board of Trustees of the Putnam funds effective May 14, 2009, and in connection with his re-appointment, Mr. Stephens has agreed to suspend the balance of his retirement benefit payments for the duration of his service as a Trustee.
(6) Mr. Reynolds is an “interested person” of the fund and Putnam Management.
Distribution fees
During fiscal 2016, the fund paid the following 12b-1 fees to Putnam Retail Management:
|
||||||
Class A | Class B | Class C | Class M | Class R | ||
|
||||||
$[ ] | $[ ] | $[ ] | $[ ] | $[ ] | ||
|
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 | ||||
Total front-end | Putnam Retail Management | Contingent deferred | ||
Fiscal year | sales charges | after dealer concessions | sales charges | |
|
||||
2016 | $1,951,147 | $[ ] | $30 | |
|
||||
2015 | $2,666,901 | $457,658 | $58 | |
|
||||
2014 | $3,015,284 | $518,695 | $25 | |
|
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:
|
||||
Fiscal year | Contingent deferred sales charges | |||
|
||||
2016 | $185,770 | |||
|
5 |
2015 | $32,210 | |||
|
||||
2014 | $42,497 | |||
|
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:
|
||||
Fiscal year | Contingent deferred sales charges | |||
|
||||
2016 | $168,594 | |||
|
||||
2015 | $8,921 | |||
|
||||
2014 | $6,451 | |||
|
Class M 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 | ||||
Total front-end | Putnam Retail Management | |||
Fiscal year | sales charges | after dealer concessions | ||
|
||||
2016 | $43,509 | $[ ] | ||
|
||||
2015 | $47,007 | $8,014 | ||
|
||||
2014 | $42,610 | $7,521 | ||
|
During the fund’s last three fiscal years, Putnam Retail Management received no contingent deferred sales charges with respect to class M shares. Effective November 1, 2015 the fund will no longer assess a contingent deferred sales charge with respect to class M shares.
Investor servicing fees
During the 2016 fiscal year, the fund incurred $11,877,007 in fees for investor servicing provided by Putnam Investor Services, Inc.
6 |
PORTFOLIO MANAGERS
Other accounts managed
The following table shows the number and approximate assets of other investment accounts (or portions of investment accounts) that the fund's portfolio managers managed as of the fund's most recent fiscal year-end. The other accounts may include accounts for which the individuals were not designated as a portfolio manager. Unless noted, none of the other accounts pays a fee based on the account's performance.
Other accounts (including | ||||||
separate accounts, managed | ||||||
Other accounts that pool | account programs and | |||||
Portfolio | Other SEC-registered open- | assets from more than one | single-sponsor defined | |||
managers | end and closed-end funds | client | contribution plan offerings) | |||
| ||||||
Number | Number | Number | ||||
of | of | of | ||||
accounts | Assets | accounts | Assets | accounts | Assets | |
| ||||||
Darren Jaroch | 13* | $7,674,700,000 | 1 | $29,400,000 | 6 | $306,100,000 |
| ||||||
Walter Scully | 9 | $7,153,500,000 | 0 | 0 | 6 | $306,500,000 |
|
* 3 accounts, with total assets of $163,800,000, pay an advisory fee based on account performance.
Ownership of securities
The dollar range of shares of the fund owned by each portfolio manager at the end of the fund’s last fiscal year, including investments by immediate family members and amounts invested through retirement and deferred compensation plans, was as follows:
Portfolio managers | Dollar range of shares owned | ||
Darren Jaroch | $100,001-$500,000 | ||
Walter Scully | $100,001-$500,000 |
7 |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
[ ], is Equity Income 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 and financial statements included in Equity Income Fund's Annual Report to shareholders for the fiscal year ended November 30, 2016 are incorporated by reference into this SAI. The audited financial statements for Equity Income Fund 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.
[ ], is Growth and Income 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 Growth and Income Fund’s Annual Report to shareholders for the fiscal year ended October 31, 2016 are incorporated by reference into this SAI. The audited financial statements for Growth and Income Fund incorporated by reference into the Prospectus and this SAI have been so incorporated in reliance upon the reports of the independent registered public accounting firm, given on their authority as experts in auditing and accounting.
8 |
PRO FORMA FINANCIAL INFORMATION |
Putnam Equity Income Fund |
AND |
The Putnam Fund for Growth and Income |
Putnam Equity Income Fund and The Putnam Fund for Growth and Income are open-end management investment companies registered under the Investment Company Act of 1940, as amended. Both funds are managed by Putnam Investment Management, LLC (“PIM”).
The unaudited proforma information provided herein should be read in conjunction with the separate financial statements of Putnam Equity Income Fund and The Putnam Fund for Growth and Income incorporated by reference in this statement of additional information. The funds follow generally accepted accounting principles (GAAP) in the United States of America applicable to management investment companies, which are disclosed in the separate financial statements of each fund.
1. Narrative Description of the Pro Forma Effects of the Reorganization
The unaudited proforma information set forth below for the twelve months ended November 30, 2016 is intended to present ratios and supplemental data for Putnam Equity Income Fund (the accounting survivor) as if the combination with The Putnam Fund for Growth and Income (the “Reorganization”) had been consummated on December 1, 2015.
The Putnam Equity Income Fund offers eight classes of shares: Class A, Class B, Class C, Class M, Class R, Class R5, Class R6 and Class Y. The Putnam Fund for Growth and Income offers seven classes of shares: Class A, Class B, Class C, Class M, Class R, Class R6 and Class Y. The Reorganization provides for the proposed exchange of assets of [each class] of shares of The Putnam Fund for Growth and Income for Class A, Class B, Class C, Class M, Class R, Class R6 and Class Y shares of Putnam Equity Income Fund. Putnam Equity Income Fund will be the surviving entity for accounting purposes with its results of operations being carried forward.
As of November 30, 2016 the net assets of The Putnam Fund for Growth and Income and Putnam Equity Income Fund were $4,911,413,661 and $6,243,225,924, respectively. Assuming the two funds merged on November 30, 2016, the net assets of the combined fund would have been $11,153,537,119 which reflects the impact of non-recurring merger costs of $1,102,466. The net asset value per share after the reorganization assumes the issuance, by Putnam Equity Income Fund, of the following shares for the respective The Putnam Fund for Growth and Income class net assets at November 30, 2016:
Shares Issued | The Putnam Fund for Growth and Income net assets | |
Class A | 221,295,727 | $4,668,142,367 |
Class B | 2,980,512 | $62,102,543 |
Class C | 2,607,374 | $54,324,447 |
9 |
Class M | 1,347,817 | $28,063,164 |
Class R | 61,321 | $1,283,149 |
Class R6 | 989,979 | $20,896,189 |
Class Y | 3,617,393 | $ 76,327,167 |
Assuming the reorganization had occurred at the beginning of the twelve month period ended November 30, 2016, the proposed reorganization would have resulted in a decrease in other operating expenses of $390,713. Given each fund is subject to the same management contract, the proposed reorganization would not result in any change to management fee charged to combined fund.
The significant accounting policies, including valuation policies, of Putnam Equity Income Fund and The Putnam Fund for Growth and Income are substantially identical and are not expected to change as a result of the merger.
Security Valuation
Portfolio securities and other investments are valued using policies and procedures adopted by the Board of Trustees. The Trustees have formed a Pricing Committee to oversee the implementation of these procedures and have delegated responsibility for valuing the fund’s assets in accordance with these procedures to Putnam Management. Putnam Management has established an internal Valuation Committee that is responsible for making fair value determinations, evaluating the effectiveness of the pricing policies of the fund and reporting to the Pricing Committee.
Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities under Accounting Standards Codification 820 Fair Value Measurements and Disclosures (ASC 820). If no sales are reported, as in the case of some securities that are traded OTC, a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
Investments in open-end investment companies (excluding exchange-traded funds), if any, which can be classified as Level 1 or Level 2 securities, are valued based on their net asset value. The net asset value of such investment companies equals the total value of their assets less their liabilities and divided by the number of their outstanding shares.
Market quotations are not considered to be readily available for certain debt obligations and other investments; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Management. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities (which consider such factors as security prices, yields, maturities and ratings). These securities will generally be categorized as Level 2. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value, and are classified as Level 2 securities.
Many securities markets and exchanges outside the U.S. close prior to the close of the New York
10 |
Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which would generally be classified as Level 1 securities, will be transferred to Level 2 of the fair value hierarchy when they are valued at fair value. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. At the close of the reporting period, fair value pricing was used for certain foreign securities in the portfolio. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management in accordance with policies and procedures approved by the Trustees. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures, recovery rates, sales and other multiples and resale restrictions. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
2. Merger costs
The costs associated with the merger are estimated to be $1,102,466 of which an estimated $274,634 will be paid by Putnam Growth and Income Fund and an estimated $827,831 will be paid by Putnam Equity Income Fund. These fees and expenses, representing legal and accounting expenses, portfolio transfer taxes (if any), the costs of printing and mailing this prospectus or other similar expenses incurred in connection with the consummation of the merger, will be allocated evenly between the two funds, except that the costs of SEC registration fees will be allocated to Putnam Equity Income Fund. Because both funds are expected to benefit from the merger based on several quantitative and qualitative factors, PIM determined that the allocation described above is a fair and objective manner of allocating the merger expenses.
3. Tax implications
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. As of November 30, 2016, the funds had capital loss carryforwards as follows:
11 |
| ||
The Putnam Fund for | Putnam Equity Income | |
Growth and Income | Fund | |
| ||
Capital loss carryforwards | $130,619,620 | $25,002,231 |
|
If not applied, the capital loss carryforwards will expire as follows:
| ||
Expiration Date: | The Putnam Fund for | Putnam Equity Income |
Growth and Income | Fund | |
| ||
October 31, 2017 | $130,619,620 | $0 |
| ||
November 30, 2017 | $0 | $25,002,231 |
|
The merger is expected to be a tax-free reorganization for federal income tax purposes.
4. Portfolio Realignment
Putnam Management currently expects that Putnam Growth and Income Fund may make dispositions of certain portfolio holdings prior to the merger. (However, it is also possible that the combined fund's portfolio managers could deem it appropriate in their discretion simply to combine the two funds' portfolios, without disposing of securities in Putnam Growth and Income Fund.) These sales would result in brokerage commissions and other transaction costs, and may result in the realization of capital gains that would be distributed to shareholders as taxable distributions.
APPENDIX A
FUND | CLASS | CLASS | CLASS | CLASS | CLASS | CLASS | CLASS | CLASS |
SYMBOLS | A | B | C | M | R | R5 | R6 | Y |
PEYAX | PEQNX | PEQCX | PEIMX | PEQRX | PEQLX | PEQSX | PEIYX |
Putnam Equity Income Fund |
FORM N-1A |
PART B |
STATEMENT OF ADDITIONAL INFORMATION (SAI) |
3/30/16 |
This SAI is not a prospectus. If the fund has more than one form of current prospectus, each reference to the prospectus in this SAI includes all of the fund's prospectuses, unless otherwise noted. The SAI should be read together with the applicable prospectus. For a free copy of the fund's annual report or a prospectus dated 3/30/16, as revised from time to time, call Putnam Investor Services at 1-800-225-1581, visit Putnam's website at putnam.com or write Putnam Investor Services, P.O. Box 8383, Boston, MA 02266-8383.
Part I of this SAI contains specific information about the fund. Part II includes information about the fund and the other Putnam funds.
SAI_28 - 2016/03 |
A-1 |
Table of Contents |
PART I | |
FUND ORGANIZATION AND CLASSIFICATION | I-3 |
INVESTMENT RESTRICTIONS | I-4 |
CHARGES AND EXPENSES | I-6 |
PORTFOLIO MANAGERS | I-18 |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND | |
FINANCIAL STATEMENTS | I-21 |
PART II | |
HOW TO BUY SHARES | II-1 |
DISTRIBUTION PLANS | II-10 |
A-2 |
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND | |
RISKS | II-17 |
TAXES | II-55 |
MANAGEMENT | II-70 |
DETERMINATION OF NET ASSET VALUE | II-89 |
INVESTOR SERVICES | II-91 |
SIGNATURE GUARANTEES | II-95 |
REDEMPTIONS | II-96 |
POLICY ON EXCESSIVE SHORT-TERM TRADING | II-96 |
SHAREHOLDER LIABILITY | II-96 |
DISCLOSURE OF PORTFOLIO INFORMATION | II-96 |
PROXY VOTING GUIDELINES AND PROCEDURES | II-98 |
SECURITIES RATINGS | II-99 |
APPENDIX A - PROXY VOTING GUIDELINES OF THE PUTNAM | |
FUNDS | II-105 |
APPENDIX B - FINANCIAL STATEMENTS | II-129 |
A-3 |
SAI |
PART I |
FUND ORGANIZATION AND CLASSIFICATION
Putnam Equity Income Fund is a Massachusetts business trust organized on April 27, 1977. 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 fund is an open-end diversified 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. The fund offers classes of shares with different sales charges and expenses.
Each share has one vote, with fractional shares voting proportionally. 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 fund were liquidated, would receive the net assets of the fund.
The fund may suspend the sale of shares at any time and may refuse any order to purchase shares. Although the fund is not required to hold annual meetings of its shareholders, shareholders holding at least 10% of the outstanding shares entitled to vote have the right to call a meeting to elect or remove Trustees, or to take other actions as provided in the Agreement and Declaration of Trust.
A-4 |
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed without a vote of a majority of the outstanding voting securities, the fund may not and will not:
(1) Borrow money in excess of 33 1/3% of the value of its total assets (not including the amount borrowed) at the time the borrowing is made.
(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 obligations secured by real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts, except that the fund may buy or sell financial futures contracts and related options.
(5) Make loans, except by purchase of debt obligations in which the fund may invest consistent with its investment policies (including without limitation debt obligations issued by other Putnam funds), 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 or principal by the U.S. government or its agencies or instrumentalities or to securities issued by other investment companies.
(7) Purchase securities restricted as to resale, if, as a result, such investments would exceed 15% of the value of the fund’s net assets, excluding restricted
A-5 |
securities that have been determined by the Trustees of the fund (or the person designated by them to make such determinations) to be readily marketable.
(8) Purchase securities (other than securities of the U.S. government, its agencies or instrumentalities), if as a result of such purchase more than 25% of total fund assets would be invested in any one industry.
(9) With respect to 75% of its total assets, acquire more than 10% of the outstanding voting securities of any issuer.
The Investment Company Act of 1940 provides that a "vote of a majority of the outstanding voting securities" of a fund means the affirmative vote of the lesser of (1) more than 50% of the outstanding fund shares, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding fund shares are represented at the meeting in person or by proxy.
For purposes of the fund’s fundamental policy on commodities and commodities contracts (#4 above), at the time of the establishment of the policy, swap contracts on financial instruments or rates were not within the understanding of the terms “commodities” or “commodity contracts,” and notwithstanding any federal legislation or regulatory action by the Commodity Futures Trading Commission (“CFTC”) that subject such swaps to regulation by the CFTC, the fund will not consider such instruments to be commodities or commodity contracts for purposes of this policy.
For purposes of the fund’s fundamental policy on industry concentration (#8 above), Putnam Investment Management, LLC (Putnam Management), the fund's investment manager, determines the appropriate industry categories and assigns issuers to them, informed by a variety of considerations, including relevant third party categorization systems. Industry categories and issuer assignments may change over time as industry sectors and issuers evolve. Portfolio allocations shown in shareholder reports and other communications may use broader investment sectors or narrower sub-industry categories.
The following non-fundamental investment policies may be changed by the Trustees without shareholder approval:
A-6 |
(1) 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 the fund's net assets (taken at current value) would be invested in securities described in (a), (b) and (c).
(2) The fund will not issue any class of securities which is senior to the fund's shares of beneficial interest, except for permitted borrowings.
All percentage limitations on investments (other than pursuant to non-fundamental restriction (1)) 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.
If, as a result of a change in values or net assets or other circumstances, greater than 15% of the fund’s net assets are invested in securities described in (a), (b) and (c) in non-fundamental policy (1) above, the fund will take such steps as are deemed advisable to protect the fund’s liquidity.
The fund has filed an election under Rule 18f-1 under the Investment Company Act of 1940 committing the fund to pay all redemptions of fund shares by a single shareholder during any 90-day period in cash, up to the lesser of (i) $250,000 or (ii) 1% of such fund's net assets measured as of the beginning of such 90-day period.
CHARGES AND EXPENSES
Shareholders of your fund approved a new management contract with Putnam Management effective February 27, 2014 (the "Management Contract"). The substantive terms of the Management Contract, including terms relating to fees, are identical to the terms of your fund’s prior management contract dated January 1, 2010. Shareholders were asked to approve the Management Contract
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following the death on October 8, 2013 of The Honourable Paul G. Desmarais, who had controlled directly and indirectly a majority of the voting shares of Power Corporation of Canada, the ultimate parent company of Putnam Management.
Between October 8, 2013 and the date of the Management Contract, Putnam Management managed the fund's investment portfolio and other affairs and business under an interim management contract, which was substantively identical to the fund's prior management contract dated January 1, 2010. Putnam Management has entered into a sub-management contract for your fund effective as of the time the Management Contract became effective. Please see “Management—The Sub-Manager” in Part II of this SAI for information about the sub-management contract.
Management fees
Under the Management Contract, the fund pays a monthly fee to Putnam Management. The fee is calculated by applying a rate to the fund’s average net assets for the month. The rate is based on the monthly average of the aggregate net assets of all open-end funds sponsored by Putnam Management (excluding fund assets that are invested in other Putnam funds) (“Total Open-End Mutual Fund Average Net Assets”), as determined at the close of each business day during the month, as set forth below:
0.630% of the first $5 billion of Total Open-End Mutual Fund Average Net Assets; 0.580% of the next $5 billion of Total Open-End Mutual Fund Average Net Assets; 0.530% of the next $10 billion of Total Open-End Mutual Fund Average Net Assets; 0.480% of the next $10 billion of Total Open-End Mutual Fund Average Net Assets; 0.430% of the next $50 billion of Total Open-End Mutual Fund Average Net Assets; 0.410% of the next $50 billion of Total Open-End Mutual Fund Average Net Assets; 0.400% of the next $100 billion of Total Open-End Mutual Fund Average Net Assets; 0.395% of any excess thereafter.
For the past three fiscal years, pursuant to the applicable management contract, the fund incurred the following fees:
Fiscal | Management | |||
year | fee paid | |||
2015 | $28,483,206 | |||
2014 | $26,296,947 |
A-8 |
2013 | $21,602,925 |
Brokerage commissions
The following table shows brokerage commissions paid during the fiscal years indicated:
Fiscal | Brokerage | |||
year | commissions | |||
2015 | $2,072,879 | |||
2014 | $2,250,438 | |||
2013 | $3,324,332 |
The brokerage commissions for the fund’s 2015 and 2014 fiscal year were lower than the brokerage commissions for the fund’s 2013 fiscal year due, in part, to decreased portfolio turnover.
The following table shows transactions placed with brokers and dealers during the most recent fiscal year to recognize research services received by Putnam Management and its affiliates:
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Dollar value of | Percentage | |||
these | of total | Amount of | ||
transactions | transactions | commissions | ||
$2,227,395,085 | 80.59% | $1,698,343 |
At the end of fiscal 2015, the fund held the following securities of its regular broker-dealers (or affiliates of such broker-dealers):
Broker-dealer or affiliate | Value of securities held | ||
Bank of America Corp. | $90,039,894 | ||
Citigroup, Inc. | $128,324,360 | ||
Goldman Sachs Group, Inc. (The) | $40,588,272 | ||
JPMorgan Chase & Co. | $136,673,996 |
Administrative expense reimbursement
The fund reimbursed Putnam Management for administrative services during fiscal 2015, including compensation of certain fund officers and contributions to the Putnam Retirement Plan for their benefit, as follows:
Portion of total | ||||
reimbursement for | ||||
Total | compensation and | |||
reimbursement | contributions | |||
$156,708 | $107,057 |
Trustee responsibilities and fees
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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 the fund's other affairs and business.
The table below shows the value of each Trustee's holdings in the fund and in all of the Putnam Funds as of December 31, 2015.
Aggregate dollar | ||||
range of shares | ||||
Dollar range of | held in all of the | |||
Putnam Equity | Putnam funds | |||
Income Fund | overseen by | |||
Name of Trustee | shares owned | Trustee | ||
|
||||
Liaquat Ahamed | over $100,000 | over $100,000 | ||
|
||||
Ravi Akhoury | $1-$10,000 | over $100,000 | ||
|
||||
Barbara M. Baumann | $50,001-$100,000 | over $100,000 | ||
|
||||
Jameson A. Baxter | over $100,000 | over $100,000 | ||
|
||||
Robert J. Darretta | $1-$10,000 | over $100,000 | ||
|
||||
Katinka Domotorffy | $1-$10,000 | over $100,000 | ||
|
||||
John A. Hill | over $100,000 | over $100,000 | ||
|
||||
Paul L. Joskow | over $100,000 | over $100,000 | ||
|
||||
Kenneth R. Leibler | $1-$10,000 | over $100,000 | ||
|
||||
Robert E. Patterson | $50,001-$100,000 | over $100,000 | ||
|
||||
George Putnam, III | over $100,000 | over $100,000 | ||
|
||||
W. Thomas Stephens | $1-$10,000 | over $100,000 | ||
|
||||
* Robert L. Reynolds | $1-$10,000 | over $100,000 |
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* Trustee who is an "interested person" (as defined in the Investment Company Act of 1940) of the fund and Putnam Management. Mr. Reynolds is deemed an "interested person" by virtue of his positions as an officer of the fund and Putnam Management. Mr. Reynolds is the President and Chief Executive Officer of Putnam Investments, LLC and President of your fund and each of the other Putnam funds. None of the other Trustees is an "interested person".
Each Independent Trustee of the fund receives an annual retainer fee and an additional fee for each Trustee meeting attended. Independent Trustees also are reimbursed for expenses they incur relating to their services as Trustees. All of the current Independent Trustees of the fund are Trustees of all the Putnam funds and receive fees for their services.
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 four business days per regular Trustee meeting. The standing committees of the Board of Trustees, and the number of times each committee met during your fund’s most recently completed fiscal year, are shown in the table below:
Audit, Compliance and Distributions | ||
Committee* | 12 | |
Board Policy and Nominating Committee | 4 | |
Brokerage Committee | 2 | |
Contract Committee | 9 | |
Executive Committee | 1 | |
Investment Oversight Committees | ||
Investment Oversight Committee A | 7 | |
Investment Oversight Committee B | 7 | |
Pricing Committee | 7 |
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*Effective August 10, 2015, the Audit and Compliance Committee assumed the duties of the Distributions Committee and was redesignated as the Audit, Compliance and Distributions Committee. The number of meetings of the Audit, Compliance and Distributions Committee reported in the table above excludes the meetings of the Distributions Committee that were held during the fund's fiscal year. The Distributions Committee met 4 times during the fund's most recently completed fiscal year.
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 2015, and the fees paid to each Trustee by all of the Putnam funds for services rendered during calendar year 2015:
COMPENSATION TABLE |
Pension or | Estimated | |||
retirement | annual | Total | ||
benefits | benefits from | compensation | ||
Aggregate | accrued as | all Putnam | from all | |
compensation | part of fund | funds upon | Putnam | |
Trustee/Year | from the fund | expenses | retirement(1) | funds(2) |
| ||||
Liaquat Ahamed/2012(3) | $19,884 | N/A | N/A | $300,000 |
| ||||
Ravi Akhoury/2009 | $18,198 | N/A | N/A | $275,000 |
| ||||
Barbara M. | $19,884 | N/A | N/A | $300,000 |
Baumann/2010(3) | ||||
| ||||
Jameson A. | $31,009 | $6,608 | $110,533 | $458,594 |
Baxter/1994(3)(4) | ||||
| ||||
Charles B. Curtis/2001(5) | $12,289 | $3,564 | $113,917 | $162,500 |
| ||||
Robert J. | ||||
Darretta/2007(3) | $19,666 | N/A | N/A | $312,500 |
| ||||
Katinka | $19,884 | N/A | N/A | $300,000 |
Domotorffy/2012(3) | ||||
| ||||
John A. Hill/1985(3) | $19,467 | $12,166 | $161,667 | $281,250 |
| ||||
Paul L. Joskow/1997(3) | $19,884 | $4,532 | $113,417 | $300,000 |
| ||||
Kenneth R. Leibler/2006 | $21,121 | N/A | N/A | $318,750 |
| ||||
Robert E. Patterson/1984 | $21,121 | $7,504 | $106,542 | $306,250 |
| ||||
George Putnam, III/1984 | $20,452 | $7,997 | $130,333 | $312,500 |
| ||||
W. Thomas | ||||
Stephens/1997(6) | $19,884 | $4,433 | $107,125 | $300,000 |
| ||||
Robert L. | ||||
Reynolds/2008(7) | N/A | N/A | N/A | N/A |
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(1) Estimated benefits for each Trustee are based on Trustee fee rates for calendar years 2003, 2004 and 2005.
(2) As of December 31, 2015, there were 117 funds in the Putnam family.
(3) Certain Trustees are also owed compensation deferred pursuant to a Trustee Compensation Deferral Plan. As of November 30, 2015, the total amounts of deferred compensation payable by the fund, including income earned on such amounts, to these Trustees were: Mr. Ahamed - $16,642; Ms. Baumann -$19,240; Ms. Baxter - $97,491; Mr. Darretta - $63,332; Ms. Domotorffy - $8,808; Mr. Hill - $207,192; and Dr. Joskow - $71,296.
(4) Includes additional compensation to Ms. Baxter for service as Chair of the Trustees of the Putnam funds.
(5) Mr. Curtis retired from the Board of Trustees of the Putnam funds on June 30, 2015.
(6) Mr. Stephens retired from the Board of Trustees of the Putnam funds on March 31, 2008. Upon his retirement in 2008, Mr. Stephens became entitled to receive annual retirement benefit payments from the funds commencing on January 15, 2009. Mr. Stephens was re-appointed to the Board of Trustees of the Putnam funds effective May 14, 2009, and in connection with his re-appointment, Mr. Stephens has agreed to suspend the balance of his retirement benefit payments for the duration of his service as a Trustee.
(7) Mr. Reynolds is an "interested person" of the fund and Putnam Management.
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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 attendance and retainer fees paid to such Trustee for calendar years 2003, 2004 and 2005. This retirement benefit is payable during a Trustee's lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. 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
At February 29, 2016, 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.
Percentage | ||
Class | Shareholder name and address | owned |
| ||
Edward D. Jones & Co. | 10.64% | |
A | 12555 Manchester Rd. | |
St. Louis, MO 63131-3729 | ||
|
A-15 |
Percentage | ||
Class | Shareholder name and address | owned |
| ||
A | National Financial Services, LLC | 8.60% |
499 Washington Blvd | ||
Jersey City, NJ 07310-2010 | ||
| ||
A | Pershing, LLC | 6.48% |
1 Pershing Plaza | ||
Jersey City, NJ 07399-0001 | ||
| ||
A | MLPF&S | 5.07% |
4800 Deer Lake Dr., E., Fl. 3 | ||
Jacksonville, FL 32246-6484 | ||
| ||
B | Pershing, LLC | 10.12% |
1 Pershing Plaza | ||
Jersey City, NJ 07399-0001 | ||
| ||
B | Charles Schwab & Co., Inc. | 9.65% |
101 Montgomery St. | ||
San Francisco, CA 94104-4151 | ||
| ||
B | First Clearing, LLC | 6.56% |
2801 Market St. | ||
Saint Louis, MO 63103-2523 | ||
| ||
B | MLPF&S | 6.24% |
4800 Deer Lake Dr., E., Fl. 3 | ||
Jacksonville, FL 32246-6484 | ||
| ||
B | National Financial Services, LLC | 6.06% |
499 Washington Blvd | ||
Jersey City, NJ 07310-2010 | ||
| ||
B | Morgan Stanley Smith Barney | 5.61% |
Harborside Financial Center | ||
Plaza 2, 3rd Floor | ||
Jersey City, NJ 07311 | ||
| ||
C | MLPF&S | 15.13% |
4800 Deer Lake Dr., E. Fl. 3 | ||
Jacksonville, FL 32246-6484 | ||
| ||
C | First Clearing, LLC | 10.29% |
2801 Market St. | ||
Saint Louis, MO 63103-2523 | ||
| ||
C | Pershing, LLC | 10.21% |
1 Pershing Plaza | ||
Jersey City, NJ 07399-0001 | ||
| ||
C | Morgan Stanley Smith Barney | 10.05% |
Harborside Financial Center | ||
Plaza 2, 3rd Floor | ||
|
A-16 |
Percentage | ||
Class | Shareholder name and address | owned |
| ||
Jersey City, NJ 07311 | ||
C | UBS WM USA | 6.93% |
1000 Harbor Blvd | ||
Weehawken, NJ 07086-6761 | ||
| ||
C | Raymond James | 6.57% |
880 Carillon Pkwy | ||
St. Petersburg, FL 33716-1100 | ||
| ||
C | National Financial Services, LLC | 6.07% |
499 Washington Blvd | ||
Jersey City, NJ 07310-2010 | ||
| ||
M | Edward D. Jones & Co. | 21.17% |
12555 Manchester Rd. | ||
St. Louis, MO 63131-3729 | ||
| ||
M | Pershing, LLC | 8.06% |
1 Pershing Plaza | ||
Jersey City, NJ 07399-0001 | ||
| ||
M | DCGT Trustees or Custodian | 6.99% |
PLIC various retirement plans Omni | ||
711 High St. | ||
Des Moines, IA 50392-0001 | ||
| ||
R | Hartford Life Insurance Co. | 30.54% |
DC III Separate Acct Cl R | ||
Attn: UIT Operations | ||
1 Griffin Rd N | ||
Windsor, CT 06095-1512 | ||
| ||
R | State Street Bank TTEE | 29.26% |
ADP Access | ||
1 Lincoln St. | ||
Boston, MA 02111-2901 | ||
| ||
R | MLPF&S | 9.89% |
4800 Deer Lake Dr. E., FL. 3 | ||
Jacksonville, FL 32246-6484 | ||
| ||
R5 | Charles Schwab & Co Inc. | 52.26% |
101 Montgomery St. | ||
San Francisco, CA 94104-4151 | ||
|
A-17 |
Percentage | ||
Class | Shareholder name and address | owned |
| ||
R5 | Great-West Trust Company, LLC – | 32.03% |
Recordkeeping for various benefit plans | ||
8515 E Orchard Rd. 2T2 | ||
Greenwood Village, CO 80111-5002 | ||
| ||
R5 | NFS LLC FBO | 6.75% |
100 Magellan Way #KW1C | ||
Covington, KY 41015-1987 | ||
| ||
R6 | Vanguard Fiduciary Trust Co FBO | 31.53% |
P.O. Box 2600 | ||
Valley Forge, PA 19482-2600 | ||
| ||
R6* | Marsh & McLennan Supplemental Retirement Plan | 15.70% |
| ||
R6 | Great-West Trust Company, LLC – | 7.28% |
Recordkeeping for various benefit plans | ||
8515 E Orchard Rd. 2T2 | ||
Greenwood Village, CO 80111-5002 | ||
| ||
R6 | Great-West Trust Company, LLC – The Putnam | 7.10% |
Retirement Plan | ||
8515 E Orchard Rd. 2T2 | ||
Greenwood Village, CO 80111-5002 | ||
| ||
R6 | NFS LLC FBO | 6.11% |
State Street Bank Trust Co. | ||
440 Mamaroneck Ave. | ||
Harrison, NY 10528-2418 | ||
| ||
Y | Great-West Trust Company, LLC – | 13.00% |
Recordkeeping for various benefit plans | ||
8515 E Orchard Rd. 2T2 | ||
Greenwood Village, CO 80111-5002 | ||
| ||
Y | National Financial Services, Inc. | 12.13% |
499 Washington Blvd | ||
Jersey City, NJ 07310-2010 | ||
| ||
Y | UBS WM USA | 7.66% |
1000 Harbor Blvd | ||
Weehawken, NJ 07086-6761 | ||
| ||
Y | MLPF&S | 6.33% |
4800 Deer Lake Dr. E., FL. 3 | ||
Jacksonville, FL 32246-6484 | ||
|
A-18 |
Percentage | ||
Class | Shareholder name and address | owned |
| ||
Y* | IBEW Local 3 | 5.87% |
| ||
Y | Pershing, LLC | 5.49% |
1 Pershing Plaza | ||
Jersey City, NJ 07399-0001 | ||
| ||
Y | Charles Schwab & Co. , Inc. | 5.47% |
101 Montgomery St. | ||
San Francisco, CA 94104-4151 | ||
| ||
Y | First Clearing, LLC | 5.11% |
2801 Market St. | ||
Saint Louis, MO 63103-2523 | ||
|
* The address for the name listed is: c/o Mercer Trust Company, as trustee or agent, Investors Way, Norwood, MA 02062.
Distribution fees
During fiscal 2015, the fund paid the following 12b-1 fees to Putnam Retail Management:
Class A | Class B | Class C | Class M | Class R | ||||
$8,792,671 | $1,069,296 | $3,353,996 | $382,001 | $623,397 |
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:
A-19 |
Sales charges | ||||
retained by | ||||
Putnam Retail | ||||
Total front- | Management | Contingent | ||
end sales | after dealer | deferred | ||
Fiscal year | charges | concessions | sales charges | |
2015 | $2,666,901 | $457,658 | $58 | |
2014 | $3,015,284 | $518,695 | $25 | |
2013 | $2,898,945 | $493,581 | $159 |
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 | sales | |||
year | charges | |||
2015 | $32,210 | |||
2014 | $42,497 | |||
2013 | $39,160 |
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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 | sales | |||
year | charges | |||
2015 | $8,921 | |||
2014 | $6,451 | |||
2013 | $4,345 |
Class M sales charges
Putnam Retail Management received sales charges with respect to class M shares in the following amounts during the periods indicated:
A-21 |
Sales charges | ||||
retained by | ||||
Total | Putnam Retail | |||
front-end | Management | |||
Fiscal | sales | after dealer | ||
year | charges | concessions | ||
2015 | $47,007 | $8,014 | ||
2014 | $42,610 | $7,521 | ||
2013 | $31,015 | $5,775 |
During the fund’s last three fiscal years, Putnam Retail Management received no contingent deferred sales charges with respect to class M shares. Effective November 1, 2015, the fund no longer assesses a contingent deferred sales charge with respect to class M shares.
Investor servicing fees
During the 2015 fiscal year, the fund incurred $11,877,007 in fees for investor servicing provided by Putnam Investor Services, Inc.
PORTFOLIO MANAGERS
Other accounts managed
The following table shows the number and approximate assets of other investment accounts (or portions of investment accounts) that the fund's portfolio managers managed as of the fund's most recent fiscal year-end. The other accounts may include accounts for which the individuals were not designated as a portfolio manager. Unless noted, none of the other accounts pays a fee based on the account's performance.
A-22 |
Other accounts | ||||||
(including separate | ||||||
Other accounts that | accounts, managed | |||||
Portfolio | Other SEC-registered | pool assets from more | account programs and | |||
managers | open-end and closed-end | than one client | single-sponsor defined | |||
funds | contribution plan | |||||
offerings) | ||||||
| ||||||
Number | Number | Number | ||||
of | of | of | ||||
accounts | Assets | accounts | Assets | accounts | Assets | |
| ||||||
11* | $1,791,400,000 | 1 | $33,700,000 | 5 | $397,900,000 | |
Darren | ||||||
Jaroch | ||||||
| ||||||
Walter | 7 | $1,174,700,000 | 0 | 0 | 5 | $398,400,000 |
Scully | ||||||
|
* 3 accounts, with total assets of $194,000,000, pays an advisory fee based on account performance.
See “Management—Portfolio Transactions—Potential conflicts of interest in managing multiple accounts” in Part II of this SAI for information on how Putnam Management addresses potential conflicts of interest resulting from an individual’s management of more than one account.
Compensation of portfolio managers
Putnam’s goal for its products and investors is to deliver strong performance versus peers or performance ahead of the applicable benchmark, depending on the product, over a rolling 3-year period. Portfolio managers are evaluated and compensated, in part, based on their performance relative to this goal across the products they manage. In addition to their individual performance, evaluations take into account the performance of their group and a subjective component.
Each portfolio manager is assigned an industry -competitive incentive compensation target consistent with this goal and evaluation framework. Actual incentive compensation may be higher or lower than the target, based on individual, group, and subjective performance, and may also reflect the performance of Putnam as a firm. Typically, performance is measured over the lesser of three years or the length of time a portfolio manager has managed a product.
A-23 |
Incentive compensation includes a cash bonus and may also include grants of deferred cash, stock or options. In addition to incentive compensation, portfolio managers receive fixed annual salaries typically based on level of responsibility and experience.
For this fund, Putnam evaluates performance based on the fund's peer ranking in the fund's Lipper category or categories, as applicable, over the 3-year period. This peer ranking is based on pre-tax performance.
Ownership of securities
The dollar range of shares of the fund owned by each portfolio manager at the end of the fund’s last fiscal year, including investments by immediate family members and amounts invested through retirement and deferred compensation plans, was as follows:
Portfolio managers | Dollar range of shares owned |
Darren Jaroch | $100,001-$500,000 |
Walter Scully | $100,001-$500,000 |
A-24 |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND FINANCIAL STATEMENTS
KPMG LLP, Two Financial Center, 60 South Street, Boston, Massachusetts 02111, 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 fund's most recent fiscal year are included as Appendix B to this SAI. The financial highlights included in the prospectus and this SAI and the financial statements included in this SAI (which is incorporated by reference into the prospectus) have been so included in reliance upon the report of the independent registered public accounting firm, given on their authority as experts in auditing and accounting.
A-25 |
APPENDIX B
THE PUTNAM FUNDS |
STATEMENT OF ADDITIONAL INFORMATION (“SAI”) |
PART II |
TABLE OF CONTENTS | |
HOW TO BUY SHARES | 1 |
DISTRIBUTION PLANS | 10 |
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS | 17 |
TAXES | 55 |
MANAGEMENT | 70 |
DETERMINATION OF NET ASSET VALUE | 89 |
INVESTOR SERVICES | 91 |
SIGNATURE GUARANTEES | 95 |
REDEMPTIONS | 96 |
POLICY ON EXCESSIVE SHORT-TERM TRADING | 96 |
SHAREHOLDER LIABILITY | 96 |
DISCLOSURE OF PORTFOLIO INFORMATION | 96 |
PROXY VOTING GUIDELINES AND PROCEDURES | 98 |
SECURITIES RATINGS | 99 |
APPENDIX A - PROXY VOTING GUIDELINES OF THE PUTNAM FUNDS | 105 |
APPENDIX B – FINANCIAL STATEMENTS | 129 |
March 30, 2016 | B-1 |
THE PUTNAM FUNDS |
STATEMENT OF ADDITIONAL INFORMATION (“SAI”) |
PART II |
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 different sales charges and expenses, the investment performance of the classes will vary. This section of the SAI contains more information on how to buy shares. For more information, including your eligibility to purchase certain classes of shares, contact your investment dealer or Putnam Investor Services, Inc., the funds’ investor servicing agent (“Putnam Investor Services”), at 1-800-225-1581. Investors who purchase shares at net asset value through employer-sponsored retirement plans (including, for example, 401(k) plans, employer-sponsored 403(b) plans, and 457 plans) should also consult their employer for information about the extent to which the matters described in this section and in the sections that follow apply to them.
Except as set forth below, the fund does not accept new accounts or additional investments (including by way of exchange from another fund) into existing accounts held in the name of persons or entities that do not have both a residential or business address within the United States (including APO/FPO addresses) and a valid U.S. tax identification number. Any existing account that is updated to reflect a non-U.S. address will also be restricted from making additional investments. Non-U.S. institutional clients may invest in a fund, provided that the client is acting for its own account and is not a financial institution (e.g., a broker-dealer purchasing shares on behalf of its customers), and has provided Putnam with documentation (i) that is appropriate to the type of entity seeking to establish the account and (ii) sufficient to enable Putnam Investor Services to determine that the investment would not violate any applicable securities laws or regulations, including non-U.S. laws and regulations.
In addition, Class M shares of Putnam Diversified Income Trust, Putnam Europe Equity Fund, Putnam Global Income Trust, Putnam High Yield Advantage Fund, Putnam Income Fund, and Putnam U.S. Government Income Trust are available for public offering in Japan through certain Japanese registered broker-dealers with whom Putnam Retail Management Limited Partnership has an agreement.
In addition, the fund does not accept new accounts or additional investments (including by way of exchange from another fund) into existing accounts by entities that Putnam Investor Services has reason to believe are involved in the sale or distribution of marijuana, even if such sale or distribution is licensed by a state.
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 New York Stock Exchange (the “NYSE”). If the dealer or registered transfer agent or registered clearing agent receives the order after the close of the NYSE, the price will be based on the net asset value next determined. If funds for the purchase of shares are sent directly to Putnam
March 30, 2016 | B-1 |
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 purchases are subject to the minimums stated in the prospectus, except that (i) individual investments under certain employer-sponsored retirement plans or Tax Qualified Retirement Plans may be lower, and (ii) the minimum investment is waived for investors participating in systematic investment plans or military allotment plans. Information about these plans is available from investment dealers or Putnam Investor Services. Currently Putnam is waiving the minimum for all initial purchases, but reserves the right to reject initial purchases under the minimum in the future, except as noted in the first sentence of this paragraph.
Systematic investment plan. As a convenience to investors, shares may be purchased through a systematic investment plan. Pre-authorized monthly, semi-monthly, or weekly bank drafts for a fixed amount ($200,000 or less) are used to purchase fund shares at the applicable public offering price next determined after Putnam Retail Management Limited Partnership (“Putnam Retail Management”) receives the proceeds from the draft. A shareholder may choose any date or dates in the month 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 the investment dealers or from Putnam Retail Management.
Reinvestment of distributions. Distributions to be reinvested are reinvested without a sales charge in shares of any Putnam fund the shareholder is eligible to invest in under the shareholder's account 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.
Purchasing shares with securities (“in-kind” purchases). In addition to cash, the fund will consider accepting 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 Investment Management, LLC (“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 that are delivered in proper form. The fund will not accept certain securities, for example, 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.
Sales Charges and Other Share Class Features — Retail Investors
March 30, 2016 | B-2 |
This section describes certain key features of share classes offered to retail investors and retirement plans that do not purchase shares at net asset value. Much of this information addresses the sales charges, including initial sales charges and contingent deferred sales charges (“CDSCs”) imposed on the different share classes and various commission payments made by Putnam to dealers and other financial intermediaries facilitating shareholders’ investments. This information supplements the descriptions of these share classes and payments included in the prospectus.
Initial sales charges, dealer commissions and CDSCs on shares sold outside the United States may differ from those applied to U.S. sales.
Initial sales charges for class A and class M shares . 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 tables below indicate the sales charges applicable to purchases of class A and class M shares of the funds by style category. The variations in sales charges reflect the varying efforts required to sell shares to different categories of purchasers.
The sales charge is allocated between your investment dealer and Putnam Retail Management as shown in the tables below, except when Putnam Retail Management, in its discretion, allocates the entire amount to your investment dealer.
The underwriter's commission, or dealer reallowance, 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.
For purchases of class A shares by retail investors that qualify for the highest sales charge breakpoint described in the prospectus, Putnam Retail Management pays commissions on sales during the one-year period beginning with the date of the initial purchase qualifying for that breakpoint. Each subsequent one-year measuring period for these purposes begins with the first qualifying purchase following the end of the prior period. These commissions are paid at the rate of 1.00% of the amount of qualifying purchases up to $4 million, 0.50% of the next $46 million of qualifying purchases and 0.25% of qualifying purchases thereafter.
For Growth Funds, Blend Funds, Value Funds, Asset Allocation Funds (excluding funds in the Retirement Income Lifestyle suite), Global Sector Funds and RetirementReady ® Funds only:
CLASS A | CLASS M | |||
Amount of sales | Amount of sales | |||
charge | charge | |||
reallowed to | reallowed to | |||
Sales charge as | dealers as a | Sales charge as | dealers as a | |
Amount of transaction at | a percentage of | percentage of | a percentage of | percentage of |
offering price ($) | offering price | offering price | offering price | offering price |
Under 50,000 | 5.75% | 5.00% | 3.50% | 3.00% |
50,000 but under 100,000 | 4.50 | 3.75 | 2.50 | 2.00 |
100,000 but under 250,000 | 3.50 | 2.75 | 1.50 | 1.00 |
250,000 but under 500,000 | 2.50 | 2.00 | 1.00 | 1.00 |
500,000 but under 1,000,000 | 2.00 | 1.75 | 1.00 | 1.00 |
1,000,000 and above | NONE | NONE | N/A* | N/A* |
For Putnam Absolute Return 500 Fund and Putnam Absolute Return 700 Fund only:
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CLASS A | CLASS M | |||
Amount of sales | Amount of sales | |||
charge | charge | |||
reallowed to | reallowed to | |||
Sales charge as | dealers as a | Sales charge as | dealers as a | |
Amount of transaction at | a percentage of | percentage of | a percentage of | percentage of |
offering price ($) | offering price | offering price | offering price | offering price |
Under 50,000 | 5.75% | 5.00% | 3.50% | 3.00% |
50,000 but under 100,000 | 4.50 | 3.75 | 2.50 | 2.00 |
100,000 but under 250,000 | 3.50 | 2.75 | 1.50 | 1.00 |
250,000 but under 500,000 | 2.50 | 2.00 | 1.00 | 1.00 |
500,000 and above | NONE | NONE | N/A** | N/A** |
For funds in the Retirement Income Lifestyle suite, taxable Income Funds and Tax-Exempt Funds (except for Money Market Funds, Putnam Short-Term Municipal Income Fund, Putnam Floating Rate Income Fund, and Putnam Short Duration Income Fund):
CLASS A | CLASS M | |||
Amount of sales | Amount of sales | |||
charge | charge | |||
reallowed to | reallowed to | |||
Sales charge as | dealers as a | Sales charge as | dealers as a | |
Amount of transaction at | a percentage of | percentage of | a percentage of | percentage of |
offering price ($) | offering price | offering price | offering price | offering price |
Under 50,000 | 4.00% | 3.50% | 3.25% | 3.00% |
50,000 but under 100,000 | 4.00 | 3.50 | 2.25 | 2.00 |
100,000 but under 250,000 | 3.25 | 2.75 | 1.25 | 1.00 |
250,000 but under 500,000 | 2.50 | 2.00 | 1.00 | 1.00 |
500,000 and above | NONE | NONE | N/A** | N/A** |
For Putnam Floating Rate Income Fund, Putnam Absolute Return 100 Fund, Putnam Short-Term Municipal Income Fund and Putnam Absolute Return 300 Fund only:
CLASS A | CLASS M | |||
Amount of sales | Amount of sales | |||
charge | charge | |||
reallowed to | reallowed to | |||
Sales charge as | dealers as a | Sales charge as | dealers as a | |
Amount of transaction at | a percentage of | percentage of | a percentage of | percentage of |
offering price ($) | offering price | offering price | offering price | offering price |
Under 500,000 | 1.00% | 1.00% | 0.75% | 0.75% |
500,000 and above | NONE | NONE | N/A** | N/A** |
March 30, 2016 | B-4 |
*The funds will not accept purchase orders for class M shares (other than by employer-sponsored retirement plans) where the total of the current purchase, plus existing account balances that are eligible to be linked under a right of accumulation (as described below) is $1 million or more.
**The funds will not accept purchase orders for class M shares (other than by employer-sponsored retirement plans) where the total of the current purchase, plus existing account balances that are eligible to be linked under a right of accumulation (as described below) is $500,000 or more.
Purchases of class A and class T shares without an initial sales charge. Class A shares of any Putnam fund (other than Putnam Short Duration Income Fund, Putnam Government Money Market Fund, and Putnam Money Market Fund) purchased by retail investors that are not subject to an initial sales charge (in accordance with the schedules stated above) are subject to a CDSC of 1.00% if redeemed before the first day of the month in which the nine-month anniversary of that purchase falls. Class A shares of Putnam Short Duration Income Fund and class A and class T shares of Putnam Money Market Fund and Putnam Government Money Market Fund purchased by retail investors by exchanging shares from another Putnam fund that were not subject to an initial sales charge (in accordance with the schedules stated above) are subject to a CDSC of 1.00% if redeemed before the first day of the month in which the nine-month anniversary of the original purchase falls.
The CDSC assessed on redemptions of fewer than all of an investor's class A shares (and, for Putnam Money Market Fund and Putnam Government Money Market Fund, class T shares) subject to a CDSC will be based on the amount of the redemption minus the amount of any appreciation on the investor's CDSC-subject shares since the purchase of such shares. The CDSC assessed on full redemptions of CDSC-subject shares will be based on the lower of the shares' cost and current NAV. Putnam Retail Management will retain any CDSC imposed on redemptions of such shares to compensate it for the up-front commissions paid to financial intermediaries for such share sales.
Purchases of class A shares for rollover IRAs. Purchases of class A shares for a Putnam Rollover IRA or a rollover IRA of a Putnam affiliate, from a retirement plan for which an affiliate of Putnam Management or a business partner of such affiliate is the administrator, including subsequent contributions, are not subject to an initial sales charge or CDSC. Putnam Retail Management 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 or other third party.
Commission payments and CDSCs for class B and class C shares . Except in the case of Putnam Money Market Fund, Putnam Government Money Market Fund and Putnam Short Duration Income Fund 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 Tax-Free High Yield Fund and Putnam AMT-Free Municipal Fund, each of which has a 0.25% pre-paid service fee). For Putnam Floating Rate Income Fund, Putnam Absolute Return 100 Fund, Putnam Absolute Return 300 Fund and Putnam Short-Term Municipal Income Fund, Putnam Retail Management will pay a 1.00% commission to financial intermediaries selling class B shares of the fund.
Except in the case of Putnam Money Market Fund, Putnam Government Money Market Fund and Putnam Short Duration Income Fund, Putnam Retail Management pays financial intermediaries a 1.00% commission on sales of class C 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.
Conversion of class B shares into class A shares. Class B shares will automatically convert to class A shares on or around the end of the month eight years after the purchase date (for Putnam Small Cap Value Fund, on or
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around the end of the month six years after the purchase date, and for Putnam Multi-Cap Value Fund, on or around the end of the month five years after the purchase date). Class B shares acquired by exchanging class B shares of another Putnam fund will convert to class A shares based on the time of the initial purchase. The conversion period of the acquired fund will apply, unless the initial fund’s CDSC schedule is higher than that of the acquired fund. In that case, the conversion period and CDSC schedule of the initial fund will apply. Class B shares acquired through reinvestment of distributions will convert to 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. Shareholders should consult with their tax advisers regarding the state and local tax consequences of the conversion of class B shares to class A shares, or any other exchange or conversion of shares. Average annual total return performance information for class B shares shown in the fund's prospectus assumes conversion to class A shares after the applicable period described in the fund’s prospectus.
Sales without sales charges or contingent deferred sales charges
The fund may sell shares without a sales charge or CDSC to the following categories of investors:
(i) current and former Trustees of the fund, their family members, business and personal associates; current and former employees of Putnam Management and certain current and former corporate affiliates, their family members, business and personal associates; employer-sponsored retirement plans for the foregoing; and partnerships, trusts or other entities in which any of the foregoing has a substantial interest;
(ii) clients of administrators or other service providers of employer-sponsored retirement plans which have entered into agreements with Putnam Retail Management or Putnam Investor Services, Inc. or an affiliate (for purposes of this waiver, employer-sponsored retirement plans do not include SEP IRAs, SIMPLE IRAs or SARSEPs) (not applicable to tax-exempt funds);
(iii) 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 immediate family members (spouses and children under age 21, including step-children and adopted children);
(iv) 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;
(v) clients of (i) broker-dealers, financial institutions, financial intermediaries or registered investment advisors that are approved by Putnam Retail Management and charge a fee for advisory or investment services or (ii) broker-dealers, financial institutions, or financial intermediaries that have entered into an agreement with Putnam Retail Management to offer shares through a fund “supermarket” or retail self directed brokerage account with or without the imposition of a transaction fee; and
(vi) college savings plans that qualify for tax-exempt treatment under Section 529 of the Internal Revenue Code of 1986, as amended (the “Code”).
(vii) Shareholders reinvesting the proceeds from a Putnam Corporate IRA Plan distribution into a non-retirement plan account.
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In the case of paragraph (i) and (vii) above, the availability of shares at NAV has been determined to be appropriate because involvement by Putnam Retail Management and other brokers in purchases by these investors is typically minimal.
In addition to the categories enumerated above, in connection with settlements reached between certain firms and the Financial Industry Regulatory Authority (“FINRA”) and/or Securities and Exchange Commission (the “SEC”) regarding sales of class B and class C shares in excess of certain dollar thresholds, the fund will permit shareholders who are clients of these firms (and applicable affiliates of such firms) to redeem class B and class C shares of the fund and concurrently purchase class A shares (in an amount to be determined by the dealer of record and Putnam Retail Management in accordance with the terms of the applicable settlement) without paying a sales charge.
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.
Application of CDSC to Systematic Withdrawal Plans (“SWP”). Investors who set up a SWP for a share account (see "INVESTOR SERVICES — 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.
Other exceptions to application of CDSC. 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 or Putnam Short Duration Income 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
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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.
Ways to Reduce Initial Sales Charges — Class A and Class M Shares
There are several ways in 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 provisions may be altered or discontinued at any time.
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. The applicable sales charge is based on the total of:
(i) the investor's current purchase(s); and
(ii) the higher of (x) the maximum public offering price (at the close of business on the previous day) or (y) the initial value of total purchases (less the value of shares redeemed on the applicable redemption date) 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 and Putnam Short Duration Income Fund, unless acquired as described in (b) below); and
(b) any shares of money market funds or Putnam Short Duration Income Fund acquired by exchange from other Putnam funds.
For shares held on December 31, 2007, the initial value will be the value of those shares at the maximum public offering price on that date.
The following persons may qualify for a right of accumulation discount:
(i) an individual, or a "company" as defined in Section 2(a)(8) of the Investment Company Act of 1940, as amended (the “1940 Act”) (which includes corporations which are corporate affiliates of each other);
(ii) an individual, his or her spouse and their children under age 21, 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 Code and Simplified Employer Pension Plans (SEPs) created pursuant to Section 408(k) of the Code);
(iv) tax-exempt organizations qualifying under Section 501(c)(3) of the Code, (not including tax-exempt organizations qualifying under Section 403(b)(7) (a "403(b) plan") of the Code; and
(v) employer-sponsored retirement plans of a single employer or of affiliated employers, other than 403(b) plans.
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A combined purchase currently may also include shares of any class of other continuously offered Putnam funds (other than money market funds and Putnam Short Duration Income Fund) purchased at the same time, if the dealer places the order for such shares directly with Putnam Retail Management.
For individual investors, Putnam Investor Services automatically links accounts the registrations of which are under the same last name and address. 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 Code (“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.
Shares owned by a plan participant as part of an employer-sponsored retirement 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 Code) are not eligible for linking to other accounts attributable to such person to qualify for the right of accumulation discount, although all current purchases made by each such plan may be combined with existing aggregate balances of such plan in Putnam funds 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 for right of accumulation purposes 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 (also referred to as a Letter 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 Putnam money market funds and Putnam Short Duration Income Fund), including through an account established as part of a Section 529 college savings plan managed by Putnam Management. Each purchase of class A shares or class M shares under a Statement of Intention will be made at the lesser of (i) the public offering price applicable at the time of such purchase and (ii) the public offering price applicable on the date the Statement of Intention is executed to a single transaction of the total dollar amount indicated in the Statement of Intention.
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, or which are eligible to be linked for purposes of the right of accumulation described above, 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 and Putnam Short Duration Income Fund acquired by exchange of such eligible shares).
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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.
If 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 by Putnam Retail Management 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 to Putnam Retail Management any excess commissions previously received.
If 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. 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 employer-sponsored retirement 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.
Commissions on Sales to Employee Retirement Plans
Purchases of class A and class R shares. On sales of class A shares at net asset value to certain employer-sponsored retirement plans and health reimbursement accounts and sales of class R shares, Putnam Retail Management may, at its discretion, pay commissions to the dealer of record 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.
For commission payments made by Putnam Retail Management to dealers and other financial intermediaries with respect to other classes of shares offered to employer-sponsored retirement plans and other tax-favored plan investors, see the corresponding sub-heading under “—Sales Charges and Other Share Class Features—Retail Investors.”
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DISTRIBUTION PLANS
If the fund or a class of shares of the fund has adopted a distribution (12b-1) 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.
The fund makes payments under each plan to Putnam Retail Management to compensate Putnam Retail Management for services provided and expenses incurred by it for purposes of promoting the sale of the relevant class of shares, reducing redemptions of shares or maintaining or improving services provided to shareholders by Putnam Retail Management and investment dealers.
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 FINRA. Unless noted below or where Putnam Retail Management and the applicable dealer have agreed otherwise, these payments commence in the first year after purchase.
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 up to 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, in the case of dealers of record for an employer-sponsored retirement plan investing at least $1 million, where such dealer has agreed to a reduced sales commission.
B-11 |
Rate* | Fund |
| |
0.25% | All funds currently making payments under a class A |
distribution plan, except for those listed below | |
| |
0.20% for shares purchased before 3/21/05; | Putnam Tax-Free High Yield Fund |
0.25% for shares purchased on or after 3/21/05** | |
| |
0.20% for shares purchased before 4/1/05; | Putnam AMT-Free Municipal Fund |
0.25% for shares purchased on or after 4/1/05 | |
| |
0.20% for shares purchased on or before 12/31/89; | Putnam Convertible Securities Fund |
0.25% for shares purchased after 12/31/89 | George Putnam Balanced Fund |
Putnam Global Equity Fund | |
Putnam Global Natural Resources Fund | |
Putnam Global Health Care Fund | |
The Putnam Fund for Growth and Income | |
Putnam Investors 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; | |
| |
0.10% | Putnam Short Duration Income Fund |
| |
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 but before | Putnam Minnesota Tax Exempt Income Fund |
4/1/05; | Putnam Ohio Tax Exempt Income Fund |
0.25% for shares purchased on or after 4/1/05 | |
| |
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 but before | |
4/1/05; | |
0.25% for shares purchased on or after 4/1/05 | |
| |
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 but | Putnam New Jersey Tax Exempt Income Fund |
before 4/1/05; | Putnam New York Tax Exempt Income Fund |
0.25% for shares purchased on or after 4/1/05 | 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 but before | |
4/1/05; | |
0.25% for shares purchased on or after 4/1/05 | |
| |
0.15% for shares purchased on or before 7/8/93; | Putnam Pennsylvania Tax Exempt Income Fund |
0.20% for shares purchased after 7/8/93 but before | |
4/1/05; | |
|
B-12 |
Rate* | Fund |
| |
0.25% for shares purchased on or after 4/1/05 | |
| |
0.00% | |
Putnam | |
Putnam Money Market Fund | |
|
*For purposes of this table, shares are deemed to be purchased on date of settlement (i.e. , once purchased and paid for). Shares issued in connection with dividend reinvestments are considered to be purchased on the date of their issuance, not the issuance of the original shares.
**Shares of Putnam Tax-Free High Yield Fund issued in connection with the merger of Putnam Municipal Income Fund into that fund pay a commission at the annual rate of 0.20% or 0.25%, based on the date of the original purchase of the shareholder’s corresponding shares of Putnam Municipal Income Fund, as set forth below: 0.20% for shares purchased on or before 5/7/92; 0.25% for shares purchased after 5/7/92.
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 year's service fees of | Putnam AMT-Free Municipal Fund |
0.25% are prepaid at time of sale | Putnam Tax-Free High Yield Fund |
| |
0.20%, except that the first year’s service fees of | Putnam Arizona Tax Exempt Income Fund |
0.20% are prepaid at time of sale | Putnam California 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 Ohio Tax Exempt Income Fund | |
Putnam Pennsylvania Tax Exempt Income Fund | |
Putnam Tax Exempt Income Fund | |
| |
0.00% | Putnam Government Money Market Fund |
Putnam Money Market Fund | |
Putnam Short Duration Income 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 shares
B-13 |
were initially purchased without a CDSC, except that payments for Putnam Money Market Fund and Putnam Short Duration Income Fund will be made beginning in the first year.
Rate | Fund |
| |
1.00% | All funds currently making payments under a class C |
distribution plan, except for those listed below | |
| |
0.50% | Putnam Government Money Market Fund |
Putnam Money Market Fund | |
Putnam Short Duration Income 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.
Rate | Fund |
| |
0.65% | All Growth, Blend, Value, Global Sector and Asset |
Allocation Funds (excluding funds in the Retirement | |
Income Lifestyle suite) currently making payments | |
under a class M distribution plan, and Putnam | |
Absolute Return 500 Fund and Putnam Absolute | |
Return 700 Fund. | |
| |
0.40% | All Income funds currently making payments under a |
class M distribution plan (except for Putnam Floating | |
Rate Income Fund, Putnam Money Market Fund, | |
Putnam Short-Term Municipal Income Fund and | |
Putnam Short Duration Income Fund) and funds in | |
the Retirement Income Lifestyle suite. | |
| |
0.30% | Putnam Absolute Return 100 Fund, Putnam Absolute |
Return 300 Fund, Putnam Short-Term Municipal | |
Income Fund and Putnam Floating Rate Income Fund | |
| |
0.15% | Putnam Government Money Market Fund |
Putnam Money Market Fund | |
Putnam Short Duration Income Fund | |
|
B-14 |
Putnam Retail Management’s payments to dealers for plans investing in class M shares for which such dealers are designated the dealer of record may equal up to the annual rate of 0.75% of the average net asset value of such class M shares for Putnam Absolute Return 500 Fund and Putnam Absolute Return 700 Fund as well as all Growth, Blend, Value, Global Sector and Asset Allocation Funds currently making payments under a class M distribution plan and up to the annual rate of 0.50% of the average net asset value of such class M shares for all Income funds currently making payments under a class M distribution plan (except for Putnam Floating Rate Income Fund, Putnam Short-Term Municipal Income Fund, Putnam Money Market Fund, Putnam Government Money Market Fund and Putnam Short Duration Income Fund).
Different rates may apply to shares sold outside the United States.
Class R shares:
Putnam Retail Management makes quarterly (or in certain cases monthly) payments to dealers at up to 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). No payments are made to dealers during the first year after purchase unless Putnam Retail Management did not pay a commission to the dealer at purchase.
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 Government Money Market Fund |
Putnam Money Market Fund | |
|
Additional Dealer Payments
As described earlier in this section, dealers may receive different commissions, sales charge reallowances and other payments with respect to sales of different classes of shares of the funds. These payments may include servicing payments to retirement plan administrators and other institutions up to the same levels as described above. For purposes of this section the term “dealer” includes any broker, dealer, bank, bank trust department, registered investment advisor, financial planner, retirement plan administrator and any other institution having a selling, services, or any similar agreement with Putnam Retail Management or one of its affiliates.
Putnam Retail Management and its affiliates pay additional compensation to selected dealers under the categories described below. These categories are not mutually exclusive, and a single dealer may receive payments under all categories. These payments may create an incentive for a dealer firm or its representatives
B-15 |
to recommend or offer shares of the fund or other Putnam funds to its customers. These additional payments are made pursuant to agreements with dealers and do not change the price paid by investors for the purchase of a share or the amount a fund will receive as proceeds from such sales or the distribution (12b-1) fees and the expenses paid by the fund as shown under the heading “Fees and Expenses” in the prospectus.
Marketing Support Payments. Putnam Retail Management and its affiliates make payments to certain dealers for marketing support services. These payments are individually negotiated with each dealer firm, taking into account the marketing support services provided by the dealer, including business planning assistance, educating dealer personnel about the Putnam funds and shareholder financial planning needs, placement on the dealer’s preferred or recommended fund company list, and access to sales meetings, sales representatives and management representatives of the dealer, as well as the size of the dealer’s relationship with Putnam Retail Management. Putnam Retail Management and its affiliates compensate dealers differently depending upon, among other factors, the level and/or type of marketing support provided by the dealer. Payments are generally based on one or more of the following factors: average net assets of Putnam’s retail mutual funds attributable to that dealer, gross or net sales of Putnam’s retail mutual funds attributable to that dealer, reimbursement of ticket charges (fees that a dealer firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment for services rendered. In addition, payments typically apply to retail sales and assets, but may not, in certain situations, apply to other specific types of sales or assets, such as to retirement plans or fee-based advisory programs.
Although the total of marketing support payments made to dealers in any year may vary, on average, the aggregate payments are not expected, on an annual basis, to exceed 0.085% of the average assets of Putnam’s retail mutual funds attributable to the dealers.
The following dealers (and such dealers’ respective affiliates) received marketing support payments from Putnam Retail Management and its affiliates during the calendar year ended December 31, 2015:
American Portfolios Financial Services, Inc. | MMC Securities Corp. |
| |
Ameriprise Financial Services, Inc. | MetLife Securities, Inc. |
| |
AXA Advisors, LLC | Morgan Stanley Smith Barney LLC |
| |
BancWest Investment Services, Inc. | National Planning Corporation |
| |
Cadaret, Grant & Co. Inc. | M&T Securities, Inc. |
| |
CCO Investment Services Corp. | Merrill Lynch, Pierce, Fenner & Smith, Inc. |
| |
Cambridge Investment Research, Inc. | NFP Securities, Inc. |
| |
Cetera Advisors, LLC | Northwestern Mutual Investment Services, LLC |
| |
Cetera Advisor Networks, LLC | Oppenheimer & Co. Inc. |
| |
Cetera Financial Specialists, LLC | PNC Investments LLC |
| |
Cetera Investment Services, LLC | Raymond James & Associates, Inc. |
| |
Commonwealth Equity Services | Raymond James Financial Services, Inc. |
| |
CUNA Brokerage Services, Inc. | RBC Capital Markets, LLC |
| |
CUSO Financial Services, L.P. | Royal Alliance Associates |
| |
First Allied Securities, Inc. | Sagepoint Financial, Inc. |
| |
FSC Securities Corporation | Santander Securities LLC |
| |
Girard Securities, Inc. | Securities America, Inc. |
| |
HD Vest Investment Securities, Inc. | SII Investments |
| |
Independent Financial Group, LLC | Stifel, Nicolaus & Company, Incorporated |
| |
Investacorp, Inc. | Summit Brokerage Services, Inc. |
| |
INVEST Financial Corporation | SunTrust Bank, Inc. |
|
B-16 |
Investment Centers of America, Inc. | SunTrust Investment Services, Inc. |
| |
Investors Capital Corp. | TD Ameritrade, Inc. |
| |
Janney Montgomery Scott LLC | TD Ameritrade Clearing, Inc. |
| |
J.P. Morgan Securities, LLC | Triad Advisors, Inc. |
| |
J.P. Turner & Company, LLC | U.S. Bancorp Investments, Inc. |
| |
Legend Equities Corporation | UBS Financial Services Inc. |
| |
Lincoln Financial Advisors Corp. | Voya Financial Advisors, Inc. |
| |
Lincoln Financial Securities Corporation | VSR Financial Services, Inc. |
| |
Lincoln Investment Planning, Inc. | Wells Fargo Advisors, LLC |
| |
LPL Financial LLC | Woodbury Financial Services, Inc. |
|
Additional dealers may receive marketing support payments in 2016 and in future years. Any additions, modifications or deletions to the list of dealers identified above that have occurred since December 31, 2015 are not reflected. You can ask your dealer about any payments it receives from Putnam Retail Management and its affiliates.
Program Servicing Payments. Putnam Retail Management and its affiliates also make payments to certain dealers that sell Putnam fund shares through dealer platforms and other investment programs to compensate dealers for a variety of services they provide. A dealer may perform program services itself or may arrange with a third party to perform program services. In addition to shareholder recordkeeping, reporting, or transaction processing, program services may include services rendered in connection with dealer platform development and maintenance, fund/investment selection and monitoring, or other similar services. Payments by Putnam Retail Management and its affiliates for program servicing support to any one dealer are not expected, with certain limited exceptions, to exceed 0.20% of the total assets in the program on an annual basis. In addition, Putnam Retail Management and its affiliates make one-time or annual payments to selected dealers receiving program servicing payments in reimbursement of printing costs for literature for shareholders, account maintenance fees or fees for establishment of Putnam funds on the dealer’s system. The amounts of these payments may, but will not normally (except in cases where the aggregate assets in the program are small), cause the aggregate amount of the program servicing payments to such dealer on an annual basis to exceed the amounts set forth above.
The following dealers (and such dealers’ respective affiliates) received program servicing payments from Putnam Retail Management and its affiliates during the calendar year ended December 31, 2015:
Charles Schwab & Co., Inc. | Pershing LLC |
| |
Merrill Lynch, Pierce, Fenner & Smith, Inc. | RBC Capital Markets, LLC |
| |
Morgan Stanley Smith Barney LLC | Transamerica Advisors Life Insurance Company |
| |
National Financial Services LLC | Trust Company of America |
|
As noted above, this list of program servicing recipients above is for the year ended December 31, 2015. During 2015, Putnam changed its reporting approach for certain firms that provide administrative services, which results in fewer firms being listed for 2015 than in past years. Additional or different dealers may also receive program servicing payments in 2016 and in future years. Any additions, modifications or deletions to the list of dealers identified above that have occurred since December 31, 2015 are not reflected. You can ask your dealer about any payments it receives from Putnam Retail Management and its affiliates.
Other Payments. From time to time, Putnam Retail Management, at its expense, may provide additional compensation to dealers which sell or arrange for the sale of shares of the fund to the extent not prohibited by laws or the rules of any self-regulatory agency, such as FINRA. Such compensation provided by Putnam Retail Management may include financial assistance to dealers that enables Putnam Retail Management to participate
B-17 |
in and/or present at dealer-sponsored conferences or seminars, sales or training programs for invited registered representatives and other dealer employees, dealer entertainment, and other dealer-sponsored events, and travel expenses, including lodging incurred by registered representatives and other employees in connection with prospecting, retention and due diligence trips. Putnam Retail Management makes payments for entertainment events it deems appropriate, subject to Putnam Retail Management’s internal guidelines and applicable law. These payments may vary upon the nature of the event.
Sub-accounting payments. Certain dealers or other financial intermediaries also receive payments from Putnam Investor Services or its affiliates in recognition of sub-accounting or other services they provide to shareholders or plan participants who invest in the fund or other Putnam funds through their retirement plan. The amount paid for these services varies depending on the share class selected and by dealer or other financial intermediary, and may also take into account the extent to which the services provided by the dealer replace services that Putnam Investor Services or its affiliates would otherwise have to provide. There are no such payments in respect of class R6 shares, and payments in respect of class R5 shares are generally made at an annual rate of up to 0.10% of a fund’s average net assets attributable to class R5 shares held by a dealer or other financial intermediary, except that an annual rate of up to 0.07% of a fund’s average net assets attributable to class R5 shares held by a dealer or other financial intermediary applies to Putnam American Government Income Fund, Putnam Dynamic Asset Allocation Conservative Fund, Putnam Global Income Trust, Putnam Income Fund and Putnam Short Duration Income Fund. Payments for other classes vary. See the discussion under the heading “MANAGEMENT – Investor Servicing Agent” for more details.
You can ask your dealer for information about payments it receives from Putnam Retail Management or its affiliates and the services it provides for those payments.
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS
As noted in the prospectus, in addition to the main 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 or limited by the investment restrictions discussed in the fund’s prospectus or in this SAI, or by applicable law, the fund may engage in each of the practices described below without limit. This section contains information on the investments and investment practices listed below. With respect to funds for which Putnam Investments Limited (“PIL”) and/or The Putnam Advisory Company, LLC (“PAC”) serves as sub-investment manager (as described in the fund’s prospectus), references to Putnam Management in this section include PIL and/or PAC, as appropriate.
Temporary Defensive Strategies | Money Market Instruments |
| |
Bank Loans | Mortgage-backed and Asset-backed Securities |
| |
Borrowing and Other Forms of Leverage | Options on Securities |
| |
Derivatives | Preferred Stocks and Convertible Securities |
| |
Exchange-Traded Notes | Private Placements and Restricted Securities |
| |
Floating Rate and Variable Rate Demand Notes | Real Estate Investment Trusts (REITs) |
| |
Foreign Currency Transactions | Redeemable Securities |
| |
Foreign Investments and Related Risks | Repurchase Agreements |
| |
Forward Commitments and Dollar Rolls | Securities Loans |
| |
Futures Contracts and Related Options | Securities of Other Investment Companies |
| |
Hybrid Instruments | Short Sales |
| |
Inflation-Protected Securities | Short-Term Trading |
| |
Initial Public Offerings (IPOs) | Special Purpose Acquisition Companies |
| |
Interfund Borrowing and Lending | Structured Investments |
|
B-18 |
Inverse Floaters | Swap Agreements |
| |
Investment Ratings | Tax-exempt Securities |
| |
Legal and Regulatory Risk Relating to Investment Strategy | Warrants |
| |
Lower-rated Securities | Zero-coupon and Payment-in-kind Bonds |
|
Temporary Defensive Strategies
In response to adverse market, economic, political or other conditions, Putnam Management may take temporary defensive positions that differ from the fund’s usual investment strategies. In implementing these temporary defensive strategies, the fund may invest primarily in, among other things, debt securities, preferred stocks, U.S. government and agency obligations, cash or money market instruments (including, to the extent permitted by law or applicable exemptive relief, money market funds), or any other securities Putnam Management considers consistent with such defensive strategies. While temporary defensive strategies are mainly designed to limit losses, such strategies may not work as intended.
Bank Loans
The fund may invest in bank loans. By purchasing a loan, the fund acquires some or all of the interest of a bank or other lending institution in a loan to a particular borrower. The fund may act as part of a lending syndicate, and in such cases would be purchasing a “participation” in the loan. The fund may also purchase loans by assignment from another lender. Many loans are secured by the assets of the borrower, 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 (and, in some cases, the lending institution from which it purchases the loan). The value of collateral, if any, securing a loan can decline, or may be insufficient to meet the borrower’s obligations or difficult to liquidate. In addition, the fund’s access to collateral may be limited by bankruptcy or other insolvency laws. The failure by the fund to receive scheduled interest or principal payments on a loan 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 loans 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 generally not have access to non-public information to which other investors in syndicated loans may have access. Because loans 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 will depend almost exclusively on Putnam Management's, and the original lending institution's, credit analysis of the borrower. Investments in loans may be of any quality, including “distressed” loans, and will be subject to the fund’s credit quality policy. The loans in which the fund may invest include those that pay fixed rates of interest and those that pay floating rates – i.e. , rates that adjust periodically based on a known lending rate, such as a bank’s prime rate.
B-19 |
Loans 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 interest 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 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 an 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.
Corporate loans in which the fund may invest are generally made to finance internal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs and other corporate activities. A significant portion of the corporate loans purchased by the fund may represent interests in loans made to finance highly leveraged corporate acquisitions, known as "leveraged buy-out" transactions, leveraged recapitalization loans and other types of acquisition financing. 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, loans 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 loans 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. The fund may hold investments in loans for a very short period of time when opportunities to resell the investments that Putnam Management believes are attractive arise.
Certain of the loans 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 set aside on its books 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 (i. e ., non-U.S.) currencies. The fund's investment in such participations would involve the risks of currency fluctuations described in this SAI with respect to investments in the foreign securities.
With respect to its management of investments in bank loans, Putnam Management will normally seek to avoid receiving material, non-public information (“Confidential Information”) about the issuers of bank loans being considered for acquisition by the fund or held in the fund’s portfolio. In many instances, borrowers may offer to furnish Confidential Information to prospective investors, and to holders, of the issuer’s loans. Putnam Management’s decision not to receive Confidential Information may place Putnam Management at a
B-20 |
disadvantage relative to other investors in 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 loans are asked to grant amendments, waivers or consent, Putnam Management’s ability to assess their significance or desirability may be adversely affected. For these and other reasons, it is possible that Putnam Management’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 loans, Putnam Management 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 Management’s efforts to avoid such possession, but in other instances Putnam Management 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 Management'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 Management'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 Management or an affiliate may hold other securities issued by borrowers whose loans may be held in the fund’s portfolio. These other securities may include, for example, debt securities that are subordinate to the 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 loans. In such cases, Putnam Management may owe conflicting fiduciary duties to the fund and other client accounts. Putnam Management 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 Management's client accounts collectively held only a single category of the issuer’s securities.
Borrowing and Other Forms of Leverage
The fund may borrow money to the extent permitted by its investment policies and restrictions and applicable law. When the fund borrows money or otherwise leverages its portfolio, the value of an investment in the fund will be more volatile and other investment risks will tend to be compounded. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of the fund’s holdings. In addition to borrowing money from banks, the fund may engage in certain other investment transactions that may be viewed as forms of financial leverage – for example, using dollar rolls, investing collateral from loans of portfolio securities, entering into when-issued, delayed-delivery or forward commitment transactions or using derivatives such as swaps, futures, forwards, and options. Because the fund either (1) sets aside cash (or other assets determined to be liquid by Putnam Management in accordance with procedures established by the Trustees) on its books in respect of such transactions during the period in which the transactions are open or (2) otherwise “covers” its obligations under the transactions, such as by holding offsetting investments , the fund does not consider these transactions to be borrowings for purposes of its investment restrictions or “senior securities” for purposes of the 1940 Act. In some cases (e . g., with respect to futures and forwards that are contractually required to “cash-settle”), the fund is permitted under relevant guidance from the Securities and Exchange Commission (the “SEC”) or SEC staff to set aside assets with respect to an investment transaction in the amount of its net (marked-to-market) obligations thereunder, rather than the full notional amount of the transaction. By setting aside assets equal only to its net obligations, the fund will have the ability to employ leverage to a greater extent than if it set aside
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assets equal to the notional amount of the transaction, which may increase the risk associated with such investments.
Each Putnam fund (other than Putnam RetirementReady® Funds, Putnam Retirement Income Fund Lifestyle 1, Putnam Global Sector Fund, Putnam Money Market Liquidity Fund and Putnam Short-Term Investment Fund) participates in a syndicated committed line of credit provided by State Street Bank and Trust Company and Northern Trust Company and an uncommitted line of credit provided by State Street Bank and Trust Company. These lines of credit are intended to provide a temporary source of cash in extraordinary or emergency circumstances, such as unexpected shareholder redemption requests. The fund may pay a commitment or other fee to maintain a line of credit, in addition to the stated interest rate. A participating fund in the syndicated committed line of credit that invests more than 10% of its assets in other pooled investment vehicles (other than money market funds) (a “fund-of-funds”) will be required to maintain a 400% asset coverage ratio.
Derivatives
Certain of the instruments in which the fund may invest, such as futures contracts, options, hybrid instruments, forward contracts, swap agreements and structured investments, are considered to be "derivatives." Derivatives are financial instruments whose value depends upon, or is derived from, the value or other attributes 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 and in this SAI. The fund’s use of derivatives may cause the fund to recognize higher amounts of short-term capital gains, which are generally taxed to individual shareholders at ordinary income tax rates, and higher amounts of ordinary income, and more generally may affect the timing, character and amount of a fund’s distributions to shareholders. The fund’s use of commodity-linked derivatives can bear on or be limited by the fund’s intention to qualify as a “regulated investment company” under the Internal Revenue Code of 1986, as amended (the “Code), as discussed in “Taxes” below. 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. The fund’s use of certain derivatives may in some cases involve forms of financial leverage, which involves risk and may increase the volatility of the fund’s net asset value. See “—Borrowing and Other Forms of Leverage.” In its use of derivatives, the fund may take both long positions (the values of which move in the same direction as the prices of the underlying investments, pools of investments, indexes or currencies), and short positions (the values of which move in the opposite direction from the prices of the underlying investments, pools of investments indexes or currencies).
Short positions may involve greater risks than long positions, as the risk of loss may be theoretically unlimited (unlike a long position, in which the risk of loss may be limited to the amount invested). The fund may use derivatives that combine “long” and “short” positions in order to capture the difference between underlying investments, pools of investments, indices or currencies.
Exchange-Traded Notes
The fund may invest in exchange traded notes (“ETNs”). ETNs are typically senior, unsecured, unsubordinated debt securities whose returns are linked to the performance of a particular market index less applicable fees and expenses. ETNs are listed on an exchange and traded in the secondary market. The fund may hold the ETN until maturity, at which time the issuer is obligated to pay a return linked to the performance of the relevant market index. ETNs do not make periodic interest payments and principal is not protected.
The market value of an ETN may be influenced by, among other things, time to maturity, level of supply and demand of the ETN, volatility and lack of liquidity in the underlying assets, changes in the applicable interest rates, the current performance of the market index to which the ETN is linked, and the credit rating of the ETN issuer. The market value of an ETN may differ from the performance of the applicable market index and there
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may be times when an ETN trades at a premium or discount. This difference in price may be due to the fact that the supply and demand in the market for ETNs at any point in time is not always identical to the supply and demand in the market for the securities underlying the market index that the ETN seeks to track. A change in the issuer’s credit rating may also impact the value of an ETN despite the underlying market index remaining unchanged. ETNs are also subject to tax risk. No assurance can be given that the Internal Revenue Service (the “IRS”) will accept, or a court will uphold, how the fund characterizes and treats ETNs for tax purposes.
An ETN that is tied to a specific market index may not be able to replicate and maintain exactly the composition and relative weighting of securities, commodities or other components in the applicable market index. ETNs also incur certain expenses not incurred by their applicable market index, and the fund would bear a proportionate share of any fees and expenses borne by the ETN in which it invests.
The fund’s decision to sell its ETN holdings may be limited by the availability of a secondary market. In addition, although an ETN may be listed on an exchange, the issuer may not be required to maintain the listing and there can be no assurance that a secondary market will exist for an ETN. Some ETNs that use leverage in an effort to amplify the returns of an underlying market index can, at times, be relatively illiquid and may therefore be difficult to purchase or sell at a fair price. Leveraged ETNs may offer the potential for greater return, but the potential for loss and speed at which losses can be realized also are greater. The extent of the fund’s investment in commodity-linked ETNs, if any, is limited by tax considerations. For more information regarding the tax treatment of commodity-linked ETNs, please see “Taxes” below.
ETNs are generally similar to structured investments and hybrid instruments. For discussion of these investments and the risks generally associated with them, see “Hybrid Instruments” and “Structured Investments” in this SAI.
Floating Rate and Variable Rate Demand Notes
The fund may purchase taxable or tax-exempt floating rate and variable rate demand notes for short-term cash management or other investment purposes. 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.
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 engage in these transactions for the purpose of increasing its return. Foreign currency transactions involve costs, and, if unsuccessful, may reduce the fund’s 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
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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 also 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 securities the fund intends to buy are denominated or quoted).
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 or for other hedging or non-hedging purposes. If conditions warrant, for hedging or non-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. 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.
A foreign currency futures contract is a standardized exchange-traded 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 Commodity Futures Trading Commission (the "CFTC"), such as the New York Mercantile Exchange, and have margin requirements.
A foreign currency forward contract is a negotiated agreement to exchange currency at a future time, 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. The contract price may be higher or lower than the current spot rate. 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. 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. In addition, forward contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers, so that no intermediary is required. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades.
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 may be effected only on a commodities exchange or board of trade which provides a secondary market in such contracts; a clearing corporation associated with the exchange assumes responsibility for closing out 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.
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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.
As noted above, the fund may purchase or sell 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.
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 may be affected by all of those factors which influence foreign exchange rates and investments generally.
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.
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 involve costs to the fund and tend to limit any potential gain which might result from the increase in value of such currency.
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 this situation, 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 set aside liquid assets on its books to cover forward contracts used for non-hedging purposes.
In addition, 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
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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 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. 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. 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.
Foreign Investments and Related Risks
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. In addition, the fund is required to compute and distribute its income in U.S. dollars. Therefore, if the exchange rate for a foreign currency declines after a fund's income has been earned and translated into U.S. dollars (but before payment), the fund could be required to liquidate portfolio securities to make such distributions. Similarly, if an exchange rate declines between the time a fund incurs expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars in order to pay such expenses in U.S. dollars will be greater than the equivalent amount in any such currency of such expenses at the time they were incurred.
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. In addition, there may be less (or less effective) regulation of exchanges, brokers
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and listed companies in some foreign countries. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions, custodial expenses and other fees are also generally higher than in the United States.
Foreign settlement procedures and trade regulations may be more complex and 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. For example, settlement of transactions involving foreign securities or foreign currencies (see below) may occur within a foreign country, and the fund may accept or make delivery of the underlying securities or currency in conformity with any applicable U.S. or foreign restrictions or regulations, and may pay 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.
In addition, foreign securities may be subject to the risk of nationalization or expropriation of assets, imposition of sanctions (whether imposed by the local sovereign or by the United States government), currency exchange controls, foreign withholding taxes or restrictions on the repatriation of foreign currency, confiscatory taxation, political, social 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.
Note on MSCI indices. MSCI, Inc. (MSCI) publishes two versions of its indices reflecting the reinvestment of dividends using two different methodologies: gross dividends and net dividends. While both versions reflect reinvested dividends, they differ with respect to the manner in which taxes associated with dividend payments are treated. In calculating the net dividends version, MSCI incorporates reinvested dividends applying the withholding tax rate applicable to foreign non-resident institutional investors that do not benefit from double taxation treaties. Putnam Management believes that the net dividends version of MSCI indices better reflects the returns U.S. investors might expect were they to invest directly in the component securities of an MSCI index.
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. These restrictions may take the form of prior governmental approval requirements, limits on the amount or type of securities held by foreigners and limits on the types of companies in which foreigners may invest (e.g., limits on investment in certain industries). Some countries also limit the investment of foreign persons to only a specific class of securities of an issuer that may have less advantageous terms or rights or preferences than securities of the issuer available for purchase by domestic parties, or may directly limit foreign investors’ rights (such as voting rights). Although securities subject to such restrictions may be marketable abroad, they may be less liquid than foreign securities of the same class that are not subject to such restrictions. Foreign laws may also impact the availability of derivatives or hedging techniques relating to a foreign country’s government securities. In each of these situations, the funds’ ability to invest significantly in desired issuers, or the terms of such investments, could be negatively impacted as a result of the relevant legal restriction. Sanctions imposed by the United States government on other countries or persons or issuers operating in such countries could restrict the fund’s ability to buy affected securities or to sell any affected securities it has previously purchased, which may subject the fund to greater risk of loss in those securities.
For purposes of some foreign holding limits or disclosure thresholds, all positions owned or controlled by the same person or entity, even if in different accounts, may be aggregated for purposes of determining whether the applicable limits or thresholds have been exceeded. Thus, even if the fund does not intend to exceed
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applicable limits, it is possible that different clients managed by Putnam Management and its affiliates (including separate affiliates owned by Power Corporation of Canada outside the Putnam Investments group) may be aggregated for this purpose. These limits may adversely affect the fund’s ability to invest in the applicable security.
The risks described above, including the risks of nationalization or expropriation of assets, typically are increased in connection with investments in developing countries, also known as "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 or prospects of an investment in such securities.
American Depositary Receipts (“ADRs”) as well as other “hybrid” forms of ADRs, including European Depositary Receipts (“EDRs”) and Global Depositary Receipts (“GDRs”), are certificates evidencing ownership of shares of a foreign issuer. These certificates are issued by depository banks and generally trade on an established market in the United States or elsewhere. The underlying shares are held in trust by a custodian bank or similar financial institution in the issuer’s home country. The depository bank may not have physical custody of the underlying securities at all times and may charge fees for various services, including forwarding dividends and interest and corporate actions. ADRs are alternatives to directly purchasing the underlying foreign securities in their national markets and currencies. However, ADRs continue to be subject to many of the risks associated with investing in foreign 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.
Forward Commitments and Dollar Rolls
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 its books 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
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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, to sell securities it owns under delayed delivery arrangements, or to take a short position in mortgage-backed securities. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, either equivalent deliverable securities or an offsetting TBA purchase commitment deliverable on or before the sale commitment date are held as "cover" for the transaction, or other liquid assets in an amount equal to the notional value of the TBA sale commitment are segregated. Where the fund purchases or sells an option, which is to be settled in cash, to buy or sell a TBA sale commitment, the fund will segregate cash or liquid assets in an amount equal to the current “mark-to-market” value of the option. 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.
The fund may enter into dollar roll transactions (generally using TBAs) in which it sells a fixed income security for delivery in the current month and simultaneously contracts to purchase similar securities (for example, same type, coupon and maturity) at an agreed upon future time. By engaging in a dollar roll transaction, the fund foregoes principal and interest paid on the security that is sold, but receives the difference between the current sales price and the forward price for the future purchase. The fund would also be able to earn interest on the proceeds of the sale before they are reinvested. The fund accounts for dollar rolls as purchases and sales. Because cash (or other assets determined to be liquid by Putnam Management in accordance with procedures established by the Trustees) in the amount of the fund’s commitment under a dollar roll is set aside on the fund’s books, the fund does not consider these transactions to be borrowings for purposes of its investment restrictions.
The obligation to purchase securities on a specified future date involves the risk that the market value of the securities that the fund is obligated to purchase may decline below the purchase price. In addition, in the event the other party to the transaction files for bankruptcy, becomes insolvent or defaults on its obligation, the fund may be adversely affected.
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 CFTC, and must be executed through a futures commission merchant or brokerage firm which is a member of the relevant contract market.
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Examples of futures contracts that the fund may use (which may include single-security futures) include, without limitation, U.S. Treasury security futures, index futures, corporate or municipal bond futures, Government National Mortgage Association certificate futures, interest rate swap futures, and Eurodollar futures. In addition, as described elsewhere in this SAI, the fund may use foreign currency futures.
Although futures contracts (other than index futures and futures based on the volatility or variance experienced by an index) 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. Index futures and futures based on the volatility or variance experienced by an index do not call for actual delivery or acceptance of commodities or securities, but instead require cash settlement of the futures contract on the settlement date specified in the contract. Such contracts may also be closed out before the settlement date. 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.
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. Instead, upon entering into a contract, the fund is required to deliver to 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 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 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.
Putnam Management has claimed an exclusion from the definition of the term “commodity pool operator” under the CEA pursuant to Rule 4.5 under the CEA (the “exclusion”) promulgated by the CFTC with respect to each Putnam fund Accordingly, Putnam Management (with respect to the funds) is not subject to registration or regulation as a “commodity pool operator” under the CEA. To remain eligible for the exclusion, each fund will be limited in its ability to use certain financial instruments regulated under the CEA
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(“commodity interests”), including futures and options on futures and certain swaps transactions. In the event that a fund’s investments in commodity interests are not within the thresholds set forth in the exclusion, Putnam Management may be required to register as a “commodity pool operator” and/or “commodity trading advisor” with the CFTC with respect to that fund. Putnam Management’s eligibility to claim the exclusion with respect to a fund will be based upon, among other things, the level and scope of the fund’s investment in commodity interests, the purposes of such investments and the manner in which the fund holds out its use of commodity interests. A fund’s ability to invest in commodity interests (including, but not limited to, futures and swaps on broad-based securities indexes and interest rates) is limited by Putnam Management's intention to operate the fund in a manner that would permit Putnam Management to continue to claim the exclusion under Rule 4.5, which may adversely affect the fund’s total return. In the event the fund’s investments in commodity interests require Putnam Management to register with the CFTC as a commodity pool operator with respect to a fund, the fund’s expenses may increase, adversely affecting that fund’s total return.
Index futures. 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 U.S. common stocks. 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 currently to buy or sell 250 units. Thus, if the value of the S&P 500 were $150, one contract would be worth $37,500 (250 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 250 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 $1,000 (250 units x gain of $4). If the fund enters into a futures contract to sell 250 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 $500 (250 units x loss of $2).
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. 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 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 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 underlying asset 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.
The fund may use options on futures contracts in lieu of writing or buying options directly on the underlying securities or indices 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
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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, and involve the same risks, as options purchased or written directly on the underlying investments. In addition, 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. The writing of an option on a futures contract involves risks similar to those relating to the sale of futures contracts.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts generally 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.
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.
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 and market movements, and, in the case of index futures and futures based on the volatility or variance experienced by an index, Putnam Management’s ability to predict the future level of the index or the future volatility or variance experienced by an index. 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, which may differ from those that comprise the index, 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.
The use of options and futures strategies also involves the risk of imperfect correlation among movements in the prices of the securities or other assets 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. In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the futures used by the fund and the portion of the portfolio being hedged, the prices of futures may not correlate perfectly with movements in the underlying asset 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 expected relationship between the underlying asset 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 underlying asset and movements in the prices of related futures, even a correct forecast of general market trends by Putnam Management may still not result in a profitable position.
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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.
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”).
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 pays 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 the 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.
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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 the 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. In addition, uncertainty regarding the tax treatment of hybrid instruments may reduce demand for such instruments. Tax considerations may also limit the extent of the fund’s investments in certain hybrid instruments. 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.
Inflation-Protected Securities
The fund may invest in U.S. Treasury Inflation Protected Securities (“U.S. TIPS”), which are fixed income securities issued by the U.S. Department of Treasury, the principal amounts of which are adjusted daily based upon changes in the rate of inflation. The fund may also invest in other inflation-protected securities issued by non-U.S. governments or by private issuers. U.S. TIPS pay interest on a semi-annual basis, equal to a fixed percentage of the inflation-adjusted principal amount. The interest rate on these bonds is fixed at issuance, but over the life of the bond this interest may be paid on an increasing or decreasing principal value that has been adjusted for inflation.
Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed for U.S. TIPS, even during a period of deflation. However, because the principal amount of U.S. TIPS would be adjusted downward during a period of deflation, the fund will be subject to deflation risk with respect to its investments in these securities. In addition, the current market value of the bonds is not guaranteed, and will fluctuate. If the fund purchases U.S. TIPS in the secondary market whose principal values have been adjusted upward due to inflation since issuance, the fund may experience a loss if there is a subsequent period of deflation. The fund may also invest in other inflation-related bonds which may or may not provide a guarantee of principal. If a
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guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal amount.
The periodic adjustment of U.S. TIPS is currently tied to the CPI-U, which is calculated by the U.S. Department of Treasury. The CPI-U is a measurement of changes in the cost of living, made up of components such as housing, food, transportation and energy. Inflation-protected bonds issued by a non-U.S. government are generally adjusted to reflect a comparable inflation index, calculated by that government. There can no assurance that the CPI-U or any non-U.S. inflation index will accurately measure the real rate of inflation in the prices of goods and services. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not reflected in the bond's inflation measure. In addition, there can be no assurance that the rate of inflation in a non-U.S. country will be correlated to the rate of inflation in the United States.
In general, the value of inflation-protected bonds is expected to fluctuate in response to changes in real interest rates, which are in turn tied to the relationship between nominal interest rates and the rate of inflation. Therefore, if inflation were to rise at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of inflation-protected bonds. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of inflation-protected bonds. If inflation is lower than expected during the period the fund holds the security, the fund may earn less on the security than on a conventional bond. Any increase in principal value is taxable in the year the increase occurs, even though holders do not receive cash representing the increase at that time. As a result, when the fund invests in inflation-protected securities, it could be required at times to liquidate other investments, including when it is not advantageous to do so, in order to satisfy its distribution requirements as a regulated investment company and to eliminate any fund-level income tax liability under the Code.
The U.S. Treasury began issuing inflation-protected bonds in 1997. Certain non-U.S. governments, such as the United Kingdom, Canada and Australia, have a longer history of issuing inflation-protected bonds, and there may be a more liquid market in certain of these countries for these securities.
Initial Public Offerings
The fund may purchase debt or equity securities in initial public offerings (“IPOs”). These securities, which are often issued by unseasoned companies, may be subject to many of the same risks of investing in companies with smaller market capitalizations. Securities issued in IPOs have no trading history, and information about the companies may be available for very limited periods. Securities issued in an IPO frequently are very volatile in price, and the fund may hold securities purchased in an IPO for a very short period of time. As a result, the fund’s investments in IPOs may increase portfolio turnover, which increases brokerage and administrative costs and may result in taxable distributions to shareholders.
At any particular time or from time to time the fund may not be able to invest in securities issued in IPOs, or invest to the extent desired because, for example, only a small portion (if any) of the securities being offered in an IPO may be made available to the fund. In addition, under certain market conditions a relatively small number of companies may issue securities in IPOs. Similarly, as the number of Putnam funds to which IPO securities are allocated increases, the number of securities issued to any one fund may decrease. The investment performance of the fund during periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when the fund is able to do so. In addition, as the fund increases in size, the impact of IPOs on the fund’s performance will generally decrease.
Interfund Borrowing and Lending
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To satisfy redemption requests or to cover unanticipated cash shortfalls, the fund has entered into a Master Interfund Lending Agreement by and among each Putnam fund and Putnam Management (the “Interfund Lending Agreement”) under which the fund may lend or borrow money for temporary purposes directly to or from another Putnam fund (an “Interfund Loan”), subject to meeting the conditions of an SEC exemptive order granted to the fund permitting such Interfund Loans. All Interfund Loans would consist only of uninvested cash reserves that the lending fund otherwise would invest in short-term repurchase agreements or other short-term instruments. At this time, Putnam Money Market Liquidity Fund and Putnam Short-Term Investment Fund are the only Putnam funds expected to make their uninvested cash reserves available for Interfund Loans.
If the fund has outstanding borrowings, any Interfund Loans to the fund (a) would be at an interest rate equal to or lower than that of any outstanding bank loan, (b) would be secured at least on an equal priority basis with at least an equivalent percentage of collateral to loan value as any outstanding bank loan that requires collateral, and (c) would have a maturity no longer than any outstanding bank loan (and in any event not over seven days). In addition, if an event of default were to occur under any agreement evidencing an outstanding bank loan to the fund, the event of default would automatically (without need for action or notice by the lending fund) constitute an immediate event of default under the Interfund Lending Agreement entitling the lending fund to call the Interfund Loan (and exercise all rights with respect to any collateral) and such a call would be deemed made if the lending bank exercises its right to call its loan under its agreement with the borrowing fund.
The fund may make an unsecured borrowing under the Interfund Lending Agreement if its outstanding borrowings from all sources immediately after the interfund borrowing total 10% or less of its total assets; provided, that if the fund has a secured loan outstanding from any other lender, including but not limited to another Putnam fund, the fund’s Interfund Loan would be secured on at least an equal priority basis with at least an equivalent percentage of collateral to loan value as any outstanding loan secured by collateral. If the fund’s total outstanding borrowings immediately after an interfund borrowing would be greater than 10% of its total assets, the fund may borrow through the credit facility on a secured basis only. All secured Interfund Loans would be secured by the pledge of segregated collateral with a market value equal to at least 102% of the outstanding principal value of the Interfund Loan. The fund may not borrow from any source if its total outstanding borrowings immediately after the borrowing would exceed the limits imposed by Section 18 of the 1940 Act or the fund’s fundamental investment restrictions.
The fund may not lend to another Putnam fund under the Interfund Lending Agreement if the Interfund Loan would cause its aggregate outstanding Interfund Loans to exceed 15% of the fund’s current net assets at the time of the Interfund Loan. The fund’s Interfund Loans to any one fund may not exceed 5% of the lending fund’s net assets. The duration of Interfund Loans would be limited to the time required to receive payment for securities sold, but in no event may the duration exceed seven days. Interfund Loans effected within seven days of each other would be treated as separate loan transactions for purposes of this condition. Each Interfund Loan may be called on one business day’s notice by a lending fund and may be repaid on any day by a borrowing fund.
The limitations detailed above and the other conditions of the SEC exemptive order permitting interfund lending are designed to minimize the risks associated with interfund lending for both the lending fund and the borrowing fund. However, no borrowing or lending activity is without risk. If the fund borrows money from another fund, there is a risk that the Interfund Loan could be called on one day’s notice or not renewed, in which case the fund may have to borrow from a bank at higher rates if an Interfund Loan were not available from another fund. A delay in repayment to a lending fund could result in a lost opportunity or additional lending costs, and interfund loans are subject to the risk that the borrowing fund could be unable to repay the loan when due.
Inverse Floaters
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These securities 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.
Investment Ratings
The securities in which money market funds invest must be rated in one of the two highest short-term rating categories (without regard for gradations or subcategories) by one or more Nationally Recognized Statistical Rating Organizations (“NRSROs”) or be deemed by Putnam Management to be of comparable quality to securities having such ratings. Money market funds will rely on the two highest ratings given to a security by the NRSROs for purposes of complying with this requirement. If one or both of the two highest ratings are in the second highest short-term rating category, the security is treated as a Second Tier Security. Generally, Rule 2a-7 under the 1940 Act prohibits a money market fund from investing more than 3% of its assets in Second Tier Securities. Money market funds comply with these rating requirements at the time a security is acquired. If a security is downgraded to Second Tier after its acquisition, the money market funds may continue to hold the security even if the portfolio exceeds Rule 2a-7’s limits on Second Tier Securities. Other factors, such as substantial redemptions, may cause a money market fund’s portfolio to exceed Rule 2a-7 limits on the acquisition of securities. A money market fund may continue to hold securities in excess of these limits, even if the fund has the right to tender the security for purchase for its amortized cost value.
Legal and Regulatory Risks Relating to Investment Strategy
The fund may be adversely affected by new (or revised) laws or regulations that may be imposed by the CFTC, the SEC, the U.S. Federal Reserve or other banking regulators, or other governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. These agencies are empowered to promulgate a variety of rules pursuant to financial reform legislation in the United States. The fund may also be adversely affected by changes in the enforcement or interpretation of existing statutes and rules. The regulatory environment for private funds is evolving, and changes in the regulation of private funds may adversely affect the value of the investments held by the fund and the ability of the fund to execute its investment strategy. In addition, the securities and futures markets are subject to comprehensive statutes, regulations and margin requirements. The CFTC, the SEC, the Federal Deposit Insurance Corporation, other regulators and self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies. The regulation of derivatives transactions and funds that engage in such transactions is an evolving area of law and is subject to modification by government and judicial action.
The U.S. government recently enacted legislation that provides for new regulation of the derivatives market, including new clearing, margin, reporting and registration requirements. Because the legislation leaves much to rule making, its ultimate impact remains unclear. New regulations could, among other things, adversely affect the value of the investments held by the fund, restrict the fund’s ability to engage in derivatives transactions (for example, by making certain types of derivatives transactions no longer available to the fund) and/or increase the costs of such derivatives transactions (for example, by increasing margin or capital requirements), and the fund may be unable to execute its investment strategy as a result. It is unclear how the regulatory changes will affect counterparty risk.
The CFTC and certain futures exchanges have established limits, referred to as “position limits,” on the maximum net long or net short positions which any person may hold or control in particular options and futures contracts. All positions owned or controlled by the same person or entity, even if in different accounts, may be aggregated for purposes of determining whether the applicable position limits have been exceeded. Thus, even if the fund does not intend to exceed applicable position limits, it is possible that different clients managed by Putnam Management and its affiliates may be aggregated for this purpose. Any modification of
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trading decisions or elimination of open positions that may be required to avoid exceeding such limits may adversely affect the profitability of the fund.
The SEC has in the past adopted interim rules requiring reporting of all short positions above a certain threshold and is expected to adopt rules requiring monthly public disclosure in the future. In addition, other non-U.S. jurisdictions where the fund may trade have adopted reporting requirements. If the fund’s short positions or its strategy become generally known, the fund’s ability to implement its investment strategy could be adversely affected. In particular, other investors could cause a “short squeeze” in the securities held short by the fund forcing the fund to cover its positions at a loss. Such reporting requirements may also limit the fund’s ability to access management and other personnel at certain companies where the fund seeks to take a short position. In addition, if other investors engage in copycat behavior by taking positions in the same issuers as the fund, the cost of borrowing securities to sell short could increase drastically and the availability of such securities to the fund could decrease drastically. In addition, the SEC recently proposed additional restrictions on short sales, which could restrict the fund’s ability to engage in short sales in certain circumstances. The SEC and regulatory authorities in other jurisdictions may adopt (and in certain cases, have adopted) bans on short sales of certain securities in response to market events. Bans on short selling may make it impossible for the fund to execute certain investment strategies.
Recently enacted federal legislation requires the adoption of regulations that will require any creditor that makes a loan and any securitizer of a loan to retain at least 5% of the credit risk on any loan that is transferred, sold or conveyed by such creditor or securitizer. It is currently unclear how these requirements will apply to loan participations, syndicated loans, and loan assignments. Investors, such as the fund, that seek or hold investments in loans could be adversely affected by the regulation.
In July 2014, the SEC adopted amendments to the rules governing money market funds, which may affect the fund’s operations. Under the rule amendments, non-government money market funds will be required to use a floating net asset value, so that the value of a money market fund’s shares will change over time with the market values of the fund’s portfolio investments, unless they have policies and procedures reasonably designed to limit all beneficial owners of the fund’s shares to natural persons. Money market funds that are subject to the floating net asset value requirements will be required to cease using the amortized cost method to value their shares and to effect transactions in fund shares at a net asset value per share calculated out to the fourth decimal point (e.g., $1.0004 or $0.9998 instead of $1.00). The amendments also permit the board of trustees of a money market fund to impose a liquidity fee of up to 2% of a shareholder's redemption request and/or to suspend redemptions for a period of up to ten business days if less than 30% of the fund’s total assets are invested in “weekly liquid assets,” which includes cash, certain government securities and securities with a remaining maturity of, or subject to a demand feature that is exercisable and payable within, five business days. Non-government money market funds will be required to impose a redemption fee if less than 10% of the fund’s total assets are invested in weekly liquid assets, unless the fund’s board of directors determines that imposing such a fee is not in the best interests of the fund. Full compliance with the rule amendments is currently required by October 2016.
Lower-rated Securities
The fund may invest in lower-rated fixed-income securities (commonly known as "junk bonds"). The lower ratings 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.
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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 fixed-income assets. Conversely, during periods of rising interest rates, the value of the fund's fixed-income 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 goal(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 Code may limit the extent to which the fund may exercise its rights by taking possession of such assets.
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.
Money Market Instruments
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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 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.
Commercial paper is a money market instrument issued by banks or companies to raise money for short-term purposes. Unlike some other debt obligations, commercial paper is typically unsecured. Commercial paper may be issued as an asset-backed security (that is, backed by a pool of assets representing the obligations of a number of different issuers), in which case certain of the risks discussed in “Mortgage-backed and Asset-backed securities” would apply. Commercial paper is traded primarily among institutions.
Putnam Money Market Fund may invest in bankers’ acceptances issued by banks with deposits in excess of $2 billion (or the foreign currency equivalent) at the close of the last calendar year. If the Trustees change this minimum deposit requirement, shareholders would be notified. Other Putnam funds may invest in bankers’ acceptances without regard to this requirement.
In accordance with rules issued by the SEC, the fund may from time to time invest all or a portion of its cash balances in money market and/or short-term bond funds advised by Putnam Management. In connection with such investments, Putnam Management may waive a portion of the advisory fees otherwise payable by the fund. See “Charges and expenses” in Part I of this SAI for the amount, if any, waived by Putnam Management in connection with such investments.
Mortgage-backed 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.
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-backed securities. In that event the fund may be unable to invest the proceeds from the early payment of the mortgage-backed securities in an investment that provides as high a yield as the mortgage-backed securities. Consequently, early payment associated with mortgage-backed 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
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prepayments tends to increase, thereby tending to decrease the life of mortgage-backed securities. During periods of rising interest rates, the rate of mortgage prepayments usually decreases, thereby tending to increase the life of mortgage-backed securities. If the life of a mortgage-backed security is inaccurately predicted, the fund may not be able to realize the rate of return it expected.
Adjustable rate mortgage securities (“ARMs”), like traditional mortgage-backed securities, are interests in pools of mortgage loans that provide investors with payments consisting of both principal and interest as mortgage loans in the underlying mortgage pool are paid off by the borrowers. Unlike fixed-rate mortgage-backed securities, ARMs are collateralized by or represent interests in mortgage loans with variable rates of interest. These interest rates are reset at periodic intervals, usually by reference to an interest rate index or market interest rate. Although the rate adjustment feature may act as a buffer to reduce sharp changes in the value of adjustable rate securities, these securities are still subject to changes in value based on, among other things, changes in market interest rates or changes in the issuer’s creditworthiness. If rates increase due to a reset, the risk of default by underlying borrowers may increase. Because the interest rates are reset only periodically, changes in the interest rate on ARMs may lag changes in prevailing market interest rates. Also, some ARMs (or the underlying mortgages) are subject to caps or floors that limit the maximum change in the interest rate during a specified period or over the life of the security. As a result, changes in the interest rate on an ARM may not fully reflect changes in prevailing market interest rates during certain periods. The fund may also invest in “hybrid” ARMs, whose underlying mortgages combine fixed-rate and adjustable rate features.
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. The automatic interest rate adjustment feature of mortgages underlying ARMs likewise reduces the ability to lock-in attractive rates. As a result, mortgage-backed and asset-backed 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. In certain circumstances, the mishandling of related documentation may also affect the rights of the security holders in and to the underlying collateral.
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. Prepayments may cause losses on securities purchased at a premium.
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
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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.
The risks associated with other asset-backed securities (including in particular the risks of issuer default and of early prepayment) are generally similar to those described above for CMOs. In addition, because asset-backed securities generally do not have the benefit of a security interest in the underlying assets that is comparable to a mortgage, asset-backed securities present certain additional risks that are not present with mortgage-backed securities. The ability of an issuer of asset-backed securities to enforce its security interest in the underlying assets may be limited. For example, revolving credit receivables are generally unsecured and the debtors on such receivables are entitled to the protection of a number of state and federal consumer credit laws, many of which give debtors the right to set-off certain amounts owed, thereby reducing the balance due. Automobile receivables generally are secured, but by automobiles, rather than by real property.
Asset-backed securities may be collateralized by the fees earned by service providers. The value of asset-backed securities may be substantially dependent on the servicing of the underlying asset and are therefore subject to risks associated with negligence by, or defalcation of, their servicers. In certain circumstances, the mishandling of related documentation may also affect the rights of the security holders in and to the underlying collateral. The insolvency of entities that generate receivables or that utilize the assets may result in added costs and delays in addition to losses associated with a decline in the value of the underlying assets.
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 Management in accordance with procedures established by the Trustees, in such amount as are set aside on the fund’s books), when in the opinion of Putnam Management such transactions are consistent with the fund's goal(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
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additional cash consideration (or, if additional cash consideration is required, cash or other assets determined to be liquid by Putnam Management in accordance with procedures established by the Trustees, in such amount as are set aside on the fund’s books). In the case of put options, the fund will set aside on its books assets determined to be liquid by Putnam Management in accordance with procedures established by the Trustees and equal in value 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 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. The fund may also purchase put options for other investment purposes, including to take a short position in the security underlying the put option.
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. The fund may also purchase call options for other investment purposes.
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
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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. For example, if a fund is unable to purchase a security underlying a put option it had purchased, the fund may be unable to exercise the put option. 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 it is unable to exercise the put option prior to its 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.
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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. The fund may use both European-style options, which are only exercisable immediately prior to their expiration, and American-style options, which are exercisable at any time prior to the expiration date.
In addition to options on securities and futures, the fund may also enter into options on futures, swaps, or other instruments as described elsewhere in this SAI.
Preferred Stocks and Convertible Securities
The fund may invest in preferred stocks or convertible securities. A preferred stock generally pays dividends at a specified rate and has preference over common stock in the payment of dividends and the liquidation of an issuer's assets but is junior to the debt securities of the issuer in those same respects. The market prices of preferred stocks are subject to changes in interest rates and are more sensitive to changes in an issuer's creditworthiness than are the prices of debt securities. Shareholders of preferred stock may suffer a loss of value if dividends are not paid. Under ordinary circumstances, preferred stock does not carry voting rights. In addition, many preferred stocks may be called or redeemed prior to their maturity by the issuer under certain conditions.
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. Convertible securities generally have less potential for gain than common stocks.
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 preferred stocks and 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
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be able to dispose of such securities in a timely fashion or for a fair price, which could result in losses to the fund.
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 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 (the “Securities Act”) 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. In addition, 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. The fund may be deemed to be an "underwriter" for purposes of the Securities Act 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.
Real Estate Investment Trusts (REITs)
The fund may invest in REITs. REITs are pooled investment vehicles that invest primarily in either real estate or real estate related loans. Like regulated investment companies such as the fund, REITs are not taxed on income distributed to shareholders provided that they comply with certain requirements under the Code. The fund will indirectly bear its proportionate share of any expenses paid by REITs in which it invests in addition to the fund’s own expenses.
REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds, or extended vacancies of property). REITs are generally classified as equity REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity REITs invest the majority of their assets directly in real property and derive income primarily from the collection of rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest payments. Equity REITs may be affected
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by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the risk of borrower default, the likelihood of which is increased for mortgage REITs that invest in sub-prime mortgages. REITs, and mortgage REITs in particular, are also subject to interest rate risk. REITs are dependent upon their operators’ management skills, are generally not diversified (except to the extent the Code requires), and are subject to heavy cash flow dependency and the risk of default by borrowers. REITs are also subject to the possibility of failing to qualify for tax-free pass-through of income under the Code or failing to maintain their exemptions from registration under the 1940 Act. REITs may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than more widely held securities.
The fund's investment in a REIT may result in the fund making distributions that constitute a return of capital to fund shareholders for federal income tax purposes. In addition, distributions by a fund from REITs will not qualify for the corporate dividends-received deduction, or, generally, for treatment as qualified dividend income.
Redeemable Securities
Certain securities held by the fund may permit the issuer at its option to "call" or redeem its securities. If an issuer were to redeem securities held by the fund during a time of declining interest rates, the fund may not be able to reinvest the proceeds in securities providing the same investment return as the securities redeemed.
Repurchase Agreements
Each fund may enter into repurchase agreements amounting to not more than 25% of its total assets, except that this 25% limitation does not apply to repurchase agreements entered into in connection with short sales and to investments by a money market fund and Putnam Short Term Investment Fund. Money market funds and Putnam Short Term Investment Fund may invest without limit in repurchase agreements. A repurchase agreement is a contract under which the fund, the buyer under the contract, acquires a security subject to the obligation of the seller (or repurchase agreement counterparty) to repurchase, and the fund to resell, the security at a fixed time and price, which represents the fund's cost plus interest (or, for repurchase agreements under which the fund acquires a security and then sells it short, the fund’s cost of “borrowing” the security). A repurchase agreement with a stated maturity of longer than one week is considered an illiquid investment. It is the fund's present intention to enter into repurchase agreements only with banks and registered broker-dealers. The fund may enter into repurchase agreements, including with respect to securities it wishes to sell short. See “Short Sales” in this SAI. Certain of the repurchase agreements related to securities sold short may provide that, at the option of the fund, settlement may be made by delivery of cash equal to the difference between (a) the sum of (i) the market value of the securities sold short at the time the repurchase agreement is closed out and (ii) transaction costs associated with the acquisition in the market by the repurchase agreement counterparty of the securities sold short and (b) the repurchase price specified in the repurchase agreement.
The fund may be exposed to the credit risk of the repurchase agreement counterparty (or seller) in the event that the counterparty is unable to close out the repurchase agreement in accordance with its terms. 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 SEC, 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.
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The fund may also enter into reverse repurchase agreements. Under a reverse repurchase agreement, the fund sells portfolio assets subject to an agreement by the fund to repurchase the same assets at an agreed upon price and date. The fund can use the proceeds received from entering into a reverse repurchase agreement to make additional investments, which generally causes the fund’s portfolio to behave as if it were leveraged. If the buyer in a reverse repurchase agreement files for bankruptcy or becomes insolvent, the fund may be unable to recover the securities it sold and as a result would realize a loss equal to the difference between the value of those securities and the payment it received for them. The size of this loss will depend upon the difference between what the buyer paid for the securities the fund sold to it and the value of those securities (e.g., a buyer may pay $95 for a bond with a market value of $100). In the event of a buyer’s bankruptcy or insolvency, the fund’s use of proceeds from the sale of its securities may be restricted while the other party or its trustee or receiver determines whether to honor the fund’s right to repurchase the securities. The fund’s use of reverse repurchase agreements also subjects the fund to interest costs based on the difference between the sale and repurchase price of a security involved in such a transaction. Additionally, reverse repurchase agreements entail the same risks as over-the-counter derivatives. These include the risk that the counterparty to the reverse repurchase agreement may not be able to fulfill its obligations, as discussed above, that the parties may disagree as to the meaning or application of contractual terms, or that the instrument may not perform as expected.
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. If a borrower defaults, the value of the collateral may decline before the fund can dispose of it. 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. The fund may pay fees in connection with arranging loans of its portfolio securities.
Securities of Other Investment Companies
Securities of other investment companies, including shares of open- and closed-end investment companies and unit investment trusts (which may include exchange-traded funds (“ETFs”)), represent interests in collective investment portfolios that, in turn, invest directly in underlying instruments. The fund may invest in other investment companies when it has more uninvested cash than Putnam Management believes is advisable, when it receives cash collateral from securities lending arrangements, when there is a shortage of direct investments available, or when Putnam Management believes that investment companies offer attractive values.
Investment companies may be structured to perform in a similar fashion to a broad-based securities index or may focus on a particular strategy or class of assets. ETFs typically seek to track the performance or dividend yield of specific indexes or companies in related industries. These indexes may be broad-based, sector-based or international. Investing in investment companies involves substantially the same risks as investing directly in the underlying instruments, but also involves expenses at the investment company-level, such as portfolio management fees and operating expenses. These expenses are in addition to the fees and expenses of the fund
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itself, which may lead to duplication of expenses while the fund owns another investment company’s shares. In addition, investing in investment companies involves the risk that they will not perform in exactly the same fashion, or in response to the same factors, as the underlying instruments or index. To the extent the fund invests in other investment companies that are professionally managed, its performance will also depend on the investment and research abilities of investment managers other than Putnam Management.
Open-end investment companies typically offer their shares continuously at net asset value plus any applicable sales charge and stand ready to redeem shares upon shareholder request. The shares of certain other types of investment companies, such as ETFs and closed-end investment companies, typically trade on a stock exchange or over-the-counter at a premium or a discount to their net asset value. In the case of closed-end investment companies, the number of shares is typically fixed. The securities of closed-end investment companies and ETFs carry the risk that the price the fund pays or receives may be higher or lower than the investment company’s net asset value. ETFs and closed-end investment companies are also subject to certain additional risks, including the risks of illiquidity and of possible trading halts due to market conditions or other reasons, based on the policies of the relevant exchange. The shares of investment companies, particularly closed-end investment companies, may also be leveraged, which would increase the volatility of the fund’s net asset value.
The extent to which the fund can invest in securities of other investment companies, including ETFs, is generally limited by federal securities laws. For more information regarding the tax treatment of ETFs, please see “Taxes” below.
Short Sales
The fund may engage in short sales of securities either as a hedge against potential declines in value of a portfolio security or to realize appreciation when a security that the fund does not own declines in value. Short sales are transactions in which the fund sells a security it does not own to a third party by borrowing the security in anticipation of purchasing the same security at the market price on a later date to close out the short position. The fund may also engage in short sales by entering into a repurchase agreement with respect to the security it wishes to sell short. See “– Repurchase Agreements” in this SAI. The fund will incur a gain if the price of the security declines between the date of the short sale and the date on which the fund replaces the borrowed security (or closes out the related repurchase agreement); and the fund will incur a loss if the price of the security increases between those dates. Such a loss is theoretically unlimited since the potential increase in the market price of the security sold short is not limited. Until the security is replaced, the fund must pay the lender (or repurchase agreement counterparty) any dividends or interest that accrues during the period of the loan (or repurchase agreement). To borrow (or enter into a repurchase agreement with respect to) the security, the fund also may be required to pay a premium, which would increase the cost of the security sold. The fund’s successful use of short sales is subject to Putnam Management’s ability to accurately predict movements in the market price of the security sold short. Short selling may involve financial leverage because the fund is exposed both to changes in the market price of the security sold short and to changes in the value of securities purchased with the proceeds of the short sale, effectively leveraging its assets. Under adverse market conditions, a fund may have difficulty purchasing securities to meet its short sale delivery obligations, and may be required to close out its short position at a time when the fund would not choose to do so, and may therefore have to sell portfolio securities to raise the capital necessary to meet its short sale obligations at a time when fundamental investment considerations may not favor such sales. While the fund has an open short position, it will segregate, by appropriate notation on its books or the books of its custodian, cash or liquid assets at least equal in value to the market value of the securities sold short. The segregated amount will be “marked-to-market” daily. Because of this segregation, the fund does not consider these transactions to be “senior securities” for purposes of the 1940 Act. In connection with short sale transactions, the fund may be required to pledge certain additional assets for the benefit of the securities lender (or repurchase agreement
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counterparty) and the fund may, while such assets remain pledged, be limited in its ability to invest those assets in accordance with the fund’s investment strategies.
Certain of the repurchase agreements related to securities sold short may provide that, at the option of the fund, in lieu of delivering the securities sold short, settlement may be made by delivery of cash equal to the difference between (a) the sum of (i) the market value of the securities sold short at the time the repurchase agreement is closed out and (ii) transaction costs associated with the acquisition in the market by the repurchase agreement counterparty of the securities sold short and (b) the repurchase price specified in the repurchase agreement. Because that cash amount represents the fund’s maximum loss in the event of the insolvency of the counterparty, the fund will, except where the local market practice for foreign securities to be sold short requires payment prior to delivery of such securities, treat such amount, rather than the full notional amount of the repurchase agreement, as its “investment” in securities of the counterparty for purposes of all applicable investment restrictions, including its fundamental policy with respect to diversification.
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 when distributed to taxable individual shareholders. 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.
Special Purpose Acquisition Companies
The fund may invest in stock, warrants, and other securities of special purpose acquisition companies (“SPACs”) or similar special purpose entities that pool funds to seek potential acquisition opportunities. Unless and until an acquisition is completed, a SPAC generally invests its assets (less a portion retained to cover expenses) in U.S. government securities, money market securities and cash; if an acquisition that meets the requirements for the SPAC is not completed within a pre-established period of time, the invested funds are returned to the entity’s shareholders. Because SPACs and similar entities are in essence blank check companies without an operating history or ongoing business other than seeking acquisitions, the value of their securities is particularly dependent on the ability of the entity’s management to identify and complete a profitable acquisition. Some SPACs may pursue acquisitions only within certain industries or regions, which may increase the volatility of their prices. In addition, these securities, which are typically traded in the over-the-counter market, may be considered illiquid and/or be subject to restrictions on resale.
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
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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.
Swap Agreements
The fund may enter into swap agreements and other types of over-the-counter transactions such as caps, floors and collars with broker-dealers or other financial institutions for hedging or investment purposes. A swap involves the exchange by the fund with another party of their respective commitments to pay or receive cash flows, e.g., an exchange of floating rate payments for fixed-rate payments. The purchase of a cap entitles the purchaser, to the extent that a specified index or other underlying financial measure exceeds a predetermined value on a predetermined date or dates, to receive payments on a notional principal amount from the party selling the cap. The purchase of a floor entitles the purchaser, to the extent that a specified index or other underlying financial measure falls or other underlying measure below a predetermined value on a predetermined date or dates, to receive payments on a notional principal amount from the party selling the floor. A collar combines elements of a cap and a floor.
Swap agreements and similar transactions can be individually negotiated and structured to include exposure to a variety of different types of investments or market factors. 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, mortgage rates, corporate borrowing rates, or other factors such as security prices, inflation rates or the volatility of an index or one or more securities. For example, if the fund agrees to exchange payments in U.S. dollars for payments in a non-U.S. currency, the swap agreement would tend to decrease the fund's exposure to U.S. interest rates and increase its exposure to that non-U.S. currency and interest rates. The fund may also engage in total return swaps, in which payments made by the fund or the counterparty are based on the total return of a particular reference asset or assets (such as an equity or fixed-income security, a combination of such securities, or an index). A swap agreement may be structured with reference to an index of securities that is created and maintained by the swap counterparty. The fund may also enter into swap agreements on futures contracts including, but not limited to, index futures contracts. Swap agreements on futures contracts are generally subject to the same risks involved in the fund’s use of futures contracts, in addition to the risks involved in the fund’s use of swap agreements. See “—Futures Contracts and Related Options.” A total return swap, or a swap on a futures contract, may add leverage to a portfolio by providing investment exposure to an underlying asset or market where the fund does not own or take physical custody of such asset or invest directly in such market.
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. If a counterparty's creditworthiness declines, the value of the agreement would be likely to decline, potentially resulting in losses. If a default occurs by the other party to such transaction, the fund will have contractual remedies pursuant to the agreements related to the transaction, which may be limited by applicable law in the case of a counterparty's insolvency. If the returns of an index upon which a swap is based are unavailable or cannot be
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calculated (including where the index is created and maintained by the swap counterparty), the fund may experience difficulty in valuing the swap or in determining the amounts owed to or by the counterparty, regardless of whether the counterparty has defaulted. 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.
The fund may also enter into options on swap agreements ("swaptions"). A swaption is a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms. The fund may write (sell) and purchase put and call swaptions to the same extent it may make use of standard options on securities or other instruments. Swaptions are generally subject to the same risks involved in the fund’s use of options. See “—Options on Securities.”
A credit default swap is an agreement between the fund and a counterparty that enables the fund to buy or sell protection against a credit event related to a particular issuer. One party, acting as a “protection buyer,” makes periodic payments to the other party, a “protection seller,” in exchange for a promise by the protection seller to make a payment to the protection buyer if a negative credit event (such as a delinquent payment or default) occurs with respect to a referenced bond or group of bonds. Credit default swaps may also be structured based on the debt of a basket of issuers, rather than a single issuer, and may be customized with respect to the default event that triggers purchase or other factors (for example, the Nth default within a basket, or defaults by a particular combination of issuers within the basket, may trigger a payment obligation). The fund may enter into credit default swap contracts for investment purposes. As a credit protection seller in a credit default swap contract, the fund would be required to pay the par (or other agreed-upon) value of a referenced debt obligation to the counterparty in the event of a default by a third party, such as a U.S. or non-U.S. corporate issuer, on the debt obligation. In return for its obligation, the fund would receive from the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the fund would keep the stream of payments and would have no payment obligations. As the seller, the fund would be subject to investment exposure on the notional amount of the swap.
The fund may also purchase credit default swap contracts in order to hedge against the risk of default of the debt of a particular issuer or basket of issuers or profit from changes in the creditworthiness of the particular issuer(s) (also known as “buying credit protection”). In these cases, the fund would function as the counterparty referenced in the preceding paragraph. This would involve the risk that the investment may expire worthless and would only generate income in the event of an actual default by the issuer(s) of the underlying obligation(s) (or, as applicable, a credit downgrade or other indication of financial instability). It would also involve the risk that the seller may fail to satisfy its payment obligations to the fund in the event of a default. The purchase of credit default swaps involves costs, which will reduce the fund’s return.
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 (if applicable) 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.
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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 (if applicable) 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.
Tax-exempt Securities share many of the structural features and risks of other bonds, as described elsewhere in this SAI. For example, the fund may purchase callable Tax-exempt Securities, zero-coupon Tax-exempt Securities, or “stripped” Tax-exempt Securities, which entail additional risks. The fund may also purchase structured or asset-backed Tax-exempt Securities, such as the securities (including preferred stock) of special purpose entities that hold interests in the Tax-exempt Securities of one or more issuers and issue “tranched” securities that are entitled to receive payments based on the cash flows from those underlying securities. See “—Redeemable securities,” “—Zero-coupon and Payment-in-kind Bonds,” “—Structured investments,” and “—Mortgage-backed and Asset-backed Securities” in this SAI. Structured Tax-exempt Securities may involve increased risk that the interest received by the fund may not be exempt from federal or state income tax, or that such interest may result in liability for the alternative minimum tax for shareholders of the fund. For example, in certain cases, the issuers of certain securities held by a special purpose entity may not have received an unqualified opinion of bond counsel that the interest from the securities will be exempt from federal income tax and (if applicable) the corresponding state’s personal income tax.
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. As a result, 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 of better-known issuers.
Escrow-secured or pre-refunded bonds. These securities are created when an issuer uses the proceeds from a new bond issue to buy high grade, interest-bearing debt securities, generally direct obligations of the U.S. government, in order to redeem (or “pre-refund”), before maturity, an outstanding bond issue that is not immediately callable. These securities are then deposited in an irrevocable escrow account held by a trustee bank to secure all future payments of principal and interest on the pre-refunded bond until that bond’s call date. Pre-refunded bonds often receive an ‘AAA’ or equivalent rating. Because pre-refunded bonds still bear the same interest rate, and have a very high credit quality, their price may increase. However, as the original bond approaches its call date, the bond's price will fall to its call price.
Residual interest bonds. The fund may invest in residual interest bonds, which are created by depositing municipal securities in a trust and dividing the income stream of an underlying municipal bond in two parts, one, a variable rate security and the other, a residual interest bond. The interest rate for the variable rate security is determined by an index or a periodic auction process, while the residual interest bond holder receives the balance of the income from the underlying municipal bond less an auction fee. The market prices of residual interest bonds may be highly sensitive to changes in market rates and may decrease significantly when market rates increase.
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Tobacco Settlement Revenue Bonds. The fund may invest in tobacco settlement revenue bonds, which are secured by an issuing state’s proportionate share of payments under the Master Settlement Agreement (“MSA”). The MSA is an agreement that was reached out of court in November 1998 between 46 states and six U.S. jurisdictions and tobacco manufacturers representing an overwhelming majority of U.S. market share. The MSA provides for annual payments by the manufacturers to the states and jurisdictions in perpetuity in exchange for releasing all claims against the manufacturers and a pledge of no further litigation. The MSA established a base payment schedule and a formula for adjusting payments each year. Tobacco manufacturers pay into a master escrow trust based on their market share, and each state receives a fixed percentage of the payment as set forth in the MSA. Within some states, certain localities may in turn be allocated a specific portion of the state’s MSA payment pursuant to an arrangement with the state.
A number of state and local governments have securitized the future flow of payments under the MSA by selling bonds pursuant to indentures, some through distinct governmental entities created for such purpose. The bonds are backed by the future revenue flow that is used for principal and interest payments on the bonds. Annual payments on the bonds, and thus risk to the fund, are dependent on the receipt of future settlement payments by the state or its instrumentality. The actual amount of future settlement payments may vary based on, among other things, annual domestic cigarette shipments, inflation, the financial capability of participating tobacco companies, and certain offsets for disputed payments. Payments made by tobacco manufacturers could be reduced if cigarette shipments continue to decline below the base levels used in establishing manufacturers’ payment obligations under the MSA. Demand for cigarettes in the U.S. could continue to decline based on many factors, including, without limitation, anti-smoking campaigns, tax increases, price increases implemented to recoup the cost of payments by tobacco companies under the MSA, reduced ability to advertise, enforcement of laws prohibiting sales to minors, elimination of certain sales venues such as vending machines, and the spread of local ordinances restricting smoking in public places.
Because tobacco settlement bonds are backed by payments from the tobacco manufacturers, and generally not by the credit of the state or local government issuing the bonds, their creditworthiness depends on the ability of tobacco manufacturers to meet their obligations. The bankruptcy of an MSA-participating manufacturer could cause delays or reductions in bond payments, which would affect the fund’s net asset value. Under the MSA, a market share loss by MSA-participating tobacco manufacturers to non-MSA participating manufacturers would also cause a downward adjustment in the payment amounts under some circumstances.
The MSA and tobacco manufacturers have been and continue to be subject to various legal claims, including, among others, claims that the MSA violates federal antitrust law. In addition, the United States Department of Justice has alleged in a civil lawsuit that the major tobacco companies defrauded and misled the American public about the health risks associated with smoking cigarettes. An adverse outcome to this lawsuit or to any other litigation matters or regulatory actions relating to the MSA or affecting tobacco manufacturers could adversely affect the payment streams associated with the MSA or cause delays or reductions in bond payments by tobacco manufacturers.
In addition to the risks described above, tobacco settlement revenue bonds are subject to other risks described in this SAI, including the risks of asset-backed securities discussed under “Mortgage-backed and Asset-backed Securities.”
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
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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 IRS 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. Putnam Management will consider such an event in its determination of whether the fund should continue to hold an investment in its portfolio. Downgrades of Tax-exempt Securities held by a money market fund may require the fund to sell such securities, potentially at a loss.
"Moral obligation" bonds. The fund may invest in so-called “moral obligation” bonds, where repayment of the bond is backed by a moral (but not legally binding) commitment of an entity other than the issuer, such as a state legislature, to pay. Such a commitment may be in addition to the legal commitment of the issuer to repay the bond or may represent the only payment obligation with respect to the bond (where, for example, no amount has yet been specifically appropriated to pay the bond. See “—Municipal leases” below.)
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.
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
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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, legislation may be introduced or litigation may arise that may restrict or eliminate 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 goal and policies and consider changes in the structure of the fund or its dissolution. Shareholders should consult their tax advisors for the current law on tax-exempt bonds and securities.
Warrants
The fund may invest in warrants, which are instruments that give the fund the right to purchase certain securities from an issuer at a specific price (the “strike price”) for a limited period of time. The strike price of warrants typically is much lower than the current market price of the underlying securities, yet they are subject to similar price fluctuations. As a result, warrants may be more volatile investments than the underlying securities and may offer greater potential for capital appreciation as well as capital loss. Warrants do not entitle a holder to dividends or voting rights with respect to the underlying securities and do not represent any rights in the assets of the issuing company. Also, the value of the warrant does not necessarily change with the value of the underlying securities and a warrant ceases to have value if it is not exercised prior to the expiration date. These factors can make warrants more speculative than other types of investments.
In addition to warrants on securities, 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. 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.
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Zero-coupon and Payment-in-kind Bonds
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, including when it is not advantageous to do so, in order to satisfy its distribution requirements under the Code.
TAXES
The following discussion of U.S. federal income tax consequences is based on 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 income 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 advisors 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 for each taxable year from (i) dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or 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, and (ii) net income from interests in “qualified publicly traded partnerships” (as defined below);
(b) diversify its holdings so that, at the end of each quarter of the fund’s taxable year, (i) at least 50% of the market value of the fund’s total 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 not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the fund’s total assets is invested, including through corporations in which the fund owns a 20% or more voting stock interest, (x) 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, or (y) in the securities of one or more qualified publicly traded partnerships (as defined below); and
(c) distribute with respect to each taxable year at least 90% of the sum of its investment company taxable income (as that term is defined in the Code without regard to the deduction for dividends paid—generally, taxable ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses) and net tax-exempt interest income, for such year.
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In general, for purposes of the 90% gross income requirement described in paragraph (a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the regulated investment company. However, 100% of the net income of a regulated investment company derived from an interest in a “qualified publicly traded partnership” (defined as a partnership (i) interests in which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof, and (ii) that derives less than 90% of its income from the qualifying income described in paragraph (a)(i) above) will be treated as qualifying income. In general, such entities will be treated as partnerships for federal income tax purposes because they meet the passive income requirement under Code section 7704(c)(2). In addition, although in general the passive loss rules of the Code do not apply to regulated investment companies, such rules do apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded partnership.
For purposes of the diversification test in paragraph (b) above, identification of the issuer (or, in some cases, issuers) of a particular fund investment will depend on the terms and conditions of that investment. In some cases, identification of the issuer (or issuers) is uncertain under current law, and an adverse determination or future guidance by the IRS with respect to issuer identification for a particular type of investment may adversely affect the fund’s ability to meet the diversification test in (b) above. Also, for the purposes of the diversification test in paragraph (b) above, the term “outstanding voting securities of such issuer” will include the equity securities of a qualified publicly traded partnership.
If the fund qualifies as a regulated investment company that is accorded special tax treatment, the fund will not be subject to U. S. federal income tax on income or gains distributed in a timely manner to its shareholders in the form of dividends (including Capital Gain Dividends, as defined below).
If the fund were to fail to meet the income, diversification or distribution test described above, the fund could in some cases cure such failure, including by paying a fund-level tax, paying interest, making additional distributions, or disposing of certain assets. If the fund were ineligible to or otherwise did not cure such failure for any year, or were otherwise to fail 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. Some portions of such distributions may be eligible for the dividends received deduction in the case of corporate shareholders, and may be eligible to be treated as “qualified dividend income” in the case of shareholders taxed as individuals, provided, in both cases, that the shareholder meets certain holding period and other requirements in respect of the fund’s shares (as described below). 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.
The fund intends to distribute at least annually to its shareholders all or substantially all of its investment company taxable income (computed without regard to the dividends-paid deduction) and its net tax-exempt income (if any). The fund may distribute its net capital gain (that is, the excess of net long-term capital gain over net short-term capital loss, in each case determined with reference to any loss carryforwards). Investment company taxable income (which is retained by the fund) will be subject to tax at regular corporate rates. The fund may also retain for investment its net capital gain. If the fund retains any net capital gain, it will be subject to tax at regular corporate rates on the amount retained, but may designate the retained amount as undistributed capital gains in a notice to its shareholders who will be (i) required to include in income for U.S. federal income tax purposes, as long-term capital gain, their shares of such undistributed amount, and (ii) entitled to credit their proportionate shares of the tax paid by the fund on such undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds on a properly-filed U.S. tax return to the extent the credit exceeds such liabilities. If the fund makes this designation, for U.S. federal income tax
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purposes, the tax basis of shares owned by a shareholder of the fund will be increased by an amount equal to the difference between the amount of undistributed capital gains included in the shareholder’s gross income under clause (i) of the preceding sentence and the tax deemed paid by the shareholder under clause (ii) of the preceding sentence. The fund is not required to, and there can be no assurance the fund will, make this designation if it retains all or a portion of its net capital gain in a taxable year.
In determining its net capital gain, including in connection with determining the amount available to support a Capital Gain Dividend (as defined below), its taxable income and its earnings and profits, a regulated investment company may also elect to treat part or all of any post-October capital loss (defined as any net capital loss attributable to the portion, if any, of the taxable year after October 31 or, if there is no such loss, the net long-term capital loss or net short-term capital loss attributable to any such portion of the taxable year) or late-year ordinary loss (generally, the sum of its (i) net ordinary loss, if any, from the sale, exchange or other taxable disposition of property, attributable to the portion, if any, of the taxable year after October 31, and its (ii) other net ordinary loss, if any, attributable to the portion, if any, of the taxable year after December 31) as if incurred in the succeeding taxable year.
If the fund fails to distribute in a calendar year at least an amount equal to the sum of 98% of its ordinary income for such year and 98.2% of its capital gain net income for the one-year period ending October 31 of such year, plus any retained amount from the prior year, the fund will be subject to a nondeductible 4% excise tax on the undistributed amounts. For these purposes, ordinary gains and losses from the sale, exchange, or other taxable disposition of property that would otherwise be properly taken into account after October 31 are treated as arising on January 1 of the following calendar year. For purposes of the excise tax, the fund will be treated as having distributed any amount on which it has been subject to corporate income tax in the taxable year ending within the calendar year. A dividend paid to shareholders 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, although there can be no assurance that it will be able to do so.
The fund distributes its net investment income and capital gains to shareholders as dividends at least annually to the extent required to qualify as a regulated investment company under the Code and generally to avoid U.S. federal income or excise tax. Under current law, provided it is not treated as a “personal holding company” for U.S. federal income tax purposes, the fund is permitted to treat the portion of redemption proceeds paid to redeeming shareholders that represents the redeeming shareholders’ portion of the fund’s accumulated earnings and profits as a dividend on the fund’s tax return. This practice, which involves the use of tax equalization, will have the effect of reducing the amount of income and gains that the fund is required to distribute as dividends to shareholders in order for the fund to avoid federal income tax and excise tax. This practice may also reduce the amount of distributions required to be made to non-redeeming shareholders and the amount of any undistributed income will be reflected in the value of the shares of the fund; the total return on a shareholder’s investment will not be reduced as a result of this distribution policy.
Fund distributions. Distributions from the fund (other than exempt-interest dividends, as discussed below) generally are taxable to shareholders as ordinary income to the extent derived from the fund’s investment income and net short-term capital gains. Distributions are taxable whether shareholders receive them in cash or reinvest them in additional shares of the fund or other Putnam funds.
Taxes on distributions of capital gains are determined by how long the fund owned (or is deemed to have owned) the investments that generated them, rather than how long a shareholder has owned his or her shares. In general, the fund will recognize long-term capital gain or loss on investments it has owned for more than one year, and short-term capital gain or loss on investments it has owned for one year or less. Tax rules can alter the fund’s holding period in investments and thereby affect the tax treatment of gain or loss on such
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investments. Distributions of net capital gain that are properly reported by the fund as capital gain dividends (“Capital Gain Dividends”) will be treated as long-term capital gains includible in net capital gain and taxed to individuals at reduced rates. Distributions from capital gains generally are made after applying any available capital loss carryforwards. Distributions of net short-term capital gain (as reduced by any net long-term capital loss for the taxable year) will be taxable to shareholders as ordinary income. Investors who purchase shares shortly before the record date of a distribution will pay the full price for the shares and then receive some portion of the price back as a taxable distribution.
Section 1411 of the Code generally imposes a 3.8% Medicare contribution tax on the net investment income of certain individuals, trusts and estates to the extent their income exceeds certain threshold amounts. For these purposes, “net investment income” generally includes, among other things, (i) distributions paid by the fund of net investment income and capital gains (other than exempt-interest dividends) as described herein, and (ii) any net gain from the sale, exchange or other taxable disposition of fund shares. Shareholders are advised to consult their tax advisers regarding the possible implications of this additional tax on their investment in the fund.
Distributions of investment income reported by the fund as “qualified dividend income” received by an individual will be taxed at the reduced rates applicable to net 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. In general , 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 121-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, on the case of certain preferred stock, 91 days during the 181-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 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 passive foreign investment company. Each fund, other than fixed-income and money market funds, generally expects to report eligible dividends as qualified dividend income.
In general, distributions of investment income reported 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 such fund’s shares. In any event, if the aggregate qualified dividends received by the fund during any taxable year are 95% or more of its gross income (excluding net long-term capital gain over net short-term capital loss), then 100% of the fund’s dividends (other than dividends properly reported as Capital Gain Dividends) will be eligible to be treated as qualified dividend income.
In general, fixed-income and money market funds receive interest, rather than dividends, from their portfolio securities. As a result, it is not currently expected that any significant portion of such funds’ distributions to shareholders will be derived from qualified dividend income. For information regarding qualified dividend income received from underlying funds, see “Funds of funds” below.
In general, dividends of net investment income received by corporate shareholders of the fund will qualify for the 70% dividends-received deduction generally available to corporations only to the extent of the amount of eligible dividends received by the fund from domestic corporations for the taxable year. A dividend received by the fund will not be treated as a dividend eligible for the dividends-received deduction (1) if it has been
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received with respect to any share of stock that the fund has held for less than 46 days (91 days in the case of certain preferred stock) during the 91-day period beginning on the date which is 45 days before the date on which such share becomes ex-dividend with respect to such dividend (during the 181-day period beginning 90 days before such date in the case of certain preferred stock) or (2) to the extent that the fund is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Moreover, the dividends received deduction may otherwise be disallowed or reduced (1) if the corporate shareholder fails to satisfy the foregoing requirements with respect to its shares of the fund or (2) by application of various provisions of the Code (for instance, the dividends-received deduction is reduced in the case of a dividend received on debt-financed portfolio stock (generally, stock acquired with borrowed funds)). For information regarding eligibility for the dividends-received deduction of dividend income derived from an underlying fund, see “Funds of funds” below.
Exempt-interest dividends. A fund will be qualified to pay exempt-interest dividends to its shareholders 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 under Section 103(a) of the Code. In some cases, the fund may also pass through to its shareholders the tax-exempt character of any exempt-interest dividends it receives from underlying funds in which it invests (see “Funds of funds,” below). Distributions that the fund reports 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 (“AMT”) purposes and for state and local purposes. If the fund intends to qualify 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 IRS 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 notify its shareholders in a written statement of the portion of distributions for the taxable year that constitutes exempt-interest dividends.
Exempt-interest dividends may be taxable for purposes of the federal AMT. For individual shareholders, exempt-interest dividends that are derived from interest on private activity bonds that are issued after August 7, 1986 (other than a “qualified 501(c)(3) bond,” as such term is defined in the Code) generally must be included in an individual’s tax base for purposes of calculating the shareholder’s liability for U.S. federal AMT. Corporate shareholders will be required to include all exempt-interest dividends in determining their federal AMT. The AMT calculation for corporations is based, in part, on a corporation’s earnings and profits for the year. A corporation must include all exempt-interest dividends in calculating its earnings and profits for the year. Putnam AMT-Free Municipal Fund intends to distribute exempt-interest dividends that will not be taxable for federal AMT purposes for individuals. It intends to make such distributions by investing in Tax-exempt Securities other than private activity bonds that are issued after August 7, 1986 (other than “qualified 501(c)(3) bonds,” as such term is defined in the Code). Because corporate shareholders are required to include
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all exempt-interest dividends in determining their federal AMT, exempt-interest dividends distributed by Putnam AMT-Free Municipal Fund will be taxable for purposes of the federal AMT.
Funds of funds. If the fund invests in shares of underlying funds, a portion of its distributable income and gains will consist of distributions from the underlying funds and gains and losses on the disposition of shares of the underlying funds. To the extent that an underlying fund realizes net losses on its investments for a given taxable year, the fund will not be able to recognize its share of those losses (so as to offset distributions of net income or capital gains from other underlying funds) until and only to the extent that it disposes of shares of the underlying fund in a transaction qualifying for sale or exchange treatment or those losses reduce distributions required to be made by the underlying fund. Moreover, even when the fund does make such a disposition, a portion of its loss may be recognized as a long-term capital loss, which will not be treated as favorably for U.S. federal income tax purposes as a short-term capital loss or an ordinary deduction. In particular, the fund will not be able to offset any capital losses from its dispositions of underlying fund shares against its ordinary income (including distributions of any net short-term capital gains realized by an underlying fund). As a result of the foregoing rules, and certain other special rules, the amounts of net investment income and net capital gains that the fund will be required to distribute to shareholders may be greater than such amounts would have been had the fund invested directly in the securities held by the underlying funds, rather than investing in shares of the underlying funds. For similar reasons, the amount or timing of distributions from the fund qualifying for treatment as being of a particular character (e.g., as long-term capital gain, exempt interest, eligible for dividends-received deduction, etc.) will not necessarily be the same as it would have been had the fund invested directly in the securities held by the underlying funds. In addition, in certain circumstances, the “wash sale” rules under Section 1091 of the Code may apply to the fund’s sales of underlying fund shares that have generated losses. A wash sale occurs if shares of an underlying fund are sold by the fund at a loss and the fund acquires additional shares of that same underlying fund 30 days before or after the date of the sale. The wash-sale rules could defer losses in the fund’s hands on sales of underlying fund shares (to the extent such sales are wash sales) for extended (and, in certain cases, potentially indefinite) periods of time.
If the fund receives dividends from an underlying fund that qualifies as a regulated investment company, and the underlying fund reports such dividends as “qualified dividend income,” then the fund may, in turn, report a portion of its distributions as “qualified dividend income” as well, provided the fund meets the holding period and other requirements with respect to shares of the underlying fund.
If the fund receives dividends from an underlying fund and the underlying fund reports such dividends as eligible for the dividends-received deduction, then the fund is permitted, in turn, to designate a portion of its distributions as eligible for the dividends-received deduction, provided the fund meets the holding period and other requirements with respect to shares of the underlying fund.
If the fund were to own 20% or more of the voting interests of an investment company, subject to a safe harbor in respect of certain fund of funds arrangements, the fund would be required to “look through” the investment company to its holdings and combine the appropriate percentage (as determined pursuant to the applicable Treasury Regulations) of the investment company’s assets with the fund’s assets for purposes of satisfying the 25% diversification test described above.
If, at the close of each quarter of the fund’s taxable year, at least 50% of its total assets consists of interests in other regulated investment companies (such fund, a “qualified fund of funds”), the fund will be permitted to distribute exempt-interest dividends and thereby pass through to its shareholders the tax-exempt character of any exempt-interest dividends it receives from underlying funds in which it invests, or interest on any tax-exempt obligations in which it directly invests, if any. For further information regarding exempt-interest dividends, see “Exempt-interest dividends,” above.
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If the fund is a qualified fund of funds, the fund will be entitled to elect to pass through to its shareholders a credit or deduction for foreign taxes (if any) borne in respect of foreign securities income earned by the fund, or by any underlying funds and passed through to the fund. If the fund so elects, shareholders will include in gross income from foreign sources their pro rata shares of such taxes, if any, treated as paid by the fund. Even if the fund is eligible to make such an election for a given year, it may determine not to do so. If the fund elects to pass through to its shareholders foreign tax credits or deductions, tax-exempt shareholders and those who invest in the fund through tax-advantaged accounts such as IRAs will not benefit from any such tax credit or deduction. See “Foreign taxes” below for more information.
Derivatives, hedging and related transactions; certain exposure to commodities. In general, option premiums received by the fund are not immediately included in the income of the fund. Instead, the premiums are recognized when the option contract expires, the option is exercised by the holder, or the fund transfers or otherwise terminates the option (e.g., through a closing transaction). If a call option written by the fund is exercised and the fund sells or delivers the underlying stock, the fund generally will recognize capital gain or loss equal to (a) the sum of the strike price and the option premium received by the fund minus (b) the fund’s basis in the stock. Such gain or loss generally will be short-term or long-term depending upon the holding period of the underlying stock. If securities are purchased by the fund pursuant to the exercise of a put option written by it, the fund generally will subtract the premium received for purposes of computing its cost basis in the securities purchased. Gain or loss arising in respect of a termination of the fund’s obligation under an option other than through the exercise of the option will be short-term gain or loss depending on whether the premium income received by the fund is greater or less than the amount paid by the fund (if any) in terminating the transaction. Thus, for example, if an option written by the fund expires unexercised, the fund generally will recognize short-term gain equal to the premium received.
Certain covered call writing activities of the fund may trigger the U.S. federal income tax straddle rules contained primarily in Section 1092 of the Code. Very generally, where applicable, Section 1092 requires (i) that losses be deferred on positions deemed to be offsetting positions with respect to “substantially similar or related property,” to the extent of unrealized gain in the latter, and (ii) that the holding period of such a straddle position that has not already been held for the long-term holding period be terminated and begin anew once the position is no longer part of a straddle. Options on single stocks that are not “deep in the money” may constitute qualified covered calls, which generally are not subject to the straddle rules; the holding period on stock underlying qualified covered calls that are “in the money” although not “deep in the money” will be suspended during the period that such calls are outstanding. Thus, the straddle rules and the rules governing qualified covered calls could cause gains that would otherwise constitute long-term capital gains to be treated as short-term capital gains, and distributions that would otherwise constitute “qualified dividend income” or qualify for the dividends-received deduction to fail to satisfy the holding period requirements and therefore to be taxed as ordinary income or to fail to qualify for the 70% dividends-received deduction, as the case may be.
In general, 40% of the gain or loss arising from the closing out of a futures contract traded on an exchange approved by the Commodities Futures Trading Commission is treated as short-term gain or loss, and 60% is treated as long-term gain or loss, although certain foreign currency gains and losses from such contracts may be treated as ordinary in character. Also, such contracts held by the fund at the end of each taxable year (and, for purposes of the 4% excise tax, on certain other dates as prescribed under the Code) are “marked to market” with the result that unrealized gains or losses are treated as though they were realized and the resulting gain or loss is treated as ordinary or 60/40 gain or loss, as applicable.
In addition to the special rules described above in respect of options and futures transactions, the fund’s derivative transactions, including transactions in options, futures contracts, straddles, securities loan and other similar transactions, including for hedging purposes, 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
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long-term capital gains into short-term capital gains, short-term capital losses into long-term capital losses, or capital gains into ordinary income. These rules could therefore affect the amount, timing and character of distributions to shareholders. The fund may make any applicable elections pertaining to such transactions consistent with the interests of the fund.
Because these and other tax rules applicable to these types of transactions are in some cases uncertain under current law, an adverse determination or future guidance by the IRS with respect to these rules (which determination or guidance could be retroactive) may affect whether the fund has made sufficient distributions, and otherwise satisfied the relevant requirements, to maintain its qualification as a regulated investment company and avoid a fund-level tax.
A fund’s use of commodity-linked derivatives can be limited by the fund’s intention to qualify as a regulated investment company and can bear on its ability to so qualify. Income and gains from certain commodity-linked derivatives do not constitute qualifying income to a regulated investment company for purposes of the 90% gross income test described above. The tax treatment of certain other commodity-linked derivative instruments in which the fund might invest is not certain, in particular with respect to whether income or gains from such instruments constitute qualifying income to a regulated investment company. If the fund were to treat income or gain from a particular instrument as qualifying income and the income or gain were later determined not to constitute qualifying income and, together with any other nonqualifying income, caused the fund’s nonqualifying income to exceed 10% of its gross income in any taxable year, the fund would fail to qualify as a regulated investment company unless it is eligible to and does pay a tax at the fund level.
The tax rules are uncertain with respect to the treatment of income or gains arising in respect of commodity-linked exchange-traded notes (“ETNs”) and certain commodity-linked structured notes; also, the timing and character of income or gains arising from ETNs can be uncertain. An adverse determination or future guidance by the IRS (which determination or guidance could be retroactive) may affect the fund’s ability to qualify for treatment as a regulated investment company and to avoid a fund-level tax.
To the extent that, in order to achieve exposure to commodities, the fund invests in entities that are treated as pass-through vehicles for U.S. federal income tax purposes, including, for instance, certain ETFs (e.g., ETFs investing in gold bullion) and partnerships other than qualified publicly traded partnerships (as defined earlier), all or a portion of any income and gains from such entities could constitute non-qualifying income to the fund for purposes of the 90% gross income requirement described above. In such a case, the fund’s investments in such entities could be limited by its intention to qualify as a regulated investment company and could bear on its ability to so qualify. Certain commodities-related ETFs may qualify as qualified publicly traded partnerships. In such cases, the net income derived from such investments will constitute qualifying income for purposes of the 90% gross income requirement. If, however, such a vehicle were to fail to qualify as a qualified publicly traded partnership in a particular year, a portion of the gross income derived from it in such year could constitute non-qualifying income to the fund for purposes of the 90% gross income requirement and thus could adversely affect the fund’s ability to qualify as a regulated investment company for a particular year. In addition, the diversification requirement described above for regulated investment company qualification will limit the fund’s investments in one or more vehicles that are qualified publicly traded partnerships to 25% of the fund’s total assets as of the close of each quarter of the fund’s taxable year.
Certain of the fund’s investments in derivative instruments and foreign currency-denominated instruments, and any of the fund's transactions in foreign currencies and hedging activities, are likely to produce a difference between its book income and its taxable income. If such a difference arises, and 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 and to eliminate fund-level income tax. In the alternative, if the fund’s book income exceeds the sum of its taxable income and tax-exempt income, the distribution (if any) of such
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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.
Investments in REITs. The fund’s investment in REIT equity securities may result in the fund’s receipt of cash in excess of the REIT’s earnings. If the fund distributes such amounts, such distribution could constitute a return of capital to the fund shareholders for U.S. federal income tax purposes. Dividends received by the fund from a REIT generally will not constitute qualified dividend income and will not qualify for the corporate dividends-received deduction.
The fund may invest in REITs, including REITs that hold residual interests in real estate mortgage investment conduits (“REMICs”) (including by investing in residual interests in collateralized mortgage obligations (“CMOs”) with respect to which an election to be treated as a REMIC is in effect), REITs that are themselves taxable mortgage pools (“TMPs”) or REITs that invest in TMPs. Under a notice issued by the IRS in October 2006 and Treasury regulations that have not yet been issued, but apply retroactively, a portion of the fund’s income from a REIT that is attributable to the REIT’s residual interest in a REMIC or TMP (referred to in the Code as an “excess inclusion”) will be subject to U.S. federal income tax in all events. This notice also provides, and the regulations are expected to provide, that excess inclusion income of a regulated investment company, such as the fund, will be allocated to shareholders of the regulated investment company in proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related REMIC or TMP residual interest directly. As a result, a fund investing in such interests may not be a suitable investment for charitable remainder trusts, as noted below.
In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated business taxable income (“UBTI”) to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on UBTI, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a tax return and pay tax on such income, and (iii) in the case of a non-U.S. shareholder, will not qualify for any reduction in U.S. federal withholding tax. A shareholder will be subject to U.S. federal income tax on such inclusions notwithstanding any exemption from such income tax otherwise available under the Code. Any investment in residual interests of CMO that has elected to be treated as a REMIC can create complex tax problems, especially if the fund has state or local governments or other tax-exempt organizations as shareholders.
Income of a fund that would be UBTI if earned directly by a tax-exempt entity generally will not constitute UBTI when distributed to a tax-exempt shareholder of the fund. Notwithstanding the foregoing, a tax-exempt shareholder will recognize UBTI by virtue of its investment in the fund if shares in the fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Code Section 514(b). Furthermore, a tax-exempt shareholder may recognize UBTI if the fund recognizes excess inclusion income derived from direct or indirect investments in REMIC residual interests or TMPs if the amount of such income recognized by the fund exceeds the fund's investment company taxable income (after taking into account deductions for dividends paid by the fund).
Under legislation enacted in December 2006, a charitable remainder trust (“CRT”), as defined in Section 664 of the Code, that realizes UBTI for a taxable year must pay an excise tax annually of an amount equal to such UBTI. Under IRS guidance issued in October 2006, a CRT will not recognize UBTI solely as a result of investing in a fund that recognizes excess inclusion income. Rather, if at any time during any taxable year a CRT (or one of certain other tax-exempt shareholders, such as the United States, a state or political subdivision, or an agency or instrumentality thereof, and certain energy cooperatives) is a record holder of a share in a fund that recognizes excess inclusion income, then the fund will be subject to a tax on that portion of
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its excess inclusion income for the taxable year that is allocable to such shareholders at the highest federal corporate income tax rate. The extent to which this IRS guidance remains applicable in light of the December 2006 legislation is unclear. To the extent permitted under the 1940 Act, the fund may elect to specially allocate any such tax to the applicable CRT, or other shareholder, and thus reduce such shareholder’s distributions for the year by the amount of the tax that relates to such shareholder’s interest in the fund. CRTs and other tax-exempt investors are urged to consult their tax advisors concerning the consequences of investing in the fund.
Return of capital distributions. If the fund makes a distribution in and with respect to any taxable year to a shareholder in excess of the fund’s current and accumulated “earnings and profits,” the excess distribution will be treated as a return of capital to the extent of such shareholder’s tax basis in its shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces a shareholder’s tax basis in its shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by the shareholder of its shares. Dividends and distributions on the fund’s shares generally are 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. Such realized income and gains may be required to be distributed even when the fund’s net asset value also reflects unrealized losses. 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. Some debt obligations with a fixed maturity date of more than one year from the date of issuance (and zero-coupon debt obligations with a fixed maturity date of more than one year from the date of issuance) that are acquired by the fund will be treated as debt obligations that are issued originally at a discount. Generally, the amount of the original issue discount (“OID”) is treated as interest income and is included in the fund’s income (and required to be distributed by the fund) over the term of the debt security, even though payment of that amount is not received until a later time, upon partial or full repayment or disposition of the debt security. In addition, payment-in-kind securities will give rise to income which is required to be distributed and is taxable even though the fund holding the security receives no interest payment in cash on the security during the year.
Some debt obligations with a fixed maturity date of more than one year from the date of issuance that are acquired by the fund in the secondary market may be treated as having “market discount.” Very generally, market discount is the excess of the stated redemption price of a debt obligation (or in the case of an obligation issued with OID, its “revised issue price”) over the purchase price of such obligation. Generally, any gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the “accrued market discount” on such debt security. Alternatively, the fund may elect to accrue market discount currently, in which case the fund will be required to include the accrued market discount in the fund's income (as ordinary income) and thus distribute it over the term of the debt security, even though payment of that amount is not received until a later time, upon partial or full repayment or disposition of the debt security. The rate at which the market discount accrues, and thus is included in the fund's income, will depend upon which of the permitted accrual methods the Fund elects.
Some debt obligations with a fixed maturity date of one year or less from the date of issuance that are acquired by the fund may be treated as having “acquisition discount” (very generally, the excess of the stated redemption price over the purchase price) or OID. The fund will be required to include the acquisition discount or OID in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. The fund may make one or more of the
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elections applicable to debt obligations having acquisition discount or OID, which could affect the character and timing of recognition of income.
If the fund holds the foregoing kinds of securities, or other debt securities subject to special rules under the Code, it may be required to pay out as an income distribution each year an amount which is greater than the total amount of cash interest the fund actually received. Such distributions may be made from the cash assets of the fund or, if necessary, by disposition of portfolio securities including at a time when it may not be advantageous to do so. These dispositions may cause the fund to realize higher amounts of short-term capital gains (generally taxed to shareholders at ordinary income tax rates) and, in the event the fund realizes net capital gains from such transactions, its shareholders may receive a larger capital gain distribution than if the fund had not held such securities.
Securities purchased at a premium. Very generally, where the fund purchases a bond at a price that exceeds the redemption price at maturity (i . e ., a premium), the premium is amortizable over the remaining term of the bond. In the case of a taxable bond, if the fund makes an election applicable to all such bonds it purchases, which election is irrevocable without consent of the IRS, the fund reduces the current taxable income from the bond by the amortized premium and reduces its tax basis in the bond by the amount of such offset; upon the disposition or maturity of such bonds acquired on or after January 4, 2013, the fund is permitted to deduct any remaining premium allocable to a prior period. In the case of a tax-exempt bond, tax rules require the fund to reduce its tax basis by the amount of amortized premium.
Higher-Risk Securities. The fund may invest to a significant extent in debt obligations that are in the lowest rating categories or are unrated, including debt obligations of issuers not currently paying interest or who are in default. Investments in debt obligations that are at risk of or in default present special tax issues for the fund. Tax rules are not entirely clear about issues such as whether the fund should recognize market discount on a debt obligation and, if so, the amount of market discount the fund should recognize, when the fund may cease to accrue interest, OID or market discount, when and to what extent deductions may be taken for bad debts or worthless securities and how payments received on obligations in default should be allocated between principal and income. These and other related issues will be addressed by the fund when, as and if it invests in such securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a regulated investment company and does not become subject to U.S. federal income or excise tax.
Capital loss carryforward. Distributions from capital gains generally are made after applying any available capital loss carryforwards. Capital loss carryforwards are reduced to the extent they offset current-year net realized capital gains, whether the fund retains or distributes such gains. If a fund incurs or has incurred net capital losses in taxable years beginning after December 22, 2010 (“post-2010 losses”), those losses will be carried forward to one or more subsequent taxable years; any such carryforward losses will retain their character as short-term or long-term. If the fund incurred net capital losses in a taxable year beginning on or before December 22, 2010 (“pre-2011 losses”), the fund is permitted to carry such losses forward for eight taxable years; in the year to which they are carried forward, such losses are treated as short-term capital losses that first offset any short-term capital gains, and then offset long-term capital gains. The fund must use any post 2010 losses, which will not expire, before it uses any pre-2011 losses. This increases the likelihood that pre-2011 losses will expire unused at the conclusion of the eight-year carryforward period. The amounts and expiration dates, if any, of any capital loss carryforwards available to the fund are shown in Note 1 (Federal income taxes) to the financial statements included in this Part II of the SAI or incorporated by reference into this SAI.
Foreign taxes. If more than 50% of the fund’s assets at taxable 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. A qualified fund of funds
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also may elect to pass through to its shareholders foreign taxes it has paid or foreign taxes passed through to it by any underlying fund that itself elected to pass through such taxes to shareholders (see “Funds of funds” above). 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 U.S. federal income tax returns may claim a credit (but no deduction) for such foreign taxes. Even if the fund is eligible to make such an election for a given year, it may determine not to do so. However, even if the fund elects to pass through to its shareholders foreign tax credits or deductions, tax-exempt shareholders and those who invest in the fund through tax-advantaged accounts such as IRAs will not benefit from any such tax credit or deduction.
Passive Foreign Investment Companies. Investments treated as equity for federal income tax purposes in certain “passive foreign investment companies” (“PFICs”, as defined below) could subject the fund to a U.S. federal income tax (including interest charges) on distributions received from the company or on the proceeds from the disposition of its investment in such a company. This tax cannot be eliminated by making distributions to fund shareholders; 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.” The QEF and mark-to-market elections may have the effect of accelerating the recognition of income (without the receipt of cash) and increasing the amount required to be distributed by the fund to avoid taxation. Making either of these elections therefore may require the fund to liquidate other investments to meet its distribution requirement, which may also accelerate the recognition of gain and affect the fund’s total return. Dividends paid by PFICs will not be eligible to be treated as “qualified dividend income.” If the fund indirectly invests in PFICs by virtue of the fund’s investments in other funds, it may not make such PFIC elections; rather, the underlying funds directly investing in the PFICs would decide whether to make such elections.
Because it is not always possible to identify a foreign corporation as a PFIC, the fund may incur the tax and interest charges described above in some instances.
A PFIC 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.
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. Any such net gains could require a larger dividend toward the end of the calendar year. Any such net losses generally will reduce and potentially require the recharacterization of prior ordinary income distributions. Such ordinary income treatment may accelerate fund distributions to shareholders and increase the distributions taxed to shareholders as ordinary income. Any net ordinary losses so created cannot be carried forward by the fund to offset income or gains earned in subsequent taxable years.
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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 generally will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. This loss disallowance, however, does not apply with respect to redemptions of fund shares held for six months or less with respect to a regular exempt-interest dividend paid by the fund if such fund declares substantially all of its net tax-exempt income as exempt-interest dividends on a daily basis, and pays such dividends at least on a monthly basis. In addition, any loss (not already disallowed as provided in the preceding sentences) 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 Capital Gain Dividends received (or deemed 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.
Cost basis reporting. Upon the redemption or exchange of a shareholder’s shares in the fund, the fund, or, if such shareholder’s shares are then held through a financial intermediary, the financial intermediary, will be required to provide the shareholder and the IRS with cost basis and certain other related tax information about the fund shares the shareholder redeemed or exchanged. This cost basis reporting requirement is effective for shares purchased, including through dividend reinvestment, on or after January 1, 2012. Shareholders can visit www.putnam.com/costbasis, or call the fund at 1-800-225-1581, or consult their financial representatives, as appropriate, for more information regarding available methods for cost basis reporting and how to select a particular method. Shareholders should consult their tax advisors to determine which available cost basis method is best for them.
Shares purchased through tax-qualified plans. Special tax rules apply to investments through employer-sponsored retirement plans and other tax-qualified plans or tax-advantaged arrangements. Shareholders should consult their tax advisors to determine the suitability of shares of the fund as an investment through such plans and arrangements 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 backup withholding rules may also apply to distributions that are properly reported as exempt-interest dividends. The current back-up withholding tax rate is 28%. Backup withholding is not an additional tax. Any amounts withheld may be credited against the shareholder’s U.S. federal income tax liability, provided the appropriate information is furnished to the IRS.
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 advisors in this regard.
Tax shelter reporting regulations. Under U.S. Treasury regulations, if a shareholder recognizes 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 IRS 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. The fact that a loss is reportable under these regulations does not affect the legal
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determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
Non-U.S. shareholders. Distributions by the fund to shareholders that are not “U.S. person” within the meaning of the Code (“foreign shareholders”) properly reported by the fund as (1) Capital Gain Dividends, (2) interest-related dividends, (3) short-term capital gain dividends, each as defined below and subject to certain conditions described below, and (4) exempt-interest dividends generally are not subject to withholding of U.S. federal income tax.
The exception to withholding for “interest-related dividends” generally applies with respect to distributions (other than distributions to a foreign shareholder (w) that has not provided a satisfactory statement that the beneficial owner is not a U.S. person, (x) to the extent that the dividend is attributable to certain interest on an obligation if the foreign shareholder is the issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign countries that have inadequate information exchange with the United States, or (z) to the extent the dividend is attributable to interest paid by a person that is a related person of the foreign shareholder and the foreign shareholder is a controlled foreign corporation) from U.S.-source interest income of types similar to those not subject to U.S. federal income tax if earned directly by an individual foreign shareholder, to the extent such distributions are properly reported by the fund in a written notice to shareholders. The exception to withholding for “short-term capital gain dividends” applies to distributions (other than (a) distributions to an individual foreign shareholder who is present in the United States for a period or periods aggregating 183 days or more during the year of the distribution and (b) distributions subject to special rules regarding the disposition of U.S. real property interests as described below) of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly reported by the fund in a written notice to shareholders (a “short-term capital gain dividend”).
The fact that a fund achieves its goals by investing in underlying funds generally does not adversely affect the fund’s ability to pass on to foreign shareholders the full benefit of the interest-related dividends and short-term capital gain dividends that it receives from its investments in underlying funds, except possibly to the extent that (1) interest-related dividends received by the fund are offset by deductions allocable to the fund’s qualified interest income or (2) short-term capital gain dividends received by the fund are offset by the fund’s net short-or long-term capital losses, in which case the amount of a distribution from the fund to a foreign shareholder that is properly reported as either an interest-related dividend or a short-term capital gain dividend, respectively, may be less than the amount that such shareholder would have received had they invested directly in the underlying funds.
Distributions by the fund to foreign shareholders other than Capital Gain Dividends, interest-related dividends, and short-term capital gain dividends and exempt-interest dividends (e.g.,; dividends attributable to foreign-source dividend and interest income or to short-term capital gains or U.S.-source interest income to which the exception from withholding described above does not apply) are generally subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate).
Under U.S. federal tax law, a beneficial holder of shares who is a foreign shareholder is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the fund or on Capital Gain Dividends , unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States; (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met; or (iii) the special rules relating to gain attributable to the sale or exchange of “U.S. real property interests” (“USRPIs”) apply to the foreign shareholder's sale of shares of the fund or to the Capital Gain Dividend the foreign shareholder received (as described below).
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If a beneficial holder who is a foreign shareholder has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates and, in the case of a foreign corporation, may also be subject to a branch profits tax. If a foreign shareholder is eligible for the benefits of a tax treaty, any effectively connected income or gain will generally be subject to U.S. federal income tax on a net basis only if it is also attributable to a permanent establishment maintained by the shareholder in the United States. More generally, foreign shareholders who are residents in a country with an income tax treaty with the United States may obtain different tax results than those described herein, and are urged to consult their tax advisors.
Special rules would apply if the fund were a qualified investment entity (“QIE”) because it is either a “U.S. real property holding corporation” (“USRPHC”) or would be a USRPHC but for the operation of certain exceptions to the definition of USRPIs described below. Very generally, a USRPHC is a domestic corporation that holds USRPIs the fair market value of which equals or exceeds 50% of the sum of the fair market values of the corporation’s USRPIs, interests in real property located outside the United States, and other trade or business assets. USRPIs generally are defined as any interest in U.S. real property and any interest (other than solely as a creditor) in a USRPHC or, very generally, an entity that has been a USRPHC in the last five years. A fund that holds, directly or indirectly, significant interests in REITs may be a USRPHC. Interests in domestically controlled QIEs, including RICs and REITs that are QIEs, not-greater-than-10% interests in publicly traded classes of stock in REITs and not-greater-than-5% interests in publicly traded classes of stock in RICs generally are not USRPIs, but these exceptions do not apply for purposes of determining whether a fund is a QIE.
If an interest in the fund were a USRPI, the fund would be required to withhold U.S. tax on the proceeds of a share redemption by a greater-than-5% foreign shareholder, in which case such foreign shareholder generally would also be required to file U.S. tax returns and pay any additional taxes due in connection with the redemption.
If the fund were a QIE under a special “look-through” rule, any distributions by the fund to a foreign shareholder (including, in certain cases, distributions made by the fund in redemption of its shares) attributable directly or indirectly to (i) distributions received by the fund from a lower-tier RIC or REIT that the fund is required to treat as USRPI gain in its hands and (ii) gains realized on the disposition of USRPIs by the fund would retain their character as gains realized from USRPIs in the hands of the fund’s foreign shareholders and would be subject to U.S. tax withholding. In addition, such distributions could result in the foreign shareholder being required to file a U.S. tax return and pay tax on the distributions at regular U.S. federal income tax rates. The consequences to a foreign shareholder, including the rate of such withholding and character of such distributions (e.g., as ordinary income or USRPI gain), would vary depending upon the extent of the foreign shareholder’s current and past ownership of the fund.
Foreign shareholders of the fund also may be subject to “wash sale” rules to prevent the avoidance of the tax-filing and -payment obligations discussed above through the sale and repurchase of fund shares.
Foreign shareholders should consult their tax advisers and, if holding shares through intermediaries, their intermediaries, concerning the application of these rules to their investment in the fund.
Other reporting and withholding requirements . Sections 1471-1474 of the Code and the U.S. Treasury and IRS guidance issued thereunder (collectively, “FATCA”) generally require a fund to obtain information sufficient to identify the status of each of its shareholders under FATCA or under an applicable intergovernmental agreement (an “IGA”) between the United States and a foreign government. If a shareholder fails to provide the requested information or otherwise fails to comply with FATCA or an IGA, the fund may be required to withhold under FATCA at a rate of 30% with respect to that shareholder on ordinary dividends
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it pays and 30% of the gross proceeds of share redemptions or exchanges and certain capital gain dividends it pays on or after January 1, 2017 (which date, under recent Treasury guidance, is expected to be delayed until on or after January 1, 2019). If a payment by the fund is subject to FATCA withholding, the fund is required to withhold even if such payment would otherwise be exempt from withholding under the rules applicable to foreign shareholders described above (e.g., Capital Gain Dividends, short-term capital gain dividends and interest-related dividends). Each prospective investor is urged to consult its tax advisor regarding the applicability of FATCA and any other reporting requirements with respect to the prospective investor’s own situation, including investments through an intermediary.
General Considerations. The U.S. federal income tax discussion set forth above is for general information only. Prospective investors should consult their tax advisers regarding the specific federal tax consequences of purchasing, holding, and disposing of shares of the fund, as well as the effects of state, local and foreign tax law and any proposed tax law changes.
MANAGEMENT
Trustees
Name, Address1 , Year of | ||
Birth, Position(s) Held with | Principal | |
Fund and Length of Service | Occupation(s) During | |
as a Putnam Fund Trustee2 | Past 5 Years | Other Directorships Held by Trustee |
| ||
Liaquat Ahamed (Born | Author; won Pulitzer | Trustee of the Brookings Institution (a nonprofit |
1952), Trustee since 2012 | Prize for Lords of | public policy organization). Mr. Ahamed is also a |
Finance: The Bankers | director of the Rohatyn Group, an emerging-market | |
Who Broke the World. | fund complex that manages money for institutions. | |
Director of Aspen | Mr. Ahamed has 25 years experience in the | |
Insurance Co., a New | management of fixed income portfolios and was | |
York Stock Exchange | previously the Chief Executive Officer of Fischer | |
company and Chair of | Francis Trees & Watts, Inc., a fixed-income | |
the Aspen Board’s | investment management subsidiary of BNP Paribas. | |
Investment Committee. | Mr. Ahamed holds a B.A. in economics from | |
Trinity College, Cambridge University and an M.A. | ||
in economics from Harvard University. | ||
|
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Name, Address1 , Year of | ||
Birth, Position(s) Held with | Principal | |
Fund and Length of Service | Occupation(s) During | |
as a Putnam Fund Trustee2 | Past 5 Years | Other Directorships Held by Trustee |
| ||
Ravi Akhoury (Born 1947), | Served as Chairman and | Director of RAGE Frameworks, Inc. and English |
Trustee since 2009 | CEO of MacKay Shields | Helper, Inc. (each a private software company). Mr. |
(a multi-product | Akhoury previously served as Director of Jacob | |
investment management | Ballas Capital India (a non-banking finance | |
firm) from 1992 to 2007. | company focused on private equity advisory | |
services) and a member of its Compensation | ||
Committee. He also served as Director and on the | ||
Compensation Committee of MaxIndia/New York | ||
Life Insurance Company in India. Mr. Akhoury is | ||
also a Trustee of the Rubin Museum, serving on the | ||
Investment Committee, and of American India | ||
Foundation. Mr. Akhoury is a former Vice President | ||
and Investment Policy Committee member of | ||
Fischer, Francis, Trees and Watts (a fixed-income | ||
investment management subsidiary of BNP | ||
Paribas). He previously served on the Board of | ||
Bharti Telecom (an Indian telecommunications | ||
company) and was a member of its Audit and | ||
Compensation Committees. He also served on the | ||
Board of Thompson Press (a publishing company) | ||
and was a member of its Audit Committee. Mr. | ||
Akhoury graduated from the Indian Institute of | ||
Technology with a BS in Engineering and obtained | ||
an MS in Quantitative Methods from SUNY at | ||
Stony Brook. | ||
|
B-73 |
Name, Address1 , Year of | ||
Birth, Position(s) Held with | Principal | |
Fund and Length of Service | Occupation(s) During | |
as a Putnam Fund Trustee2 | Past 5 Years | Other Directorships Held by Trustee |
| ||
Barbara M. Baumann (Born | President of Cross Creek | Director of Buckeye Partners, L.P. (a publicly |
1955), Trustee since 2010 | Energy Corporation, a | traded master limited partnership focused on |
strategic consultant to | pipeline transport, storage and distribution of | |
domestic energy firms | petroleum products) and Devon Energy Corporation | |
and direct investor in | (a leading independent natural gas and oil | |
energy projects. | exploration and production company). She serves on | |
the board of The Denver Foundation, is a former | ||
Chair of the Board, and a current Board member, of | ||
Girls Inc. of Metro Denver (a nonprofit organization | ||
benefitting young women), and serves on the | ||
Finance Committee of the Children’s Hospital of | ||
Colorado. Until September 2014, Ms. Baumann was | ||
a director of UNS Energy Corporation (a publicly | ||
held electric and gas utility in Arizona). Until May | ||
2014, Ms. Baumann was a Director of SM Energy | ||
Corporation (a publicly held U.S. exploration and | ||
production company). Until May 2012, Ms. | ||
Baumann was a Director of CVR Energy, Inc. (a | ||
publicly held petroleum refiner and fertilizer | ||
manufacturer). Prior to 2003, she was Executive | ||
Vice President of Associated Energy Managers, | ||
LLC (a domestic private equity firm). From 1981 | ||
until 2000 she held a variety of financial and | ||
operational management positions with the global | ||
energy company Amoco Corporation and its | ||
successor, BP. Ms. Baumann holds a B.A. from | ||
Mount Holyoke College and an MBA from The | ||
Wharton School of the University of Pennsylvania. | ||
| ||
Jameson A. Baxter (Born | President of Baxter | Chair of the Mutual Fund Directors Forum; Director |
1943), Trustee since 1994, | Associates, Inc., (a | of the Adirondack Land Trust; and Trustee of the |
Vice Chair from 2005 to 2011 | private investment firm). | The Nature Conservancy’s Adirondack Chapter. |
and Chair since 2011 | Until 2011, Ms. Baxter was a Director of ASHTA | |
Chemicals Inc. Until 2007, Ms. Baxter was a | ||
Director of Banta Corporation (a printing and | ||
supply chain management company), Ryerson, Inc. | ||
(a metals service company) and Advocate Health | ||
Care. She has also served as a director on a number | ||
of other boards including BoardSource (formerly the | ||
National Center for Nonprofit Boards), Intermatic | ||
Corporation (a manufacturer of energy control | ||
products) and MB Financial. She is Chairman | ||
Emeritus of the Board of Trustees, Mount Holyoke | ||
College. Ms. Baxter is also a graduate of Mount | ||
Holyoke College. | ||
|
B-74 |
Name, Address1 , Year of | ||
Birth, Position(s) Held with | Principal | |
Fund and Length of Service | Occupation(s) During | |
as a Putnam Fund Trustee2 | Past 5 Years | Other Directorships Held by Trustee |
| ||
Robert J. Darretta (Born | Mr. Darretta serves as a | Until April, 2007, Mr. Darretta was Vice Chairman |
1946), Trustee since 2007 | director of the United | of the Board of Directors of Johnson & Johnson (a |
Health Group. From | diversified health care conglomerate). Mr. Darretta | |
2009-2012, Mr. Darretta | received a B.S. in Economics from Villanova | |
served as the Health | University. | |
Care Industry Advisor to | ||
Permira, (a global | ||
private equity firm). | ||
Prior to 2007, Mr. | ||
Darretta was the Chief | ||
Financial Officer of | ||
Johnson & Johnson. | ||
| ||
Katinka Domotorffy (Born | Voting member of the | Director of Reach Out and Read of Greater New |
1975), Trustee since 2012 | Investment Committees | York, an organization dedicated to promoting |
of the Anne Ray | childhood literacy | |
Charitable Trust and | Center, and of College Now Greater Cleveland. Ms. | |
Margaret A. Cargill | Domotorffy holds a BSc in Economics from the | |
Foundation, part of the | University of Pennsylvania and an MSc in | |
Margaret A. Cargill | Accounting and Finance from the London School of | |
Philanthropies. Prior to | Economics. | |
2012, Ms. Domotorffy | ||
was Partner, Chief | ||
Investment Officer, and | ||
Global Head of | ||
Quantitative Investment | ||
Strategies at Goldman | ||
Sachs Asset | ||
Management. | ||
| ||
John A. Hill (Born 1942), | Vice Chairman, First | Director of Devon Energy Corporation and various |
Trustee since 1985 and | Reserve Corporation (a | private companies owned by First Reserve |
Chairman from 2000 to 2011 | private equity buyout | Corporation. He is also Chairman of The Board of |
firm that specializes in | Trustees of Sarah Lawrence College and a member | |
energy investments in | of the Advisory Board of the Millstein Center for | |
the diversified world- | Global Markets and Corporate Ownership at the | |
wide energy industry). | Columbia University Law School. Mr. Hill received | |
a B.A in Economics from Southern Methodist | ||
University and pursued graduate studies as a | ||
Woodrow Wilson Fellow. | ||
|
B-75 |
Name, Address1 , Year of | ||
Birth, Position(s) Held with | Principal | |
Fund and Length of Service | Occupation(s) During | |
as a Putnam Fund Trustee2 | Past 5 Years | Other Directorships Held by Trustee |
| ||
Paul L. Joskow (Born 1947), | President of the Alfred | Trustee of Yale University; a Director of Exelon |
Trustee since 1997 | P. Sloan Foundation (a | Corporation (an energy company focused on power |
philanthropic institution | services); and a Member of the Board of Overseers | |
focused primarily on | of the Boston Symphony Orchestra. Prior to April | |
research and education | 2013, he served as Director of TransCanada | |
on issues related to | Corporation and TransCanada Pipelines Ltd. | |
science, technology and | (energy companies focused on natural gas | |
economic performance). | transmission, oil pipelines, and power services.) | |
He is the Elizabeth and | Prior to August 2007, he served as a Director of | |
James Killian Professor | National Grid (a U.K.-based holding company with | |
of Economics, Emeritus | interests in electric and gas transmission and | |
at the Massachusetts | distribution and telecommunications infrastructure). | |
Institute of Technology | Prior to July, 2006, he served as President of the | |
(“MIT”). | Yale University Council. Prior to February 2005, he | |
Prior to 2007, he was the | served on the board of the Whitehead Institute for | |
Director of the Center | Biomedical Research (a non-profit research | |
for Energy and | institution). Prior to February 2002, he was a | |
Environmental Policy | Director of State Farm Indemnity Company (an | |
Research at MIT. | automobile insurance company), and prior to March | |
2000, he was a Director of New England Electric | ||
System (a public utility holding company). Dr. | ||
Joskow holds a Ph.D. and a M.Phil. from Yale | ||
University and a B.A. from Cornell University. | ||
| ||
Kenneth R. Leibler (Born | A founder and former | Until November 2010, Mr. Leibler was a Director of |
1949), Trustee since 2006 | Chairman of the Boston | Ruder Finn Group (a global communications and |
Options Exchange (an | advertising firm). Prior to December 2006, Mr. | |
electronic market place | Leibler served as a Director of the Optimum Funds | |
for the trading of listed | Group. Prior to October 2006, he served as a | |
derivatives securities). | Director of ISO New England (the organization | |
He currently serves on | responsible for the operation of the electric | |
the Board of Trustees of | generation system in the New England states). Prior | |
Beth Israel Deaconess | to 2000, he was a Director of the Investment | |
Hospital in Boston and | Company Institute in Washington, D.C. Prior to | |
as a Director of Beth | January 2005, Mr. Leibler served as Chairman and | |
Israel Deaconess Care | Chief Executive Officer of the Boston Stock | |
Organization, an | Exchange. Prior to January 2000, he served as | |
accountable care group | President and Chief Executive Officer of Liberty | |
jointly owned by the | Financial Companies (a publicly traded diversified | |
medical center and its | asset management organization). Prior to June | |
affiliated physicians | 1990, he served as President and Chief Operating | |
network. He is also | Officer of the American Stock Exchange (AMEX). | |
Director of Eversource | Prior to serving as AMEX President, he held the | |
Corporation, which | position of Chief Financial Officer, and headed its | |
operates New England’s | management and marketing operations. Mr. Leibler | |
largest energy delivery | graduated with a B.A in Economics from Syracuse | |
system. | University. | |
|
B-76 |
Name, Address1 , Year of | ||
Birth, Position(s) Held with | Principal | |
Fund and Length of Service | Occupation(s) During | |
as a Putnam Fund Trustee2 | Past 5 Years | Other Directorships Held by Trustee |
| ||
Robert E. Patterson (Born | Co-Chairman of Cabot | Mr. Patterson is past Chairman and served as a |
1945), Trustee since 1984 | Properties, Inc. (a | Trustee of the Joslin Diabetes Center. Prior to |
private equity firm | December 2001, Mr. Patterson served as the | |
investing in commercial | President and as a Trustee of Cabot Industrial Trust | |
real estate) and | (a publicly-traded real estate investment trust). He | |
Chairman or Co- | has also served as a Trustee of the Sea Education | |
Chairman of the | Association. Prior to 1998, he was Executive Vice | |
Investment |
President and Director of Acquisitions of Cabot | |
for various Cabot | Partners Limited Partnership (a registered | |
investment adviser involved in institutional real | ||
estate investments). Prior to 1990, he served as | ||
Executive Vice President of Cabot, Cabot & Forbes | ||
Realty Advisers, Inc. (the predecessor company of | ||
Cabot Partners). Mr. Patterson practiced law and | ||
held various positions in state government, and was | ||
the founding Executive Director of the | ||
Massachusetts Industrial Finance Agency. Mr. | ||
Patterson is a graduate of Harvard College and | ||
Harvard Law School. | ||
| ||
George Putnam, III (Born | Chairman of New | Director of The Boston Family Office, LLC (a |
1951), Trustee since 1984 | Generation Research, | registered investment advisor), a Trustee of |
Inc. (a publisher of | Epiphany School and a Trustee of the Marine | |
financial advisory and | Biological Laboratory. Until 2010, Mr. Putnam was | |
other research services) | a Trustee of St. Mark’s School. Until 2006, Mr. | |
and President of New | Putnam was a Trustee of Shore Country Day | |
Generation Advisors, | School. Until 2002, he was a Trustee of the Sea | |
LLC (a registered | Education Association. Mr. Putnam is a graduate of | |
investment adviser to | Harvard College, Harvard Business School and | |
private funds), which are | Harvard Law School. | |
firms he founded in | ||
1986. Prior to June 2007, | ||
Mr. Putnam was | ||
President of the Putnam | ||
Funds. | ||
| ||
W. Thomas Stephens (Born | Prior to 2009, Mr. | Until 2014, Mr. Stephens was a Director of |
1942), Trustee from 1997- | Stephens was Chairman | TransCanadaPipelines Ltd. (an energy infrastructure |
2008, and since 2009 | and Chief Executive | company). Until 2010, Mr. Stephens was a Director |
Officer of Boise | of Boise Inc. (a manufacturer of paper and | |
Cascade, LLC (a paper, | packaging products). Until 2004, Mr. Stephens was | |
forest product and | a Director of Xcel Energy Incorporated (a public | |
timberland assets | utility company), Qwest Communications and | |
company). | 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. | ||
Mr. Stephens holds B.S. and M.S. degrees from the | ||
University of Arkansas. | ||
|
B-77 |
Name, Address1 , Year of | ||
Birth, Position(s) Held with | Principal | |
Fund and Length of Service | Occupation(s) During | |
as a Putnam Fund Trustee2 | Past 5 Years | Other Directorships Held by Trustee |
| ||
Interested Trustees | ||
| ||
*Robert L. Reynolds (Born | President and Chief | Director of several not-for-profit boards, including |
1952), Trustee since 2008 | Executive Officer of | West Virginia University Foundation, the Concord |
Putnam Investments | Museum, Dana-Farber Cancer Institute, and Boston | |
since 2008 and, since | Chamber of Commerce. He is a member of the | |
2014, President and | Chief Executives Club of Boston, the National | |
Chief Executive Officer | Innovation Initiative, and the Council on | |
of Great-West Financial, | Competitiveness, and he is a former President of the | |
a financial services | Commercial Club of Boston. Prior to 2008, he | |
company that provides | served as a Director of FMR Corporation, Fidelity | |
retirement savings plans, | Investments Insurance Ltd., Fidelity Investments | |
life insurance, and | Canada Ltd., and Fidelity Management Trust | |
annuity and executive | Company and as a Trustee of the Fidelity Family of | |
benefits products, and of | Funds. Mr. Reynolds received a B.S. in Business | |
Great-West Lifeco U.S. | Administration with a major in Finance from West | |
Inc., a holding company | Virginia University. | |
that owns Putnam | ||
Investments and Great- | ||
West Financial. Member | ||
of Putnam Investments’ | ||
and Great-West | ||
Financial’s Board of | ||
Directors. Prior to | ||
joining Putnam | ||
Investments in 2008, Mr. | ||
Reynolds was Vice | ||
Chairman and Chief | ||
Operating Officer of | ||
Fidelity Investments | ||
from 2000 to 2007. | ||
|
1 The address of each Trustee is One Post Office Square, Boston, MA 02109. As of December 31, 2015, there were 117 Putnam Funds.
2 Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 75, death or removal.
* Trustee who is an “interested person” (as defined in the 1940 Act) of the fund and Putnam Management. Mr. Reynolds is deemed an “interested person” by virtue of his positions as an officer of the fund and Putnam Management. Mr. Reynolds is the President and Chief Executive Officer of Putnam Investments, LLC and President of your fund and each of the other Putnam funds.
Trustee Qualifications
Each of the fund’s Trustees was most recently elected by shareholders of the fund during 2014, although most of the Trustees have served on the Board for many years. The Board Policy and Nominating Committee is responsible for recommending proposed nominees for election to the full Board of Trustees for its approval.
B-78 |
As part of its deliberative process, the Committee considers the experience, qualifications, attributes and skills that it determines would benefit the Putnam funds at the time.
In recommending the election of the current board members as Trustees, the Committee generally considered the educational, business and professional experience of each Trustee in determining his or her qualifications to serve as a Trustee of the fund, including the Trustee's record of service as a director or trustee of public and private organizations. (This included, but was not limited to, consideration of the specific experience noted in the preceding table.) In the case of most members of the Board, the Committee considered his or her previous service as a member of the Board of Trustees of the Putnam funds, which demonstrated a high level of diligence and commitment to the interests of fund shareholders and an ability to work effectively and collegially with other members of the Board.
The Committee also considered, among other factors, the particular attributes described below with respect to the various individual Trustees and considered the attributes as indicative of the person’s ability to deal effectively with the types of financial, regulatory, and/or investment matters that typically arise in the course of a Trustee’s work:
Liaquat Ahamed -- Mr. Ahamed’s experience as Chief Executive Officer of a major investment management organization and as head of the investment division at the World Bank, as well as his experience as an author of economic literature.
Ravi Akhoury -- Mr. Akhoury's experience as Chairman and Chief Executive Officer of a major investment management organization.
Barbara M. Baumann -- Ms. Baumann’s experience in the energy industry as a consultant, an investor, and in both financial and operational management positions at a global energy company, and her service as a director of multiple NYSE companies.
Jameson A. Baxter -- Ms. Baxter's experience in corporate finance acquired in the course of her career at a major investment bank, her experience as a director and audit committee chair of two NYSE companies and her role as Chair of the Mutual Fund Directors Forum.
Robert J. Darretta -- Mr. Darretta's experience as the Chief Financial Officer and Vice Chairman of the board of a major NYSE health products company.
Katinka Domotorffy -- Ms. Domotorffy’s experience as Chief Investment Officer and Global Head of Quantitative Investment Strategies at a major asset management organization.
John A. Hill -- Mr. Hill's experience as founder and chairman of an open-end mutual fund and as a founder and lead managing partner of one of the largest private equity firms in the United States.
Paul L. Joskow -- Dr. Joskow's education and experience as a professional economist familiar with financial economics and related issues and his service on multiple for-profit boards.
Kenneth R. Leibler -- Mr. Leibler's extensive experience in the financial services industry, including as Chief Executive Officer of a major asset management organization, and his service as a director of various public and private companies.
Robert E. Patterson -- Mr. Patterson’s training and experience as an attorney and his experience as president of a NYSE company.
B-79 |
George Putnam, III -- Mr. Putnam’s training and experience as an attorney, his experience as the founder and Chief Executive Officer of an investment management firm and his experience as an author of various publications on the subject of investments.
W. Thomas Stephens -- Mr. Stephens's extensive business experience, including his service as Chief Executive Officer of four public companies, as non-executive chairman of two public companies and as a director of numerous other public companies.
Interested Trustee
Robert L. Reynolds -- Mr. Reynolds’s extensive experience as a senior executive of one of the largest mutual fund organizations in the United States and his current role as President and Chief Executive Officer of Putnam Investments.
On January 8, 2016, Great-West Financial, a company under common control with Putnam Investments, LLC and of which Mr. Reynolds is the Chief Executive Officer, entered into a loan application and rate lock agreement as the lending party with Cabot Industrial Core Fund Operating Partnership, L.P (“Cabot OP”), the proposed guarantor for a collection of six borrowing parties, each being a limited liability company wholly owned by Cabot OP. The loan is intended to provide long-term financing in the form of a 7 year loan totaling $72.25 million to Cabot Industrial Core Fund, L.P. (the “Cabot Fund”). Cabot OP is an entity through which the Cabot Fund holds certain investments. The interest rate for the loan has been set at 3.48%. Mr. Patterson may be deemed to have an indirect interest in the transaction, or an indirect relationship with Great-West Financial, through his position as an officer of Cabot OP and as Co-Chairman of the Investment Committee of the Cabot Fund, which approved the proposed loan on behalf of the borrowing parties. Mr. Patterson has an 18.3% ownership interest in Cabot Properties, Inc., the highest controlling entity of Cabot OP, and is also a 14.3% partner in Cabot Properties, L.P., the asset manager of the Cabot Fund.
Officers
In addition to Robert L. Reynolds, the fund’s President, the other officers of the fund are shown below. All of the officers of your fund are employees of Putnam Management or its affiliates or are members of the Trustees’ independent administrative staff.
Name, Address1 , Year of Birth, | Length of Service with | Principal Occupation(s) During Past 5 Years and |
Position(s) Held with Fund | the Putnam Funds2 | Position(s) with Fund’s Investment Adviser and |
Distributor3 | ||
| ||
Jonathan S. Horwitz4 (Born 1955) | Since 2004 | Executive Vice President, Principal Executive |
Executive Vice President, Principal | Officer, and Compliance Liaison, The Putnam | |
Executive Officer, and Compliance | Funds. | |
Liaison | ||
| ||
Steven D. Krichmar (Born 1958) | Since 2002 | Chief of Operations, Putnam Investments and |
Vice President and Principal | Putnam Management. | |
Financial Officer | ||
| ||
Robert T. Burns (Born 1961) | Since 2011 | General Counsel, Putnam Investments, Putnam |
Vice President and Chief Legal | Management and Putnam Retail Management. | |
Officer | ||
| ||
James F. Clark3 (Born 1974) | Since 2016 | Associate General Counsel, Putnam Investments, |
Chief Compliance Officer | Putnam Management and Putnam Retail | |
Management (2003-2015). | ||
| ||
Michael J. Higgins4 (Born 1976) | Since 2010 | Vice President, Treasurer, and Clerk, The Putnam |
Vice President, Treasurer, and Clerk | Funds | |
|
B-80 |
Name, Address1 , Year of Birth, | Length of Service with | Principal Occupation(s) During Past 5 Years and |
Position(s) Held with Fund | the Putnam Funds2 | Position(s) with Fund’s Investment Adviser and |
Distributor3 | ||
| ||
Janet C. Smith (Born 1965) | Since 2007 | Director of Fund Administration Services, Putnam |
Vice President, Principal Accounting | Investments and Putnam Management. | |
Officer, and Assistant Treasurer | ||
| ||
Susan G. Malloy (Born 1957) | Since 2007 | Director of Accounting and Control Services, |
Vice President and Assistant | Putnam Management. | |
Treasurer | ||
| ||
James P. Pappas (Born 1953) | Since 2004 | Director of Trustee Relations, Putnam Investments |
Vice President | and Putnam Management. | |
| ||
Mark C. Trenchard (Born 1962) | Since 2002 | Director of Operational Compliance, Putnam |
Vice President and BSA Compliance | Investments, Putnam Retail Management | |
Officer | ||
| ||
Nancy E. Florek4 (Born 1957) | Since 2000 | Vice President, Director of Proxy Voting and |
Vice President, Director of Proxy | Corporate Governance, Assistant Clerk, and | |
Voting and Corporate Governance, | Associate Treasurer, The Putnam Funds. | |
Assistant Clerk, and Associate | ||
Treasurer | ||
|
1 The address of each Officer is One Post Office Square, Boston, MA 02109.
2 Each officer serves for an indefinite term, until his or her resignation, retirement, death or removal.
3 Prior positions and/or officer appointments with the fund or the fund’s investment adviser and distributor have been omitted.
4 Officers of the fund indicated are members of the Trustees’ independent administrative staff. Compensation for these individuals is fixed by the Trustees and reimbursed to Putnam Management by the funds.
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.
Leadership Structure and Standing Committees of the Board of Trustees
For details regarding the number of times the standing committees of the Board of Trustees met during a fund's last fiscal year, see "Trustee responsibilities and fees" in Part I of this SAI.
Board Leadership Structure. Currently, 12 of the 13 Trustees of your fund are Independent Trustees, meaning that they are not considered "interested persons" of your fund or its investment manager. These Independent Trustees must vote separately to approve all financial arrangements and other agreements with your fund’s investment manager and other affiliated parties. The role of independent trustees has been characterized as that of a “watchdog” charged with oversight to protect shareholders’ interests against overreaching and abuse by those who are in a position to control or influence a fund. Your fund’s Independent Trustees meet regularly as a group in executive session (i. e ., without representatives of your fund’s investment manager or its affiliates present). An Independent Trustee currently serves as chair of the Board.
Taking into account the number, the diversity and the complexity of the funds overseen by the Board and the aggregate amount of assets under management, your fund’s Trustees have determined that the efficient conduct of the Board's affairs makes it desirable to delegate responsibility for certain specific matters to committees of the Board. The Executive Committee, Audit, Compliance and Distributions Committee, and Board Policy and
B-81 |
Nominating Committee are authorized to take action on certain matters as specified in their charters or in policies and procedures relating to the governance of the funds; with respect to other matters, these committees review and evaluate and make recommendations to the Trustees as they deem appropriate. The other committees also review and evaluate matters specified in their charters and make recommendations to the Trustees as they deem appropriate. Each committee may utilize the resources of your fund’s independent staff, counsel and independent registered public accountants as well as other experts. The committees meet as often as appropriate, either in conjunction with regular meetings of the Trustees or otherwise. The membership and chair of each committee are appointed by the Trustees upon recommendation of the Board Policy and Nominating Committee. Each committee is chaired by an Independent Trustee and, except as noted below, the membership and chairs of each committee consist exclusively of Independent Trustees.
The Trustees have determined that this committee structure also allows the Board to focus more effectively on the oversight of risk as part of its broader oversight of the fund's affairs. While risk management is the primary responsibility of the fund's investment manager, the Trustees receive reports regarding investment risks, compliance risks and other risks. The Board's committee structure allows separate committees to focus on different aspects of these risks and their potential impact on some or all of the funds and to discuss with the fund's investment manager how it monitors and controls such risks.
Audit, Compliance and Distributions Committee. The Audit, Compliance and Distributions Committee provides oversight on matters relating to the preparation of the funds’ financial statements, compliance matters, internal audit functions, and Codes of Ethics issues. This oversight is discharged by regularly meeting with management and the funds’ independent registered public accountants 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 registered public accountants, including their independence. The Committee also oversees all dividends and distributions by the funds. The Committee makes recommendations to the Trustees of the funds regarding the amount and timing of distributions paid by the funds, and determines such matters when the Trustees are not in session. The Committee also oversees the policies and procedures pursuant to which Putnam Management prepares recommendations for distributions, and meets regularly with representatives of Putnam Management to review the implementation of these policies and procedures. The Committee reports to the Trustees and makes recommendations to the Trustees regarding these matters. The members of the Committee include only Trustees who are not “interested persons” of the funds or Putnam Management. Each member of the Committee also is “independent,” as that term is interpreted for purposes of Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the listing standards of the NYSE. The Board of Trustees has adopted a written charter for the Committee, a current copy of which is available at putnam.com/individual. The Committee currently consists of Messrs. Darretta (Chairperson), Akhoury, Hill and Patterson, and Mses. Baumann and Domotorffy.
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 will consider nominees for Trustee recommended by shareholders of a fund provided that such recommendations are submitted by the date disclosed in the fund’s proxy statement and otherwise comply with applicable securities laws, including Rule 14a-8 under the Exchange Act. The Committee also reviews policy matters affecting the operation of the Board and its independent staff. In addition, the Committee oversees the voting of proxies associated with portfolio investments of the funds with the goal of ensuring that these proxies are voted in the best interest of the funds’ shareholders. The Committee reports to the Trustees and makes recommendations to the Trustees regarding these matters. The Committee generally believes that the Board benefits from diversity of background, experience and views among its members, and considers this as a factor in evaluating the composition of the Board, but has not adopted any specific policy in this regard. The Committee is composed entirely of Trustees who are not “interested
B-82 |
persons” of the funds or Putnam Management and currently consists of Messrs. Hill (Chairperson), Leibler, Patterson and Putnam, Dr. Joskow and Ms. Baxter.
Brokerage Committee . The Brokerage Committee reviews the funds' policies regarding the execution of portfolio trades and Putnam Management's practices and procedures relating to the implementation of those policies. The Committee reviews periodic reports on the cost and quality of execution of portfolio transactions and the extent to which brokerage commissions have been used (i) by Putnam Management to obtain brokerage and research services generally useful to it in managing the portfolios of the funds and of its other clients, and (ii) by the funds to pay for certain fund expenses. The Committee reports to the Trustees and makes recommendations to the Trustees regarding these matters. The Committee currently consists of Dr. Joskow (Chairperson), Ms. Baxter, and Messrs. Ahamed, Leibler, Putnam and Stephens.
Contract Committee . The Contract Committee reviews and evaluates at least annually all arrangements pertaining to (i) the engagement of Putnam Management and its affiliates to provide services to the funds, (ii) the expenditure of the funds' assets for distribution purposes pursuant to 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 Management and its affiliates or where Putnam Management or its affiliates have a material interest. The Committee also reviews the proposed organization of new fund products, proposed structural changes to existing funds and matters relating to closed-end funds. The Committee reports and makes recommendations to the Trustees regarding these matters. The Committee currently consists of Messrs. Putnam (Chairperson), Ahamed, Leibler and Stephens, Dr. Joskow and Ms. Baxter.
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 review annual and ongoing goals, objectives and priorities for the Board of Trustees and to facilitate coordination of all efforts between the Trustees and Putnam Management on behalf of the shareholders of the funds. The Committee currently consists of Ms. Baxter (Chairperson), and Messrs. Hill, Leibler, Patterson and Putnam.
Investment Oversight Committees . The Investment Oversight Committees regularly meet with investment personnel of Putnam Management to review the investment performance and strategies of the funds in light of their stated goals and policies. The Committees seek to identify any compliance issues that are unique to the applicable categories of funds and work with the appropriate Board committees to ensure that any such issues are properly addressed. Investment Oversight Committee A currently consists of Mses. Domotorffy (Chairperson) and Baumann, Messrs. Ahamed, Leibler, Putnam and Stephens and Dr. Joskow. Investment Oversight Committee B currently consists of Messrs. Akhoury (Chairperson), Darretta, Hill, Patterson and Reynolds, and Ms. Baxter.
Pricing Committee. The Pricing Committee oversees the valuation of assets of the Putnam funds and reviews the funds’ policies and procedures for achieving accurate and timely pricing of fund shares. The Committee also oversees implementation of these policies, including fair value determinations of individual securities made by Putnam Management or other designated agents of the funds. The Committee also oversees compliance by money market funds with Rule 2a-7 under the 1940 Act and the correction of occasional pricing errors. The Committee also reviews matters related to the liquidity of portfolio holdings. The Committee reports to the Trustees and makes recommendations to the Trustees regarding these matters. The Committee currently consists of Mses. Baumann (Chairperson) and Domotorffy, and Messrs. Akhoury, Darretta, Hill and Patterson.
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Indemnification of Trustees
The Agreement and Declaration of Trust of each 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 has been finally adjudicated that (a) they have not acted in good faith, (b) they have not acted in the reasonable belief that their actions were (i) in the best interests of the fund or (ii) at least were not opposed to the best interests of the fund, (c) in the case of a criminal proceeding, they had reasonable cause to believe the action was unlawful or (d) they were liable 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.
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.
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 Investments. Great-West Lifeco Inc., a financial services holding company with operations in Canada, the United States and Europe and a member of the Power Financial Corporation group of companies, owns a majority interest in Putnam Investments. Power Financial Corporation, a diversified management and holding company with direct and indirect interests in the financial services sector in Canada, the United States and Europe, is a subsidiary of Power Corporation of Canada, a diversified international management and holding company with interests in companies in the financial services, communications and other business sectors. The Desmarais Family Residuary Trust, a trust established pursuant to the Last Will and Testament of the Honourable Paul G. Desmarais, directly and indirectly controls a majority of the voting shares of Power Corporation of Canada.
Trustees and officers of the fund who are also officers of Putnam Management or its affiliates or who are stockholders of Putnam Investments or its parent companies will benefit from the advisory fees, sales commissions, distribution 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
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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.
Fund-specific expense limitation. 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 such expense limitation specific to a particular fund are described in the prospectus and/or Part I of this SAI .
General expense limitation. Through the expiration of the one-year period following the effective date of the annual update of each fund’s Registration Statement, Putnam Management will reimburse expenses or waive fees of the fund to the extent necessary to limit the cumulative expenses of the fund, excluding brokerage, interest, taxes, investment-related expenses, extraordinary expenses, any upward or downward adjustments to a fund’s base management fee, acquired fund fees and expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis, to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period.
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 1940 Act.
Putnam Management has entered into a Master Sub-Accounting Services Agreement with State Street Bank and Trust Company ("State Street"), under which Putnam Management has delegated to State Street responsibility for providing certain administrative, pricing, and bookkeeping services for the fund. Putnam
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Management pays State Street a fee, monthly, based on a combination of fixed annual charges and charges based on the fund's assets and the number and types of securities held by the fund, and reimburses State Street for certain out-of-pocket expenses.
The Sub-Manager
If so disclosed in the fund’s prospectus, PIL, an affiliate of Putnam Management, has been retained as the sub-manager for a portion of the assets of the fund, as determined by Putnam Management from time to time, pursuant to a sub-management agreement between Putnam Management and PIL. 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 not more than 60 days’ nor less than 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 1940 Act.
The Sub-Adviser
If so disclosed in the fund’s prospectus, The Putnam Advisory Company, LLC (“PAC”), an affiliate of Putnam Management, has been retained as a sub-adviser for a portion of the assets of the fund, as determined from time to time by Putnam Management or, with respect to portions of a fund’s assets for which PIL acts as sub-manager as described above, by PIL pursuant to a sub-advisory contract among Putnam Management, PIL and PAC. Under certain terms of the sub-advisory contract, PAC, at its own expense, furnishes continuously an investment program for that portion of each such fund that is allocated to PAC from time to time by Putnam Management or PIL, as applicable and makes investment decisions on behalf of such portion of the fund, subject to the supervision of Putnam Management or PIL, as the case may be. Putnam Management or PIL, as the case may be, may also, at its discretion, request PAC to provide assistance with purchasing and selling securities for the fund, including placement of orders with certain broker-dealers.
PAC, at its expense, furnishes all necessary investment and management facilities, including salaries of personnel, required for it to execute its duties. The sub-advisory contract provides that PAC shall not be subject to any liability to Putnam Management, PIL, 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 PAC.
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The sub-advisory contract may be terminated with respect to a fund without penalty by vote of the Trustees or the shareholders of the fund, or by PAC, PIL or Putnam Management, on not more than 60 days’ nor less than 30 days’ written notice. The sub-advisory 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-advisory 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 1940 Act.
Portfolio Transactions
Potential conflicts of interest in managing multiple accounts. Like other investment professionals with multiple clients, the fund’s Portfolio Manager(s) may face certain potential conflicts of interest in connection with managing both the fund and the other accounts listed under “ PORTFOLIO MANAGER(S)” “Other accounts managed” at the same time. The paragraphs below describe some of these potential conflicts, which Putnam Management believes are faced by investment professionals at most major financial firms. As described below, Putnam Management and the Trustees of the Putnam funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance (“performance fee accounts”), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
• The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
• The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
• The trading of other accounts could be used to benefit higher-fee accounts (front- running).
• The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Putnam Management attempts to address these potential conflicts of interest relating to higher-fee accounts through various compliance policies that are generally intended to place all accounts, regardless of fee structure, on the same footing for investment management purposes. For example, under Putnam Management’s policies:
• Performance fee accounts must be included in all standard trading and allocation procedures with all other accounts.
• All accounts must be allocated to a specific category of account and trade in parallel with allocations of similar accounts based on the procedures generally applicable to all accounts in those groups (e.g., based on relative risk budgets of accounts).
• All trading must be effected through Putnam’s trading desks and normal queues and procedures must be followed (i.e. , no special treatment is permitted for performance fee accounts or higher-fee accounts based on account fee structure).
• Front running is strictly prohibited.
• The fund’s Portfolio Manager(s) may not be guaranteed or specifically allocated any portion of a performance fee.
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As part of these policies, Putnam Management has also implemented trade oversight and review procedures in order to monitor whether particular accounts (including higher-fee accounts or performance fee accounts) are being favored over time.
Potential conflicts of interest may also arise when the Portfolio Manager(s) have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, Putnam Management’s investment professionals do not have the opportunity to invest in client accounts, other than the Putnam funds. However, in the ordinary course of business, Putnam Management or related persons may from time to time establish “pilot” or “incubator” funds for the purpose of testing proposed investment strategies and products prior to offering them to clients. These pilot accounts may be in the form of registered investment companies, private funds such as partnerships or separate accounts established by Putnam Management or an affiliate. Putnam Management or an affiliate supplies the funding for these accounts. Putnam employees, including the fund’s Portfolio Manager(s), may also invest in certain pilot accounts. Putnam Management, and to the extent applicable, the Portfolio Manager(s) will benefit from the favorable investment performance of those funds and accounts. Pilot funds and accounts may, and frequently do, invest in the same securities as the client accounts. Putnam Management’s policy is to treat pilot accounts in the same manner as client accounts for purposes of trading allocation – neither favoring nor disfavoring them except as is legally required. For example, pilot accounts are normally included in Putnam Management’s daily block trades to the same extent as client accounts (except that pilot accounts do not participate in initial public offerings).
A potential conflict of interest may arise when the fund and other accounts purchase or sell the same securities. On occasions when the Portfolio Manager(s) consider the purchase or sale of a security to be in the best interests of the fund as well as other accounts, Putnam Management’s trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to the fund or another account if one account is favored over another in allocating the securities purchased or sold – for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account. Putnam Management’s trade allocation policies generally provide that each day’s transactions in securities that are purchased or sold by multiple accounts are, insofar as possible, averaged as to price and allocated between such accounts (including the fund) in a manner which in Putnam Management’s opinion is equitable to each account and in accordance with the amount being purchased or sold by each account. Certain exceptions exist for specialty, regional or sector accounts. Trade allocations are reviewed on a periodic basis as part of Putnam Management’s trade oversight procedures in an attempt to ensure fairness over time across accounts.
“Cross trades,” in which one Putnam account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay, or if such trades result in more attractive investments being allocated to higher-fee accounts. Putnam Management and the fund’s Trustees have adopted compliance procedures that provide that any transactions between the fund and another Putnam-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different goals and strategies of the fund and other accounts. For example, another account may have a shorter-term investment horizon or different goals, policies or restrictions than the fund. Depending on goals or other factors, the Portfolio Manager(s) may give advice and make decisions for another account that may differ from advice given, or the timing or nature of decisions made, with respect to the fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time.
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More rarely, a particular security may be bought for one or more accounts managed by the Portfolio Manager(s) when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts. As noted above, Putnam Management has implemented trade oversight and review procedures to monitor whether any account is systematically favored over time.
Under federal securities laws, a short sale of a security by another client of Putnam Management or its affiliates (other than another registered investment company) within five business days prior to a public offering of the same securities (the timing of which is generally not known to Putnam in advance) may prohibit the fund from participating in the public offering, which could cause the fund to miss an otherwise favorable investment opportunity or to pay a higher price for the securities in the secondary markets.
The fund’s Portfolio Manager(s) may also face other potential conflicts of interest in managing the fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both the fund and other accounts. For information on restrictions imposed on personal securities transactions of the fund’s Portfolio Manager(s), please see “- Personal Investments by Employees of Putnam Management and Putnam Retail Management and Officers and Trustees of the Fund.”
For information about other funds and accounts managed by the fund’s Portfolio Manager(s), please refer to “Who oversees and manages the fund(s)?” in the prospectus and “ PORTFOLIO MANAGER(S)” “Other accounts managed” in Part I of the SAI.
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 may vary among different brokers. A particular broker may charge different commissions according to such factors as execution venue and exchange. Although the fund does not typically pay commissions for principal transactions in the over-the-counter markets, such as the markets for most fixed income securities and certain derivatives, an undisclosed amount of profit or “mark-up” is included in the price the fund pays. In underwritten offerings, the price paid by the fund includes a disclosed, fixed commission or discount retained by the underwriter or dealer. 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 broker-dealers that execute portfolio transactions for the clients of advisers of investment companies and other institutional investors to provide those advisers with brokerage and research services, as defined in Section 28(e) of the Exchange Act. Consistent with this practice, Putnam Management receives brokerage and research services from broker-dealers with which Putnam Management places the fund's portfolio transactions. The services that broker-dealers may provide to Putnam Management’s managers and analysts include, among others, brokerage and trading systems, economic analysis, investment research, industry and company reviews, statistical information, market data, evaluations of investments, recommendations as to the purchase and sale of investments and performance measurement services. 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. Research services provided by broker-dealers are supplemental to Putnam Management’s own research efforts and relieve Putnam Management of expenses it might otherwise have borne in generating such research. The management fee paid by the fund is not reduced because Putnam Management and its affiliates receive brokerage and research services even though Putnam Management might otherwise be required to purchase some of these services for cash. Putnam Management may also use portfolio transactions to generate “soft dollar” credits to pay for “mixed-use” services (i.e. , products or services that may be used both for investment- and non-investment-related purposes),
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but in such instances Putnam Management uses its own resources to pay for that portion of the mixed-use product or service that in its good-faith judgment does not relate to investment or brokerage purposes. Putnam Management may also allocate trades to generate soft dollar credits for third-party investment research reports and related fundamental research.
Putnam Management places all orders for the purchase and sale of portfolio investments for the funds, and buys and sells investments for the funds, through a substantial number of brokers and dealers. In selecting broker-dealers to execute the funds’ portfolio transactions, Putnam Management uses its best efforts to obtain for each fund the most favorable price and execution reasonably available under the circumstances, except to the extent it may be permitted to pay higher brokerage commissions as described below. In seeking the most favorable price and execution and in considering the overall reasonableness of the brokerage commissions paid, Putnam Management, having in mind the fund's best interests, considers all factors it deems relevant, including, in no particular order of importance, and by way of illustration, the price, size and type 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.
Putnam Management may cause the fund to pay a broker-dealer that provides "brokerage and research services" (as defined in the Exchange Act and as described above) 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 another broker-dealer would have charged for effecting that transaction. Putnam Management may also instruct an executing broker to “step out” a portion of the trades placed with a broker to other brokers that provide brokerage and research services to Putnam Management. Putnam Management's authority to cause the fund to pay any such greater commissions or to instruct a broker to “step out” a portion of a trade is subject to the requirements of applicable law and such policies as the Trustees may adopt from time to time. It is the position of the staff of the SEC that Section 28(e) of the Exchange Act 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 Trustees of the funds have directed Putnam Management, subject to seeking most favorable pricing and execution, to use its best efforts to allocate a portion of overall fund trades to trading programs which generate commission credits to pay fund expenses such as shareholder servicing and custody charges. The extent of any commission credits generated for this purpose may vary significantly from time to time and from fund to fund depending on, among other things, the nature of each fund's trading activities and market conditions.
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, located at One Post Office Square, Boston, MA 02109, 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.
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Personal Investments by Employees of Putnam Management and Putnam Retail Management and Officers and Trustees of the Fund
Employees of Putnam Management, PIL, PAC 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, PIL, PAC 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 under the 1940 Act, 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 of Ethics, consistent with standards recommended by the Investment Company Institute’s Advisory Group on Personal Investing and requirements established by Rule 17j-1 and rules adopted under the Investment Advisers Act of 1940, 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 the Putnam Investments Code of Ethics to officers and Trustees of the fund who are affiliated with Putnam Investments. The Putnam Funds Code of Ethics does not prohibit unaffiliated officers and Trustees from investing in securities that may be held by the fund; however, the Putnam Funds Code of Ethics 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 the 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
Putnam Investor Services, located at One Post Office Square, Boston, MA 02109, 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. Effective January 1, 2015, the fee paid to Putnam Investor Services with respect to assets attributable to non-defined contribution plan accounts (which include accounts maintained directly with the fund, accounts underlying omnibus accounts maintained by financial intermediaries with the fund, accounts of Section 529 college savings plans that are allocated to the fund and accounts of certain funds that operate as funds-of-funds that are allocated to the fund (collectively “retail accounts”)) holding class A, class B, class C, class M, class R, class T and class Y shares, subject to certain limitations, is an annual fee that includes (1) a per account fee for each retail account of the fund and each of the other funds in its specified category, which is totaled and then allocated among each of the funds in the category based on the average daily net assets of each fund, and (2) a fee based on a specified rate of each fund’s average daily net assets. The fund categories used for purposes of calculating the per account fee described above are based on asset classes. The accounts of 529 plans and certain funds-of-funds are included in the determination of the number of accounts at the
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underlying fund level in proportion to the percentage of the investing fund’s assets that are invested in the particular underlying fund.
The fees paid to Putnam Investor Services with respect to defined contribution plan accounts holding class A, class B, class C, class M, class R, class T and class Y shares are based on a specified rate of the fund’s average daily net assets attributable to such defined contribution plan accounts.
Putnam Investor Services has agreed, through December 31, 2015, that the aggregate investor servicing fees for each fund’s retail and defined contribution plan accounts will not exceed an annual rate of 0.320% of the fund’s average assets attributable to such accounts.
The fee paid to Putnam Investor Services with respect to class R5 shares is based on an annual rate of 0.15% of each fund’s average assets attributable to class R5 shares, except that an annual rate of 0.12% of each fund’s average assets attributable to class R5 shares applies to Putnam Absolute Return 100 Fund, Putnam Absolute Return 300 Fund, Putnam Absolute Return 500 Fund, Putnam Absolute Return 700 Fund, Putnam American Government Income Fund, Putnam Diversified Income Trust, Putnam Dynamic Asset Allocation Conservative Fund, Putnam Global Income Trust, Putnam Income Fund and Putnam Short Duration Income Fund.
The fee paid to Putnam Investor Services with respect to class R6 shares is based on an annual rate of 0.05% of each fund’s average assets attributable to class R6 shares.
The fee paid to Putnam Investor Services with respect to class I and class P shares is based on an annual rate of 0.01% of each fund’s average assets attributable to class I shares and class P shares, respectively.
Financial intermediaries (including brokers, dealers, banks, bank trust departments, registered investment advisers, financial planners, and retirement plan administrators) may own shares of the fund for the benefit of their customers in an omnibus account (including retirement plans). In these circumstances, the financial intermediaries or other third parties may provide certain sub-accounting and similar recordkeeping services for their customers’ accounts.
In recognition of these services, Putnam Investor Services may make payments to these financial intermediaries or other third parties. Payments may be based on the number of underlying accounts in an omnibus account or the assets or share class held in an account. Putnam Investor Services also makes payments to financial intermediaries that charge networking fees for certain services provided in connection with the maintenance of shareholder accounts. These payments are described above under the heading “Distribution Plans – Additional Dealer Payments.”
Custodian
State Street Bank and Trust Company, located at 2 Avenue de Lafayette, Boston, Massachusetts 02111, is the fund’s custodian. State Street is responsible for safeguarding and controlling the fund’s cash and securities, handling the receipt and delivery of securities, collecting interest and dividends on the fund’s investments, serving as the fund’s foreign custody manager, providing reports on foreign securities depositaries, making payments covering the expenses of the fund and performing other administrative duties. State Street does not determine the investment policies of the fund or decide which securities the fund will buy or sell. State Street has a lien on the fund’s assets to secure charges and advances made by it. The fund may from time to time enter into brokerage arrangements that reduce or recapture fund expenses, including custody expenses. The fund also has an offset arrangement that may reduce the fund’s custody fee based on the amount of cash maintained by its custodian.
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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 Prudential Tower, 800 Boylston Street, Boston, Massachusetts 02199.
DETERMINATION OF NET ASSET VALUE
The fund determines the net asset value per share of each class of shares once each day the NYSE is open. Currently, the NYSE 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 Day and Christmas Day. The fund determines net asset value as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern Time. The net asset value per share of each class equals the total value of its assets, less its liabilities, divided by the number of its outstanding shares.
Assets of money market funds are valued at amortized cost pursuant to Rule 2a-7 under the 1940 Act. For other funds, securities and other assets (“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, prices for these Securities are determined using the last reported sale price (or official closing price for Securities listed on 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. All other Securities are valued by Putnam Management or other parties at their fair value following procedures approved by the Trustees.
Reliable market quotations are not considered to be readily available for, among other Securities, long-term corporate bonds and notes, certain preferred stocks, tax-exempt securities, and certain foreign securities. These investments are valued at fair value, generally on the basis of valuations furnished by approved 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 that are generally recognized by institutional traders. Other Securities, such as various types of options, are valued at fair value on the basis of valuations furnished by broker-dealers or other market intermediaries.
Putnam Management values all other Securities at fair value using its internal resources. 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. In the case of Securities that are restricted as to resale, Putnam Management determines fair value based on the inherent worth of the Security without regard to the restrictive feature, adjusted for any diminution in value resulting from the restrictive feature.
Generally, trading in certain Securities (such as foreign securities) is substantially completed each day at various times before the close of the NYSE. The closing prices for these Securities in markets or on exchanges outside the U.S. that close before the close of the NYSE may not fully reflect events that occur after such close but before the close of the NYSE. As a result, the fund has adopted fair value pricing procedures, which, among other things, require the fund to fair value foreign equity 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 vary, 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
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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.
Currency exchange rates used in valuing Securities are normally determined as of 4:00 p.m. Eastern Time. Occasionally, events affecting such exchange rates may occur between the time of the determination of exchange rates and the close of the NYSE, which, in the absence of fair valuation, would not be reflected in the computation of the fund’s net asset value. If events materially affecting the currency exchange rates occur during such period, then the exchange rates used in valuing affected Securities will be valued by Putnam Management at their fair value following procedures approved by the Trustees.
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 before the close of the NYSE. Occasionally, events affecting the value of such Securities may occur between the time of the determination of value and the close of the NYSE, which, in the absence of fair value prices, would 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 by Putnam Management at their fair value following procedures approved by the Trustees. It is expected that any such instance would be very rare.
The fair value of Securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such Securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a Security at a given point in time and does not reflect an actual market price.
The fund may also value its Securities 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 1940 Act.
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 typically 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.
INVESTOR SERVICES
Shareholder Information
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Each time shareholders buy or sell shares, a statement confirming the transaction and listing their current share balance will be made available for viewing electronically or delivered via mail. (Under certain investment plans, a statement may only be sent quarterly.) 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. To help shareholders take full advantage of their Putnam investment, publications covering many topics of interest to investors are available on our website or from Putnam Investor Services. Shareholders may call Putnam Investor Services toll-free weekdays at 1-800-225-1581 between 8:00 a.m. and 8:00 p.m. Eastern Time for more information, including account balances. Shareholders can also visit the Putnam website at http://www.putnam.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 an employer-sponsored retirement 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. 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, a shareholder may send checks to Putnam Investor Services, 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 or exchange fund shares?" in the prospectus. Putnam funds no longer issue share certificates. A shareholder may send to Putnam Investor Services any certificates which have been previously issued to enable more convenient maintenance of the account as a book-entry account.
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.
The fund pays Putnam Investor Services' fees for maintaining Investing Accounts.
Checkwriting Privilege . For those funds that allow shareholders, as disclosed in the prospectus, to redeem shares by check, Putnam is currently waiving the minimum per-check amount stated in the prospectus.
Reinstatement Privilege
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An investor who has redeemed shares of the fund may reinvest within 90 days of such redemption the proceeds of such redemption in shares of the same class of the fund, or may reinvest within 90 days of such redemption 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. Reinstatements into class B, class C or class M shares may be permitted even if the resulting purchase would otherwise be rejected for causing a shareholder’s investments in such class to exceed the applicable investment maximum. 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 in the aggregate up to $500,000 between accounts with identical registrations, provided that no certificates are outstanding for such shares. During periods of unusual market changes and shareholder activity, shareholders may experience delays in contacting Putnam Investor Services by telephone to exercise the telephone exchange privilege.
Putnam Investor Services also makes exchanges promptly after receiving a properly completed Exchange Authorization Form and, if issued, share certificates. If the shareholder is a corporation, partnership, agent, or surviving joint owner, Putnam Investor Services will require additional documentation of a customary nature. Because an exchange of shares involves the redemption of fund shares and reinvestment of the proceeds in shares of another Putnam fund, completion of an exchange may be delayed under unusual circumstances if the fund were to suspend redemptions or postpone payment for the fund shares being exchanged, in accordance with federal securities laws. Exchange Authorization Forms and prospectuses of the other Putnam funds are available from Putnam Retail Management or investment dealers having sales contracts with Putnam Retail Management. The prospectus of each fund describes its goal(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 at 1-800-225-1581.
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. Exchanges from Putnam Money Market Fund or Putnam Short Duration Income Fund into another Putnam fund may be subject to an initial sales charge.
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.
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Same-Fund Exchange Privilege . Class A shareholders who are eligible to purchase class Y, class R5 or class R6 shares may exchange their class A shares for class Y, class R5, or class R6 shares of the same fund, provided that such shares are offered to residents of the shareholder’s state, that the class A shares are no longer subject to a CDSC and, in the case of class R5 and class R6 shares, the shares are available through the relevant retirement plan.
Class C shareholders who are eligible to purchase class A shares without a sales charge because the shareholders are (i) clients of broker-dealers, financial institutions, financial intermediaries or registered investment advisors that are approved by Putnam Retail Management and charge a fee for advisory or investment services or (ii) clients of broker-dealers, financial institutions, or financial intermediaries that have entered into an agreement with Putnam Retail Management to offer shares through a fund ‘supermarket’ or retail self-directed brokerage account (with or without the imposition of a transaction fee) may exchange their class C shares for class A shares of the same fund, provided that (i) the class C shares are no longer subject to a CDSC and (ii) class A shares of such fund are offered to residents of the shareholder’s state.
Class C shareholders who are eligible to purchase class Y shares may exchange their class C shares for class Y shares of the same fund, provided that the class C shares are no longer subject to a CDSC and class Y shares of such fund are offered to residents of the shareholder’s state.
Class M shareholders who are eligible to purchase class Y shares may exchange their Class M shares for class Y shares of the same fund, provided that class Y shares of such fund are offered to residents of the shareholder’s state.
Class R shareholders who are eligible to purchase class R5 or class R6 shares may exchange their class R shares for class R5 or class R6 shares of the same fund, provided that such shares are offered to residents of the shareholder’s state and are available through the relevant retirement plan.
Class R5 shareholders who are eligible to purchase class A, class R, class R6 or class Y shares may exchange their class R5 shares for class A, class R, class R6 or class Y shares of the same fund, provided that such shares are offered to residents of the shareholder’s state and are available through the relevant retirement plan.
Class R6 shareholders who are eligible to purchase class A, class R, class R5 or class Y shares may exchange their class R6 shares for class A, class R, class R5 or class Y shares of the same fund, provided that such shares are offered to residents of the shareholder’s state and are available through the relevant retirement plan.
Class Y shareholders who are eligible to purchase class A, class C, class R5 or class R6 shares may exchange their class Y shares for class A, class C, class R5 or class R6 shares of the same fund, provided that such shares are offered to residents of the shareholder’s state and, in the case of class R5 and class R6 shares, the shares are available through the relevant retirement plan. Class Y shareholders should be aware that the financial institution or intermediary through which they hold class Y shares may have the authority under its account or similar agreement to exchange class Y shares for class A or class C shares under certain circumstances, and none of the Putnam Funds, Putnam Retail Management or Putnam Investor Services are responsible for any actions taken by a shareholder’s financial institution or intermediary in this regard.
No sales charges or other charges will apply to any such exchange. For federal income tax purposes, a same-fund exchange is not expected to result in the realization by the investor of a capital gain or loss. Shareholders should be aware that (i) the same-fund exchange privilege may be effected only if permitted by a shareholder’s dealer of record, (ii) the same-fund exchange privilege may not be available for all accounts and may not be offered by all dealers, financial institutions and other intermediaries through which a shareholder may hold shares, and (iii) the dealer of record through whom a shareholder holds shares may be authorized (e.g., under its account or similar agreement with a shareholder) to reject any same-fund exchange. None of the Putnam funds, Putnam Retail Management or Putnam Investor Services are responsible for any determinations made, or any actions taken, by a shareholder’s dealer of record in respect of same-fund exchanges. To exchange
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shares under the same-fund exchange privilege, please contact your investment dealer or Putnam Investor Services.
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. The prospectus of each fund describes its goal(s) and policies, and shareholders should obtain a prospectus and consider these goal(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.
Shareholders of other Putnam funds 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 composed of taxable income and deemed paid to a taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any time.
Plans Available to Shareholders
The plans described below are fully voluntary and may be terminated at any time without the imposition by the fund or Putnam Investor Services of any penalty. All plans provide for automatic reinvestment of all distributions in additional shares of the fund at net asset value. The fund, Putnam 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 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.
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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-favored 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), including SIMPLE IRAs, Roth IRAs, SEP IRAs; and Coverdell Education savings plans.
Forms and further information on these Plans are available from investment dealers or from Putnam Retail Management. In addition, plan administration arrangements are available on an optional basis; contact Putnam Investor Services at 1-866-207-7261.
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.
Automatic Rebalancing Arrangements. 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 Investor Services’ 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 at 1-800-225-1581 for more information on Putnam’s signature guarantee and documentation requirements.
REDEMPTIONS
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 SEC 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.
In-kind redemptions. To the extent consistent with applicable laws and regulations, the fund will consider satisfying all or a portion of a redemption request by distributing securities or other property in lieu of cash
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(“in-kind” redemptions). Any transaction costs or other expenses involved in liquidating securities received in an in-kind redemption will be borne by the redeeming investor. For information regarding procedures for in-kind redemptions, please contact Putnam Retail Management.
POLICY ON EXCESSIVE SHORT-TERM TRADING
As disclosed in the prospectus of each fund other than Putnam Money Market Fund, Putnam Money Market Liquidity Fund and Putnam Short Duration Income Fund, Putnam Management and the fund’s Trustees have adopted policies and procedures intended to discourage excessive short-term trading. Putnam Management’s Compliance Department currently uses multiple reporting tools in an attempt to detect short-term trading activity occurring in shareholder accounts. Putnam Management measures excessive short-term trading in the fund by the number of “round trip” transactions, as defined in the prospectus, above a specified dollar amount within a specified period of time. Generally, if an investor has been identified as having completed two “round trip” transactions with values of at least $25,000 within a rolling 90-day period, Putnam Management will issue the investor and/or his or her financial intermediary, if any, a written warning. To the extent that short-term trading activity continues, additional measures may be taken. Putnam Management’s practices for measuring excessive short-term trading activity and issuing warnings may change from time to time.
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 appears to be remote.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Putnam funds have adopted policies with respect to the disclosure of the fund’s portfolio holdings by the fund, Putnam Management, or their affiliates. These policies provide that information about the fund’s portfolio generally may not be released to any party prior to (i) the day after the posting of such information on the Putnam Investments website, (ii) the filing of the information with the SEC in a required filing, or (iii) the dissemination of such information to all shareholders simultaneously. Certain limited exceptions pursuant to the fund’s policies are described below. The Trustees will periodically receive reports from the fund’s Chief Compliance Officer regarding the operation of these policies and procedures, including any arrangements to make non-public disclosures of the fund’s portfolio information to third parties. Putnam Management and its affiliates are not permitted to receive compensation or other consideration in connection with disclosing information about the fund’s portfolio holdings to third parties.
Public Disclosures
The fund’s portfolio holdings are currently disclosed to the public through filings with the SEC and postings on the Putnam Investments website. The fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the fund’s fiscal year). In addition, money market funds file monthly reports of portfolio holdings on form N-MFP (with respect to the prior month). Shareholders may obtain the Form N-CSR, N-MFP and N-Q filings on the SEC’s website at http://www.sec.gov. In addition, Form N-CSR and N-Q filings may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Form N-CSR
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and N-Q filings are available upon filing and form N-MFP filings are available 60 days after each calendar month end. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s website or the operation of the Public Reference Room.
For Putnam Money Market Fund , the following information is publicly available on the Putnam Investments website, www.putnam.com/individual, as disclosed in the following table. This information will remain available on the website for six months thereafter, after which the information can be found on the SEC’s website.
Information | Frequency of Disclosure | Date of Web Posting |
| ||
Full Portfolio Holdings | Monthly | 5 business days after the end of |
each month. | ||
|
For Putnam Short Duration Income Fund, Putnam Management makes the fund’s portfolio information publicly available on the Putnam Investments website, www.putnam.com/individual, as disclosed in the following table.
Information | Frequency of Disclosure | Date of Web Posting |
| ||
Full Portfolio Holdings | Monthly | On or after 5 business days after |
the end of each month. | ||
|
For all other funds, Putnam Management also currently makes the fund’s portfolio information publicly available on the Putnam Investments website, www.putnam.com/individual, as disclosed in the following table.
Information(1) | Frequency of Disclosure | Date of Web Posting |
| ||
Full Portfolio Holdings | Quarterly | Last business day of the month |
following the end of each | ||
calendar quarter | ||
| ||
Top 10 Portfolio Holdings and | Monthly | Approximately 15 days after the |
other portfolio statistics | end of each month | |
|
(1) Putnam mutual funds that are not currently offered to the general public (“incubated” funds) do not post portfolio holdings on the Web, except to the extent required by applicable regulations. Full portfolio holdings for the Putnam RetirementReady® Funds, Retirement Income Fund Lifestyle 1, and Putnam Global Sector Fund, which invest solely in other Putnam funds, are posted on www.putnam.com/individual approximately 15 days after the end of each month. Please see these funds’ prospectuses for their target allocations.
The scope of the information relating to the fund’s portfolio that is made available on the website may change from time to time without notice. In addition, the posting of fund holdings may be delayed in some instances for technical reasons.
Putnam Management or its affiliates may include fund portfolio information that has already been made public through a Web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that, in the case of information made public through the Web, the information is disclosed no earlier than the day after the date of posting to the website.
Other Disclosures
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In order to address potential conflicts between the interest of fund shareholders, on the one hand, and those of Putnam Management, Putnam Retail Management or any affiliated person of those entities or of the fund, on the other hand, the fund’s policies require that non-public disclosures of information regarding the fund’s portfolio may be made only if there is a legitimate business purpose consistent with fiduciary duties to all shareholders of the fund. In addition, the party receiving the non-public information must sign a non-disclosure agreement unless otherwise approved by the Chief Compliance Officer of the fund. Arrangements to make non-public disclosures of the fund’s portfolio information must be approved by the Chief Compliance Officer of the fund. The Chief Compliance Officer will report on an ongoing basis to a committee of the fund’s Board of Trustees consisting only of Trustees who are not “interested persons” of the fund or Putnam Management regarding any such arrangement that the fund may enter into with third parties other than service providers to the fund.
The fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the fund with its day-to-day business affairs. In addition to Putnam Management and its affiliates, including Putnam Investor Services and PRM, these service providers include the fund’s custodian (State Street Bank and Trust Company) and any sub-custodians (including one or more sub-custodians for each non-U.S. market in which the fund purchases securities), pricing services (including IDC, Reuters, Markit, Statpro, Standard & Poors, Bloomberg, ICE ClearCredit, LCH Swapclear, PriceServ and CME Group), independent registered public accounting firm (KPMG LLP or PricewaterhouseCoopers LLP), legal counsel (Ropes & Gray LLP and, for funds sold in Japan, Mori Hamada & Matsumoto), financial printer and filing agent (McMunn Associates, Inc., Newsfile Corp.), proxy voting service (Glass, Lewis & Co) and securities lending agent (Goldman Sachs Bank USA). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the fund.
The fund may also periodically provide non-public information about its portfolio holdings to rating and ranking organizations and other providers of industry data, such as Lipper Inc., Morningstar Inc., Bloomberg and Thomson Reuters, in connection with those firms’ research on and classification of the fund and in order to gather information about how the fund’s attributes (such as volatility, turnover, and expenses) compare with those of peer funds. The fund may also periodically provide non-public information about its portfolio holdings to consultants that provide portfolio analysis services or other investment research or trading analytics. Such recipients of portfolio holdings include Barclays, Factset, ITG, Bloomberg and Credit Suisse. Any such rating, ranking, or consulting or other firm would be required to keep the fund’s portfolio information confidential and would be prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the fund. Such firms may receive portfolio holdings information only from certain funds (such as equity funds or fixed income funds) and such information may be provided in greater or lesser detail depending on the nature of the services provided by the relevant firm.
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 manager 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, 2015 is available on the Putnam Individual Investor website, www.putnam.com/individual, and on the SEC’s website at www.sec.gov. If you have questions about finding forms on the SEC’s website, you may call the SEC at 1-800-SEC-0330. You
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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 may use the highest rating assigned by any agency. Putnam Management will not necessarily sell an investment if its rating is reduced. Below are descriptions of ratings, as provided by the rating agencies, which represent opinions as to the quality of various debt instruments.
Moody’s Investors Service, Inc.
Global Long-Term Rating Scale (original maturity of 1 year or more)
Aaa – Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa – Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A – Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
Baa – Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
Ba – Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B – Obligations rated B are considered speculative and are subject to high credit risk.
Caa – Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca – Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
C – Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.
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Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. Additionally, a “(hyb)” indicator is appended to all ratings of hybrid securities issued by banks, insurers, finance companies, and securities firms.
By their terms, hybrid securities allow for the omission of scheduled dividends, interest, or principal payments, which can potentially result in impairment if such an omission occurs. Hybrid securities may also be subject to contractually allowable write-downs of principal that could result in impairment. Together with the hybrid indicator, the long-term obligation rating assigned to a hybrid security is an expression of the relative credit risk associated with that security.
Global Short-Term Rating Scale (original maturity of 13 months or less)
P-1 – Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2 – Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3 – Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP – Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
US Municipal Short-Term Obligation Ratings
MIG 1 – This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the market for refinancing.
MIG 2 – This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.
MIG 3 – This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for refinancing is likely to be less well-established.
SG – This designation denotes speculative grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
US Municipal Demand Obligation Ratings
VMIG 1 – This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
VMIG 2 – This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
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VMIG 3 – This designation denotes acceptable credit quality. Adequate protection is afforded by the satisfactory short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
SG – This designation denotes speculative-grade credit quality. Demand features rated in this category may be supported by a liquidity provider that does not have an investment grade short-term rating or may lack the structural and/or legal protections necessary to ensure the timely payment of purchase price upon demand.
Standard & Poor’s
Long-Term Issue Credit Ratings (original maturity of one year or more)
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 to a 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.
BB ; B ; CCC ; CC and C – 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 may be 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 obligation. 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.
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CC – An obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a default has not yet occurred, but Standard & Poor’s expects default to be a virtual certainty, regardless of the anticipated time to default.
C – An obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative seniority or lower ultimate recovery compared to obligations that are rated higher.
D – An obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless Standard & Poor’s believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. An obligation’s rating is lowered to ‘D’ if it is subject to a distressed exchange offer.
NR – This indicates that no rating has been requested, or that there is insufficient information on which to base a rating, or that Standard & Poor’s does not rate a particular obligation as a matter of policy.
Note: The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
Short-Term Issue Credit Ratings (original maturity of 365 days or less)
A-1 – A short-term obligation rated’A-1’ is rated in the highest category by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitment on these obligations is extremely strong.
A-2 – A short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment on the obligation is satisfactory.
A-3 – A short-term obligation rated ‘A-3’ 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.
B – A short-term obligation rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing uncertainties which could lead to the obligor’s inadequate capacity to meet its financial commitments.
C – A short-term obligation rated ‘C’ 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.
D – A short-term obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an obligation are not made on the due date, unless Standard & Poor’s believes that such payments will be made within any stated grace period. However, any stated grace period longer than five business days will be treated as five business days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. An obligation’s rating is lowered to ‘D’ if it is subject to a distressed exchange offer.
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Municipal Short-Term Note Ratings (original maturity of 3 years or less)
SP-1 – Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
SP-2 – Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
SP-3 – Speculative capacity to pay principal and interest.
Fitch Ratings
Long-Term Rating Scales
AAA – Highest credit quality. ‘AAA’ ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA – Very high credit quality. ‘AA’ ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A – High credit quality. ‘A’ ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
BBB – Good credit quality. ‘BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.
BB – Speculative. ‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists which supports the servicing of financial commitments.
B – Highly speculative. ‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.
CCC – Substantial credit risk. Default is a real possibility.
CC – Very high levels of credit risk. Default of some kind appears probable.
C – Exceptionally high levels of credit risk. Default is imminent or inevitable, or the issuer is in standstill.
Conditions that are indicative of a ‘C’ category rating for an issuer include:
a. the issuer has entered into a grace or cure period following non-payment of a material financial obligation;
b. the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or
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c. Fitch Ratings otherwise believes a condition of ‘RD’ or ‘D’ to be imminent or inevitable, including through the formal announcement of a distressed debt exchange.
RD – Restricted default. ‘RD’ ratings indicate an issuer that in Fitch Ratings’ opinion has experienced an uncured payment default on a bond, loan or other material financial obligation but which has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased operating. This would include:
a. the selective payment default on a specific class or currency of debt;
b. the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation;
c. the extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; or
d. execution of a distressed debt exchange on one or more material financial obligations.
D – Default. ‘D’ ratings indicate an issuer that in Fitch Ratings’ opinion has entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, or which has otherwise ceased business.
Default ratings are not assigned prospectively to entities or their obligations; within this context, non-payment on an instrument that contains a deferral feature or grace period will generally not be considered a default until after the expiration of the deferral or grace period, unless a default is otherwise driven by bankruptcy or other similar circumstance, or by a distressed debt exchange.
“Imminent” default typically refers to the occasion where a payment default has been intimated by the issuer, and is all but inevitable. This may, for example, be where an issuer has missed a scheduled payment, but (as is typical) has a grace period during which it may cure the payment default. Another alternative would be where an issuer has formally announced a distressed debt exchange, but the date of the exchange still lies several days or weeks in the immediate future.
In all cases, the assignment of a default rating reflects the agency’s opinion as to the most appropriate rating category consistent with the rest of its universe of ratings, and may differ from the definition of default under the terms of an issuer’s financial obligations or local commercial practice.
Note: The modifiers “+” or “-” may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the ‘AAA’ Long-Term Issuer Default Rating (IDR) category, or to Long-Term IDR categories below ‘B’.
Short-Term Ratings
F1 – Highest short-term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to denote any exceptionally strong credit feature.
F2 – Good short-term credit quality. Good intrinsic capacity for timely payment of financial commitments.
F3 – Fair short-term credit quality. The intrinsic capacity for timely payment of financial commitments is adequate.
B – Speculative short-term credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions.
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C – High short-term default risk. Default is a real possibility.
RD – Restricted default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Typically applicable to entity ratings only.
D – Default. Indicates a broad-based default event for an entity, or the default of a short-term obligation.
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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 Director of Proxy Voting and Corporate Governance (“Proxy Voting Director”), 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 address all potential voting issues. Because the circumstances of individual companies are so varied, there may be instances when the funds do not vote in strict adherence to these guidelines. For example, the proxy voting service is expected to bring to the Proxy Voting Director’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 Voting Director of circumstances where the interests of fund shareholders may warrant a vote contrary to these guidelines. In such instances, the investment professionals submit a written recommendation to the Proxy Voting Director and the person or persons designated by Putnam Management’s Legal and Compliance Department to assist in processing referral items under the funds’ “Proxy Voting Procedures.” The Proxy Voting Director, in consultation with a senior member of the Office of the Trustees 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 submitted by management and approved and recommended by a company’s board of directors. Part II deals with proposals submitted by shareholders. Part III addresses unique considerations pertaining to non-U.S. issuers.
The Trustees of the Putnam funds are committed to promoting strong corporate governance practices and encouraging corporate actions that enhance shareholder value through the judicious voting of the funds’ proxies. It is the funds’ policy to vote their proxies at all shareholder meetings where it is practicable to do so. In furtherance of this, the funds’ have requested that their securities lending agent recall each domestic issuer’s voting securities that are on loan, in advance of the record date for the issuer’s shareholder meetings, so that the funds may vote at the meetings.
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The Putnam funds will disclose their proxy votes not later than August 31 of each year for the most recent 12-month period ended June 30, in accordance with the timetable established by SEC rules.
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 from 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,
• the board has more than 19 members or fewer than five members, absent special circumstances,
• the board has not acted to implement a policy requested in a shareholder proposal that received the support of a majority of the shares of the company cast at its previous two annual meetings, or
• the board has adopted or renewed a shareholder rights plan (commonly referred to as a “poison pill”) without shareholder approval during the current or prior calendar year.
➢ The funds will on a case-by-case basis withhold votes from the entire board of directors, or from particular directors as may be appropriate, if the board has approved compensation arrangements for one or more company executives that the funds determine are unreasonably excessive relative to the company’s performance or has otherwise failed to observe good corporate governance practices.
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➢ The funds will withhold votes from any nominee for director:
• who is considered an independent director by the company and who has received compensation within the last three years from the company other than for service as a director (e.g., investment banking, consulting, legal, or financial advisory fees),
• who attends less than 75% of board and committee meetings without valid reasons for the absences (e.g., illness, personal emergency, etc.),
• of a public company (Company A) who is employed as a senior executive of another company (Company B), if a director of Company B serves as a senior executive of Company A (commonly referred to as an “interlocking directorate”),
• who serves on more than five unaffiliated public company boards (for the purpose of this guideline, boards of affiliated registered investment companies will count as one board), or
• who is a member of the governance or other responsible committee, if the company has adopted without shareholder approval a bylaw provision shifting legal fees and costs to unsuccessful plaintiffs in intra-corporate litigation.
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 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 within the last three years 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 recent (i.e. , within the last three years) receipt of any amount 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
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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 and shareholders. 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 or otherwise, have failed to observe good corporate governance practices or, through specific corporate action, have demonstrated a disregard for the interests of shareholders. Such instances may include cases where a board of directors has approved compensation arrangements for one or more members of management that, in the judgment of the funds’ Trustees, are excessive by reasonable corporate standards relative to the company’s record of performance. It may also represent a disregard for the interests of shareholders if a board of directors fails to register an appropriate response when a director who fails to win the support of a majority of shareholders in an election (sometimes referred to as a “rejected director”) continues to serve on the board. While the Trustees recognize that it may in some circumstances be appropriate for a rejected director to continue his or her service on the board, steps should be taken to address the concerns reflected by the shareholders’ lack of support for the rejected director. Adopting a fee-shifting bylaw provision without shareholder approval, which may discourage legitimate shareholders lawsuits as well as frivolous ones, is another example of disregard for shareholder interests.
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.
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Other Board-Related Proposals
The funds will generally vote for proposals that have been approved by a majority independent board, and on a case-by-case basis on proposals that have been approved by a board that 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 and restricted stock plans that will result in an average annual dilution of 1.67% or less (based on the disclosed term of the plan and including all equity-based plans).
➢ The funds will vote against stock option and restricted stock plans that will result in an average annual dilution of greater than 1.67% (based on the disclosed term of the plan and including all equity-based plans).
➢ The funds will vote against any stock option or restricted stock plan where the company’s actual grants of stock options and restricted stock under all equity-based compensation plans during the prior three (3) fiscal years have resulted in an average annual dilution of greater than 1.67%.
➢ The funds will vote against stock option plans that permit the replacing or repricing of underwater options (and against any proposal to authorize a 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.
➢ The funds will vote for proposals to approve a company’s executive compensation program (i.e., “say on pay” proposals in which the company’s board proposes that shareholders indicate their support for the company’s compensation philosophy, policies, and practices), except that the funds will vote against the proposal if the company is assigned to the lowest category, through independent third party benchmarking performed by the funds’ proxy voting service, for the correlation of the company’s executive compensation program with its performance.
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➢ The funds will vote for bonus plans under which payments are treated as performance-based compensation that is deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended, except that the funds will vote on a case-by-case basis if any of the following circumstances exist:
the amount per employee under the plan is unlimited, or
the plan’s performance criteria is undisclosed, or
the company is assigned to the lowest category, through independent third party benchmarking performed by the funds’ proxy voting service, for the correlation of the company’s executive compensation program with its performance.
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. However, the funds may vote against these or other executive compensation proposals on a case-by-case basis where compensation is excessive by reasonable corporate standards, where a company fails to provide transparent disclosure of executive compensation, or, in some instances, where independent third-party benchmarking indicates that compensation is inadequately correlated with performance, relative to peer companies. (Examples of excessive executive compensation may include, but are not limited to, equity incentive plans that exceed the dilution criteria noted above, excessive perquisites, performance-based compensation programs that do not properly correlate reward and performance, “golden parachutes” or other severance arrangements that present conflicts between management’s interests and the interests of shareholders, and “golden coffins” or unearned death benefits.) 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).
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➢ 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; and
➢ The funds will vote on a case-by-case basis on proposals to adopt fair price provisions.
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Commentary: The funds’ Trustees recognize that poison pills and fair price provisions may enhance or protect shareholder value under certain circumstances. For instance, where a company has incurred significant operating losses, a shareholder rights plan may be appropriately tailored to protect shareholder value by preserving a company’s net operating losses. Thus, 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 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 proposals to ratify the selection of independent auditors if there is evidence that the audit firm’s independence or the integrity of an audit is compromised.
➢ 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 (for example, amendments implementing proxy access proposals) 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 these items as routine business matters. Putnam Management’s investment professionals and the funds’ proxy voting service may also bring to the Proxy Voting Director’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.
The fund’s proxy voting service may identify circumstances that call into question an audit firm’s independence or the integrity of an audit. These circumstances may include recent material restatements of financials, unusual audit fees, egregious contractual relationships, and aggressive accounting policies. The funds will consider proposals to ratify the selection of auditors in these circumstances on a case-by-case basis. In all other cases, given the existence of rules that enhance the independence of audit committees and auditors by, for example, prohibiting auditors from performing a range of non-audit services for audit clients, the funds will vote for the ratification of independent auditors
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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 on a case-by-case basis on shareholder proposals requiring that the chairman’s position be filled by someone other than the chief executive officer.
➢ The funds will vote for shareholder proposals asking that director nominees receive support from holders of a majority of votes cast or a majority of shares outstanding in order to be (re)elected.
➢ 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 eliminate supermajority vote requirements in the company’s charter documents.
➢ The funds will vote for shareholder proposals to require shareholder approval of shareholder rights plans.
➢ The funds will vote for shareholder proposals to amend a company’s charter documents to permit shareholders to call special meetings, but only if both of the following conditions are met:
• the proposed amendment limits the right to call special meetings to shareholders holding at least 15% of the company’s outstanding shares, and
• applicable state law does not otherwise provide shareholders with the right to call special meetings.
➢ The funds will vote on a case-by-case basis on shareholder proposals relating to proxy access.
➢ The funds will vote for shareholder proposals requiring companies to make cash payments under management severance agreements only if both of the following conditions are met:
• the company undergoes a change in control, and
• the change in control results in the termination of employment for the person receiving the severance payment.
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➢ The funds will vote for shareholder proposals requiring companies to accelerate vesting of equity awards under management severance agreements only if both of the following conditions are met:
• the company undergoes a change in control, and
• the change in control results in the termination of employment for the person receiving the severance payment.
➢ The funds will vote on a case-by-case basis on shareholder proposals to limit a company’s ability to make excise tax gross-up payments under management severance agreements.
➢ The funds will vote on a case-by-case basis on shareholder proposals requesting that the board adopt a policy to recoup, in the event of a significant restatement of financial results or significant extraordinary write-off, to the fullest extent practicable, for the benefit of the company, all performance-based bonuses or awards that were paid to senior executives based on the company having met or exceeded specific performance targets to the extent that the specific performance targets were not, in fact, met.
➢ The funds will vote for shareholder proposals calling for the company to obtain shareholder approval for any future golden coffins or unearned death benefits (payments or awards of unearned salary or bonus, accelerated vesting or the continuation of unvested equity awards, perquisites or other payments or awards in respect of an executive following his or her death), and for shareholder proposals calling for the company to cease providing golden coffins or unearned death benefits.
➢ The funds will vote for shareholder proposals requiring a company to report on its executive retirement benefits (e.g., deferred compensation, split-dollar life insurance, SERPs and pension benefits).
➢ The funds will vote for shareholder proposals requiring a company to disclose its relationships with executive compensation consultants (e.g., whether the company, the board or the compensation committee retained the consultant, the types of services provided by the consultant over the past five years, and a list of the consultant’s clients on which any of the company’s executives serve as a director).
➢ 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: 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 by imposing additional legal restrictions on board governance through piecemeal proposals. As stated above, the funds’ Trustees believe that boards of directors and
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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. The funds will also consider proposals requiring that the chairman’s position be filled by someone other than the company’s chief executive officer on a case-by-case basis, recognizing that in some cases this separation may advance the company’s corporate governance while in other cases it may be less necessary to the sound governance of the company. The funds will take into account the level of independent leadership on a company’s board in evaluating these proposals.
However, the funds generally support shareholder proposals to implement majority voting for directors, observing that majority voting is an emerging standard intended to encourage directors to be attentive to shareholders’ interests. The funds also generally support shareholder proposals to declassify a board, to eliminate supermajority vote requirements, or to require shareholder approval of shareholder rights plans. The funds’ Trustees believe that these shareholder proposals further the goals of reducing management entrenchment and conflicts of interest, and aligning management’s interests with shareholders’ interests in evaluating proposed acquisitions of the company. The Trustees also believe that shareholder proposals to limit severance payments may further these goals in some instances. In general, the funds favor arrangements in which severance payments are made to an executive only when there is a change in control and the executive loses his or her job as a result. Arrangements in which an executive receives a payment upon a change of control even if the executive retains employment introduce potential conflicts of interest and may distract management focus from the long term success of the company.
In evaluating shareholder proposals that address severance payments, the funds distinguish between cash and equity payments. The funds generally do not favor cash payments to executives upon a change in control transaction if the executive retains employment. However, the funds recognize that accelerated vesting of equity incentives, even without termination of employment, may help to align management and shareholder interests in some instances, and will evaluate shareholder proposals addressing accelerated vesting of equity incentive payments on a case-by-case basis.
When severance payments exceed a certain amount based on the executive’s previous compensation, the payments may be subject to an excise tax. Some compensation arrangements provide for full excise tax gross-ups, which means that the company pays the executive sufficient additional amounts to cover the cost of the excise tax. The funds are concerned that the benefits of providing full excise tax gross-ups to executives may be outweighed by the cost to the company of the gross-up payments. Accordingly, the funds will vote on a case-by-case basis on shareholder proposals to curtail excise tax gross-up payments. The funds generally favor arrangements in which severance payments do not trigger an excise tax or in which the company’s obligations with respect to gross-up payments are limited in a reasonable manner.
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The funds’ Trustees believe that performance-based compensation can be an effective tool for aligning management and shareholder interests. However, to fulfill its purpose, performance compensation should only be paid to executives if the performance targets are actually met. A significant restatement of financial results or a significant extraordinary write-off may reveal that executives who were previously paid performance compensation did not actually deliver the required business performance to earn that compensation. In these circumstances, it may be appropriate for the company to recoup this performance compensation. The funds will consider on a case-by-case basis shareholder proposals requesting that the board adopt a policy to recoup, in the event of a significant restatement of financial results or significant extraordinary write-off, performance-based bonuses or awards paid to senior executives based on the company having met or exceeded specific performance targets to the extent that the specific performance targets were not, in fact, met. The funds do not believe that such a policy should necessarily disadvantage a company in recruiting executives, as executives should understand that they are only entitled to performance compensation based on the actual performance they deliver.
The funds’ Trustees disfavor golden coffins or unearned death benefits, and the funds will generally support shareholder proposals to restrict or terminate these practices. The Trustees will also consider whether a company’s overall compensation arrangements, taking all of the pertinent circumstances into account, constitute excessive compensation or otherwise reflect poorly on the corporate governance practices of the company. As the Trustees evaluate these matters, they will be mindful of evolving practices and legislation relevant to executive compensation and corporate governance.
The funds’ Trustees also believe that shareholder proposals that are intended to increase transparency, particularly with respect to executive compensation, without establishing rigid restrictions upon a company’s ability to attract and motivate talented executives, are generally beneficial to sound corporate governance without imposing undue burdens. The funds will generally support shareholder proposals calling for reasonable disclosure.
III. VOTING SHARES OF NON-U.S. ISSUERS
Many of the Putnam funds invest on a global basis, and, as a result, they may hold, and have an opportunity to vote, shares in non-U.S. issuers – i.e., issuers that are incorporated under the laws of foreign jurisdictions and whose shares are not listed on a U.S. securities exchange or the NASDAQ stock market.
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 shareholder to be able to vote at the meeting. This practice is known as “share re-registration.” As a result,
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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 following the meeting. In countries where share re-registration is practiced, the funds will generally not vote proxies.
Protection for shareholders of non-U.S. issuers may vary significantly from jurisdiction to jurisdiction. Laws governing non-U.S. issuers may, in some cases, provide substantially less protection for shareholders than do U.S. laws. As a result, the guidelines applicable to U.S. issuers, 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. However, the funds will vote proxies of non-U.S. issuers in accordance with the guidelines applicable to U. S. issuers except as follows:
Uncontested Board Elections |
China, India, Indonesia, Philippines, Taiwan and Thailand
➢ The funds will withhold votes from the entire board of directors if
• fewer than one-third of the directors are independent directors, or
• the board has not established audit, compensation and nominating committees each composed of a majority of independent directors.
Commentary: Whether a director is considered “independent” or not will be determined by reference to local corporate law or listing standards.
Europe ex-United Kingdom
➢ The funds will withhold votes from the entire board of directors if
• the board has not established audit and compensation committees each composed of a majority of independent, non - executive directors, or
• the board has not established a nominating committee composed of a majority of independent directors.
Commentary: An “independent director” under the European Commission’s guidelines is one who is free of any business, family or other relationship, with the company, its controlling shareholder or the management of either, that creates a conflict of interest such as to impair his judgment. A “non-executive director” is one who is not engaged in the daily management of the company.
Germany
➢ For companies subject to “co-determination,” the funds will vote for the election of nominees to the supervisory board, except that the funds will vote on a case-by-case
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basis for any nominee who is either an employee of the company or who is otherwise affiliated with the company (as determined by the funds’ proxy voting service).
➢ The funds will withhold votes for the election of a former member of the company’s managerial board to chair of the supervisory board.
Commentary: German corporate governance is characterized by a two-tier board system—a managerial board composed of the company’s executive officers, and a supervisory board. The supervisory board appoints the members of the managerial board. Shareholders elect members of the supervisory board, except that in the case of companies with a large number of employees, company employees are allowed to elect some of the supervisory board members (one-half of supervisory board members are elected by company employees at companies with more than 2,000 employees; one-third of the supervisory board members are elected by company employees at companies with more than 500 employees but fewer than 2,000). This “co-determination” practice may increase the chances that the supervisory board of a large German company does not contain a majority of independent members. In this situation, under the Fund’s proxy voting guidelines applicable to U.S. issuers, the funds would vote against all nominees. However, in the case of companies subject to “co-determination” and with the goal of supporting independent nominees, the Funds will vote for supervisory board members who are neither employees of the company nor otherwise affiliated with the company.
Consistent with the funds’ belief that the interests of shareholders are best protected by boards with strong, independent leadership, the funds will withhold votes for the election of former chairs of the managerial board to chair of the supervisory board.
Hong Kong
➢ The funds will withhold votes from the entire board of directors if
• fewer than one-third of the directors are independent directors, or
• the board has not established audit, compensation and nominating committees each with at least a majority of its members being independent directors, or
• the chair of the audit, compensation or nominating committee is not an independent director.
Commentary: For purposes of these guidelines, an “independent director” is a director that has no material, financial or other current relationships with the company. In determining whether a director is independent, the funds will apply the standards included in the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited Section 3.13.
Italy
➢ The funds will withhold votes from any director not identified in the proxy materials.
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Commentary: In Italy, companies have the right to nominate co-opted directors for election to the board at the next annual general meeting, but do not have to indicate, until the day of the annual meeting, whether or not they are nominating a co-opted director for election. When a company does not explicitly state in its proxy materials that co-opted directors are standing for election, shareholders will not know for sure who the board nominees are until the actual meeting occurs. The funds will withhold support from any such co-opted director on the grounds that there was insufficient information for evaluation before the meeting.
Japan
➢ For companies that have established a U.S.-style corporate governance structure, the funds will withhold votes from 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 governance 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 from the entire board of directors if
• fewer than half of the directors are outside directors,
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• the board has not established a nominating committee with at least half of the members being 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.
➢ The funds will vote withhold votes from nominees to the audit committee if the board has not established an audit committee composed of (or proposed to be composed of) at least three members, and of which at least two-thirds of its members are (or will be) outside directors.
Commentary: For purposes of these guidelines, 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 the performance his or her duties impartially with respect to 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.
Malaysia
➢ The funds will withhold votes from the entire board of directors if
• in the case of a board with an independent director serving as chair, fewer than one-third of the directors are independent directors ; or, in the case of a board not chaired by an independent director, less than a majority of the directors are independent directors,
• the board has not established audit and nominating committees with at least a majority of the members being independent directors and all of the members being non - executive directors, or
• the board has not established a compensation committee with at least a majority of the members being non - executive directors.
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Commentary. For purposes of these guidelines, an “independent director” is a director who has no material, financial or other current relationships with the company. In determining whether a director is independent, the funds will apply the standards included in the Malaysia Code of Corporate Governance, Commentary to Recommendation 3.1. A “non-executive director” is a director who does not take on primary responsibility for leadership of the company.
Russia
➢ The funds will vote on a case-by-case basis for the election of nominees to the board of directors.
Commentary: In Russia, director elections are typically handled through a cumulative voting process. Cumulative voting allows shareholders to cast all of their votes for a single nominee for the board of directors, or to allocate their votes among nominees in any other way. In contrast, in “regular” voting, shareholders may not give more than one vote per share to any single nominee. Cumulative voting can help to strengthen the ability of minority shareholders to elect a director.
In Russia, as in some other emerging markets, standards of corporate governance are usually behind those in developed markets. Rather than vote against the entire board of directors, as the funds generally would in the case of a company whose board fails to meet the funds’ standards for independence, the funds may, on a case by case basis, cast all of their votes for one or more independent director nominees. The funds believe that it is important to increase the number of independent directors on the boards of Russian companies to mitigate the risks associated with dominant shareholders.
Singapore
➢ The funds will withhold votes from the entire board of directors if
• in the case of a board with an independent director serving as chair, fewer than one-third of the directors are independent directors ; or, in the case of a board not chaired by an independent director, fewer than half of the directors are independent directors,
• the board has not established audit and compensation committees, each with an independent director serving as chair, with at least a majority of the members being independent directors, and with all of the directors being non - executive directors, or
• the board has not established a nominating committee, with an independent director serving as chair, and with at least a majority of the members being independent directors.
Commentary: For purposes of these guidelines, an “independent director” is a director that has no material, financial or other current relationships with the company. In determining whether a
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director is independent, the funds will apply the standards included in the Singapore Code of Corporate Governance, Guideline 2.3. A “non-executive director” is a director who is not employed with the company.
United Kingdom
➢ The funds will withhold votes from the entire board of directors if
• fewer than half of the directors are independent non-executive directors,
• the board has not established a nomination committee 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 independent non-executive directors, provided that, to the extent permitted under the United Kingdom’s Combined Code on Corporate Governance, the company chairman may serve on (but not serve as chairman of) the compensation and audit committees if the chairman was considered independent upon his or her appointment as chairman.
➢ The funds will withhold votes from any nominee for director who is considered an independent director by the company and who has received compensation within the last three years from the company other than for service as a director, such as investment banking, consulting, legal, or financial advisory fees.
➢ The funds will vote for proposals to amend a company’s articles of association to authorize boards to approve situations that might be interpreted to present potential conflicts of interest affecting a director.
Commentary:
Application of guidelines: Although the United Kingdom’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 generally 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. Company chairmen in the U.K. are generally considered affiliated upon appointment as chairman due to the nature of the position of chairman. Consistent with the Combined Code, a company chairman who was
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considered independent upon appointment as chairman: may serve as a member of, but not as the chairman of, the compensation (remuneration) committee; and, in the case of smaller companies, may serve as a member of, but not as the chairman of, the audit committee.
Smaller companies: A smaller company is one that is below the FTSE 350 throughout the year immediately prior to the reporting year.
Conflicts of interest: The Companies Act 2006 requires a director to avoid a situation in which he or she has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. This broadly written requirement could be construed to prevent a director from becoming a trustee or director of another organization. Provided there are reasonable safeguards, such as the exclusion of the relevant director from deliberations, the funds believe that the board may approve this type of potential conflict of interest in its discretion.
All other jurisdictions
➢ The funds will vote for supervisory board nominees when the supervisory board meets the funds’ independence standards, otherwise the funds will vote against supervisory board nominees.
Commentary: Companies in many jurisdictions operate under the oversight of supervisory boards. In the absence of jurisdiction-specific guidelines, the funds will generally hold supervisory boards to the same standards of independence as it applies to boards of directors in the United States.
Contested Board Elections |
Italy
➢ The funds will vote for the management- or board-sponsored slate of nominees if the board meets the funds’ independence standards, and against the management- or board-sponsored slate of nominees if the board does not meet the funds’ independence standards; the funds will not vote on shareholder-proposed slates of nominees.
Commentary: Contested elections in Italy may involve a variety of competing slates of nominees. In these circumstances, the funds will focus their analysis on the board- or management-sponsored slate.
Corporate Governance |
➢ The funds will vote for proposals to change the size of a board if the board meets the funds’ independence standards, and against proposals to change the size of a board if the board does not meet the funds’ independence standards.
➢ The funds will vote for shareholder proposals calling for a majority of a company’s directors to be independent of management.
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➢ 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.
Australia
➢ The funds will vote on a case-by-case basis on board spill resolutions.
Commentary: The Corporations Amendment (Improving Accountability on Director and Executive Compensation) Bill 2011 provides that, if a company’s remuneration report receives a “no” vote of 25% or more of all votes cast at two consecutive annual general meetings, at the second annual general meeting, a spill resolution must be proposed. If the spill resolution is approved (by simple majority), then a further meeting to elect a new board (excluding the managing director) must be held within 90 days. The funds will consider board spill resolutions on a case-by-case basis.
Europe
➢ The funds will vote for proposals to ratify board acts, except that the funds will consider these proposals on a case-by-case basis if the funds’ proxy voting service has recommended a vote against the proposal.
Taiwan
➢ The funds will vote against proposals to release directors from their non-competition obligations (their obligations not to engage in any business that is competitive with the company), unless the proposal is narrowly drafted to permit directors to engage in a business that is competitive with the company only on behalf of a wholly-owned subsidiary of the company.
Compensation |
➢ The funds will vote for proposals to approve annual directors’ fees, except that the funds will consider these proposals on a case-by-case basis in each case in which the funds’ proxy voting service has recommended a vote against such a proposal.
➢ The funds will vote for non-binding proposals to approve remuneration reports, except that the funds will vote against proposals to approve remuneration reports that indicate that awards under a long-term incentive plan are not linked to performance targets.
Commentary: Since proposals relating to directors’ fees for non-U.S. issuers generally address relatively modest fees paid to non-executive directors, the funds generally support these proposals, provided that the fees are consistent with directors’ fees paid by the company’s peers
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and do not otherwise appear unwarranted. Consistent with the approach taken for U.S. issuers, the funds generally favor compensation programs that relate executive compensation to a company’s long-term performance and will support non-binding remuneration reports unless such a correlation is not made.
Europe and Asia ex-Japan
➢ In the case of proposals that do not include sufficient information for determining average annual dilution, the funds will will vote for stock option and restricted stock plans that will result in an average gross potential dilution of 5% or less.
Commentary: Asia ex-Japan means China, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand. In these markets, companies may not disclose the life of the plan and there may not be a specific number of shares requested; therefore, it may not be possible to determine the average annual dilution related to the plan and apply the funds’ standard dilution test.
France
➢ The funds will vote for an employee stock purchase plan or share save scheme that has the following features: (1) the shares purchased under the plan are acquired for no less than 70% of their market value; (2) the vesting period is greater than or equal to 10 years; (3) the offering period under the plan is 27 months or less; and (4) dilution is 10% or less.
Commentary: To conform to local market practice, the funds support plans or schemes at French issuers that permit the purchase of shares at up to a 30% discount (i.e. , shares may be purchased for no less than 70% of their market value). By comparison, for U.S. issuers, the funds do not support employee stock purchase plans that permit shares to be acquired at more than a 15% discount (i.e. , for less than 85% of their market value); in the United Kingdom, up to a 20% discount is permitted.
United Kingdom
➢ The funds will vote for an employee stock purchase plan or share save scheme that has the following features: (1) the shares purchased under the plan are acquired for no less than 80% of their market value; (2) the offering period under the plan is 27 months or less; and (3) dilution is 10% or less.
Commentary: These are the same features that the funds require of employee stock purchase plans proposed by U.S. issuers, except that, to conform to local market practice, the funds support plans or schemes at United Kingdom issuers that permit the purchase of shares at up to a 20% discount (i.e. , shares may be purchased for no less than 80% of their market value). By comparison, for U.S. issuers, the funds do not support employee stock purchase plans that permit shares to be acquired at more than a 15% discount (i.e. , for less than 85% of their market value).
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Capitalization |
Unless a proposal is directly addressed by a country-specific guideline:
➢ The funds will vote for proposals
• to issue additional common stock representing up to 20% of the company’s outstanding common stock, where shareholders do not have preemptive rights, or
• to issue additional common stock representing up to 100% of the company’s outstanding common stock, where shareholders do have preemptive rights.
➢ The funds will vote for proposals to authorize share repurchase programs that are recommended for approval by the funds’ proxy voting service; otherwise, the funds will vote against such proposals.
Australia
➢ The funds will vote for proposals to carve out, from the general cap on non- pro rata share issues of 15% of total equity in a rolling 12-month period, a particular proposed issue of shares or a particular issue of shares made previously within the 12-month period, if the company’s board meets the funds’ independence standards; if the company’s board does not meet the funds’ independence standards, then the funds will vote against these proposals.
➢ The funds will vote for proposals to approve the grant of equity awards to directors, except that the funds will consider these proposals on a case-by-case basis if the funds’ proxy voting service has recommended a vote against the proposal.
China
➢ The funds will vote for proposals to issue and/or to trade in non-convertible, convertible and/or exchangeable debt obligations, except that the funds will consider these proposals on a case-by-case basis if the funds’ proxy voting service has recommended a vote against the proposal.
Hong Kong
➢ The funds will vote for proposals to approve a general mandate permitting the company to engage in non- pro rata share issues of up to 20% of total equity in a year if the company’s board meets the funds’ independence standards; if the company’s board does not meet the funds’ independence standards, then the funds will vote against these proposals.
➢ The funds will for proposals to approve the reissuance of shares acquired by the company under a share repurchase program, provided that: (1) the funds supported (or would have supported, in accordance with these guidelines) the share repurchase program, (2) the
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reissued shares represent no more than 10% of the company’s outstanding shares (measured immediately before the reissuance), and (3) the reissued shares are sold for no less than 85% of current market value.
France
➢ The funds will vote for proposals to increase authorized shares, except that the funds will consider these proposals on a case-by-case basis if the funds’ proxy voting service has recommended a vote against the proposal.
➢ The funds will vote against proposals to authorize the issuance of common stock or convertible debt instruments and against proposals to authorize the repurchase and/or reissuance of shares where those authorizations may be used, without further shareholder approval, as anti-takeover measures.
New Zealand
➢ The funds will vote for proposals to approve the grant of equity awards to directors, except that the funds will consider these proposals on a case-by-case basis if the funds’ proxy voting service has recommended a vote against the proposal.
Commentary: In light of the prevalence of certain types of capitalization proposals in Australia, China, Hong Kong, France and New Zealand, the funds have adopted guidelines specific to those jurisdictions.
Other Business Matters |
➢ The funds will vote for proposals permitting companies to deliver reports and other materials electronically (e.g., via website posting).
➢ The funds will vote for proposals permitting companies to issue regulatory reports in English.
➢ The funds will vote against proposals to shorten shareholder meeting notice periods to fourteen days.
Commentary: Under Directive 2007/36/EC of the European Parliament and the Council of the European Union, companies have the option to request shareholder approval to set the notice period for special meetings at 14 days provided that certain electronic voting and communication requirements are met. The funds believe that the 14 day notice period is too short to provide overseas shareholders with sufficient time to analyze proposals and to participate meaningfully at special meetings and, as a result, have determined to vote against such proposals.
➢ The funds will vote for proposals to amend a company’s charter or bylaws, except that the funds will consider these proposals on a case-by-case basis if the funds’ proxy voting service has recommended a vote against the proposal.
B-132 | |
Commentary: If the substance of any proposed amendment is covered by a specific guideline included herein, then that guideline will govern.
France
➢ The funds will vote for proposals to approve a company’s related party transactions, except that the funds will consider these proposals on a case-by-case basis if the funds’ proxy voting service has recommended a vote against the proposal.
➢ If a company has not proposed an opt-out clause in its articles of association and the implementation of double-voting rights has not been approved by shareholders, the funds will vote against the ratification of board acts for the previous fiscal year, will withhold votes from the re-election of members of the board’s governance committee (or in the absence of a governance committee, against the chair of the board or the next session board member up for re-election) and, if there is no opportunity to vote against ratification of board acts or to withhold votes from directors, will vote against the approval of the company’s accounts and reports.
Commentary: In France, shareholders are generally requested to approve any agreement between the company and: (i) its directors, chair of the board, CEO and deputy CEOs; (ii) the members of the supervisory board and management board, for companies with a dual structure; and (iii) a shareholder who directly or indirectly owns at least 10% of the company’s voting rights. This includes agreements under which compensation may be paid to executive officers after the end of their employment, such as severance payments, supplementary retirement plans and non-competition agreements. The funds will generally support these proposals unless the funds’ proxy voting service recommends a vote against, in which case the funds will consider the proposal on a case-by-case basis.
Under French law, shareholders of French companies with shares held in registered form under the same name for at least two years will automatically be granted double-voting rights, unless a company has amended its articles of association to opt out of the double-voting rights regime. Awarding double-voting rights in this manner is likely to disadvantage non-French institutional shareholders. Accordingly, the funds will take actions to signal disapproval of double-voting rights at companies that have not opted-out from the double-voting rights regime and that have not obtained shareholder approval of the double-voting rights regime.
Germany
➢ The funds will vote in accordance with the recommendation of the company’s board of directors on shareholder countermotions added to a company’s meeting agenda, unless the countermotion is directly addressed by one of the funds’ other guidelines.
Commentary: In Germany, shareholders are able to add both proposals and countermotions to a meeting agenda. Countermotions, which must correspond to a proposal on the agenda, generally call for shareholders to oppose the existing proposal, although they may also propose separate voting decisions. Countermotions may be proposed by any shareholder and they are typically
B-133 | |
added throughout the period between the publication of the meeting agenda and the meeting date. This guideline reflects the funds’ intention to focus on the original proposal, which is expected to be presented a reasonable period of time before the shareholder meeting so that the funds will have an appropriate opportunity to evaluate it.
➢ The funds will vote for proposals to approve profit-and-loss transfer agreements between a controlling company and its subsidiaries.
Commentary: These agreements are customary in Germany and are typically entered into for tax purposes. In light of this and the prevalence of these proposals, the funds have adopted a guideline to vote for this type of proposal.
Taiwan
➢ The funds will vote for proposals to amend a Taiwanese company’s procedural rules.
Commentary: Since procedural rules, which address such matters as a company’s policies with respect to capital loans, endorsements and guarantees, and acquisitions and disposal of assets, are generally adopted or amended to conform to changes in local regulations governing these transactions, the funds have adopted a guideline to vote for these transactions.
As adopted January 29, 2016 |
B-134 | |
Appendix B
B-135 | |
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam Equity Income Fund:
We have audited the accompanying statement of assets and liabilities of Putnam Equity Income Fund (the fund), including the fund’s portfolio, as of November 30, 2015, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of November 30, 2015, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Equity Income Fund as of November 30, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
January 7, 2016
24 | Equity Income Fund |
The fund’s portfolio 11/30/15
COMMON STOCKS (93.1%)* | Shares | Value |
| ||
Aerospace and defense (6.3%) | ||
General Dynamics Corp. | 361,200 | $52,901,352 |
| ||
Honeywell International, Inc. | 626,100 | 65,083,095 |
| ||
L-3 Communications Holdings, Inc. | 612,640 | 74,993,262 |
| ||
Northrop Grumman Corp. | 908,590 | 169,324,832 |
| ||
United Technologies Corp. | 265,700 | 25,520,485 |
| ||
387,823,026 | ||
Airlines (0.9%) | ||
American Airlines Group, Inc. | 1,344,300 | 55,465,818 |
| ||
55,465,818 | ||
Auto components (1.1%) | ||
Delphi Automotive PLC (United Kingdom) | 781,200 | 68,651,856 |
| ||
68,651,856 | ||
Automobiles (0.8%) | ||
General Motors Co. | 1,371,100 | 49,633,820 |
| ||
49,633,820 | ||
Banks (8.9%) | ||
Bank of America Corp. | 5,165,800 | 90,039,894 |
| ||
Citigroup, Inc. | 2,372,423 | 128,324,360 |
| ||
JPMorgan Chase & Co. | 2,049,700 | 136,673,996 |
| ||
KeyCorp | 2,204,700 | 28,903,617 |
| ||
Regions Financial Corp. | 4,319,300 | 43,797,702 |
| ||
Wells Fargo & Co. | 2,193,640 | 120,869,564 |
| ||
548,609,133 | ||
Beverages (1.7%) | ||
Coca-Cola Enterprises, Inc. | 1,014,200 | 51,014,260 |
| ||
Dr. Pepper Snapple Group, Inc. | 574,500 | 51,561,375 |
| ||
102,575,635 | ||
Capital markets (4.3%) | ||
Charles Schwab Corp. (The) | 2,197,100 | 74,064,241 |
| ||
Goldman Sachs Group, Inc. (The) | 213,600 | 40,588,272 |
| ||
Invesco, Ltd. | 737,500 | 24,846,375 |
| ||
KKR & Co. LP | 2,661,800 | 45,011,038 |
| ||
State Street Corp. | 1,137,780 | 82,580,072 |
| ||
267,089,998 | ||
Chemicals (2.6%) | ||
Air Products & Chemicals, Inc. | 385,400 | 52,757,406 |
| ||
CF Industries Holdings, Inc. | 388,800 | 17,939,232 |
| ||
Dow Chemical Co. (The) | 882,600 | 46,009,938 |
| ||
E.I. du Pont de Nemours & Co. | 617,100 | 41,555,514 |
| ||
158,262,090 | ||
Commercial services and supplies (0.8%) | ||
Tyco International PLC | 1,344,130 | 47,461,230 |
| ||
47,461,230 | ||
Communications equipment (1.2%) | ||
Cisco Systems, Inc. | 1,716,850 | 46,784,163 |
| ||
QUALCOMM, Inc. | 581,500 | 28,371,385 |
| ||
75,155,548 | ||
Consumer finance (—%) | ||
Oportun Financial Corp. (acquired 6/23/15, cost $2,781,056) | ||
(Private) † ∆∆ F | 975,809 | 2,502,950 |
| ||
2,502,950 |
Equity Income Fund | 25 |
COMMON STOCKS (93.1%)* cont. | Shares | Value |
| ||
Containers and packaging (1.7%) | ||
Packaging Corp. of America | 553,800 | $37,652,862 |
| ||
Sealed Air Corp. | 842,900 | 38,233,944 |
| ||
WestRock Co. | 614,016 | 31,087,630 |
| ||
106,974,436 | ||
Diversified financial services (0.5%) | ||
CME Group, Inc. | 297,900 | 29,089,935 |
| ||
29,089,935 | ||
Diversified telecommunication services (2.5%) | ||
AT&T, Inc. | 1,557,800 | 52,451,126 |
| ||
CenturyLink, Inc. | 721,100 | 19,419,223 |
| ||
Verizon Communications, Inc. | 1,742,770 | 79,208,897 |
| ||
151,079,246 | ||
Electric utilities (3.0%) | ||
American Electric Power Co., Inc. | 552,700 | 30,956,727 |
| ||
Edison International | 645,500 | 38,316,880 |
| ||
Exelon Corp. | 1,690,800 | 46,175,748 |
| ||
NextEra Energy, Inc. | 338,900 | 33,842,554 |
| ||
PPL Corp. | 1,094,436 | 37,254,601 |
| ||
186,546,510 | ||
Energy equipment and services (1.2%) | ||
Baker Hughes, Inc. | 768,800 | 41,569,016 |
| ||
Halliburton Co. | 373,600 | 14,887,960 |
| ||
National Oilwell Varco, Inc. | 466,700 | 17,426,578 |
| ||
73,883,554 | ||
Food and staples retail (1.3%) | ||
CVS Health Corp. | 881,600 | 82,949,744 |
| ||
82,949,744 | ||
Food products (1.1%) | ||
JM Smucker Co. (The) | 371,178 | 44,983,062 |
| ||
Kraft Heinz Co. (The) | 328,000 | 24,170,320 |
| ||
69,153,382 | ||
Health-care equipment and supplies (1.7%) | ||
Boston Scientific Corp. † | 3,221,400 | 58,887,192 |
| ||
Medtronic PLC | 592,353 | 44,627,875 |
| ||
103,515,067 | ||
Health-care providers and services (1.4%) | ||
Cigna Corp. | 647,800 | 87,440,044 |
| ||
87,440,044 | ||
Hotels, restaurants, and leisure (0.8%) | ||
Hilton Worldwide Holdings, Inc. | 2,153,400 | 50,001,948 |
| ||
50,001,948 | ||
Household durables (0.4%) | ||
PulteGroup, Inc. | 1,167,100 | 22,735,108 |
| ||
22,735,108 | ||
Household products (0.6%) | ||
Kimberly-Clark Corp. | 290,200 | 34,577,330 |
| ||
34,577,330 | ||
Independent power and renewable electricity producers (0.8%) | ||
Calpine Corp. † | 2,025,365 | 29,934,895 |
| ||
NRG Energy, Inc. | 1,564,400 | 19,335,984 |
| ||
49,270,879 | ||
Industrial conglomerates (1.6%) | ||
Danaher Corp. | 538,300 | 51,886,737 |
| ||
General Electric Co. | 1,544,000 | 46,227,360 |
| ||
98,114,097 |
26 | Equity Income Fund |
COMMON STOCKS (93.1%)* cont. | Shares | Value |
| ||
Insurance (4.4%) | ||
American International Group, Inc. | 1,265,353 | $80,451,144 |
| ||
Assured Guaranty, Ltd. | 1,680,500 | 44,432,420 |
| ||
Genworth Financial, Inc. Class A † | 3,838,500 | 19,384,425 |
| ||
Hartford Financial Services Group, Inc. (The) | 1,026,200 | 46,835,768 |
| ||
MetLife, Inc. | 1,174,170 | 59,988,345 |
| ||
Willis Group Holdings PLC | 395,000 | 18,154,200 |
| ||
269,246,302 | ||
Internet software and services (1.4%) | ||
Alphabet, Inc. Class C † | 115,516 | 85,782,182 |
| ||
85,782,182 | ||
IT Services (1.2%) | ||
Computer Sciences Corp. | 673,900 | 21,113,287 |
| ||
CSRA, Inc. † | 673,900 | 21,234,589 |
| ||
Fidelity National Information Services, Inc. | 483,700 | 30,797,179 |
| ||
73,145,055 | ||
Life sciences tools and services (0.7%) | ||
Agilent Technologies, Inc. | 1,045,300 | 43,714,446 |
| ||
43,714,446 | ||
Machinery (0.5%) | ||
Oshkosh Corp. S | 661,500 | 29,013,390 |
| ||
29,013,390 | ||
Media (4.8%) | ||
CBS Corp. Class B (non-voting shares) | 677,800 | 34,215,344 |
| ||
Comcast Corp. Special Class A | 1,865,050 | 113,842,652 |
| ||
Liberty Global PLC Ser. C (United Kingdom) † | 829,800 | 34,021,800 |
| ||
Time Warner Cable, Inc. | 296,900 | 54,858,213 |
| ||
Time Warner, Inc. | 863,890 | 60,455,022 |
| ||
297,393,031 | ||
Multi-utilities (0.7%) | ||
Ameren Corp. | 248,000 | 10,852,480 |
| ||
PG&E Corp. | 584,400 | 30,815,412 |
| ||
41,667,892 | ||
Oil, gas, and consumable fuels (7.8%) | ||
Anadarko Petroleum Corp. | 859,800 | 51,502,020 |
| ||
EOG Resources, Inc. | 412,500 | 34,414,875 |
| ||
Exxon Mobil Corp. | 1,560,000 | 127,389,600 |
| ||
Marathon Oil Corp. | 4,162,200 | 72,880,122 |
| ||
QEP Resources, Inc. | 1,056,200 | 16,687,960 |
| ||
Royal Dutch Shell PLC ADR Class A (United Kingdom) | 1,477,210 | 73,505,970 |
| ||
Total SA (France) | 813,555 | 40,399,381 |
| ||
Valero Energy Corp. | 885,300 | 63,617,658 |
| ||
480,397,586 | ||
Personal products (2.3%) | ||
Coty, Inc. Class A | 3,512,100 | 97,566,138 |
| ||
Edgewell Personal Care Co. | 582,000 | 46,851,000 |
| ||
144,417,138 | ||
Pharmaceuticals (7.5%) | ||
AstraZeneca PLC ADR (United Kingdom) S | 2,172,000 | 73,956,600 |
| ||
Eli Lilly & Co. | 1,947,300 | 159,756,492 |
| ||
Johnson & Johnson | 1,164,870 | 117,931,439 |
| ||
Merck & Co., Inc. | 1,081,800 | 57,346,218 |
| ||
Pfizer, Inc. | 1,493,986 | 48,957,921 |
| ||
457,948,670 |
Equity Income Fund | 27 |
COMMON STOCKS (93.1%)* cont. | Shares | Value |
| ||
Real estate investment trusts (REITs) (3.3%) | ||
American Tower Corp. | 276,200 | $27,448,756 |
| ||
Boston Properties, Inc. | 379,600 | 47,446,204 |
| ||
Equity Lifestyle Properties, Inc. | 714,200 | 44,551,796 |
| ||
Federal Realty Investment Trust | 187,700 | 27,501,804 |
| ||
Gaming and Leisure Properties, Inc. | 750,600 | 20,408,814 |
| ||
MFA Financial, Inc. | 4,883,805 | 34,088,959 |
| ||
201,446,333 | ||
Road and rail (0.8%) | ||
Union Pacific Corp. | 559,500 | 46,970,025 |
| ||
46,970,025 | ||
Semiconductors and semiconductor equipment (2.7%) | ||
Intel Corp. | 1,933,800 | 67,238,226 |
| ||
NXP Semiconductor NV † | 592,200 | 55,347,012 |
| ||
Texas Instruments, Inc. | 784,400 | 45,589,328 |
| ||
168,174,566 | ||
Software (1.4%) | ||
Microsoft Corp. | 1,262,100 | 68,595,135 |
| ||
Symantec Corp. | 814,700 | 15,951,826 |
| ||
84,546,961 | ||
Specialty retail (0.9%) | ||
Gap, Inc. (The) S | 1,014,100 | 27,106,893 |
| ||
Tiffany & Co. | 354,900 | 28,278,432 |
| ||
55,385,325 | ||
Technology hardware, storage, and peripherals (2.6%) | ||
Apple, Inc. | 706,300 | 83,555,290 |
| ||
EMC Corp. | 1,991,200 | 50,457,008 |
| ||
SanDisk Corp. | 343,810 | 25,397,245 |
| ||
159,409,543 | ||
Textiles, apparel, and luxury goods (0.3%) | ||
Michael Kors Holdings, Ltd. † | 467,400 | 20,107,548 |
| ||
20,107,548 | ||
Thrifts and mortgage finance (0.6%) | ||
Radian Group, Inc. | 2,701,685 | 38,499,011 |
| ||
38,499,011 | ||
Tobacco (1.3%) | ||
Philip Morris International, Inc. | 896,250 | 78,323,288 |
| ||
78,323,288 | ||
Wireless telecommunication services (0.7%) | ||
Vodafone Group PLC ADR (United Kingdom) S | 1,284,710 | 43,114,868 |
| ||
43,114,868 | ||
Total common stocks (cost $4,670,697,716) | $5,727,265,544 | |
CONVERTIBLE PREFERRED STOCKS (1.2%)* | Shares | Value |
| ||
Alcoa, Inc. Ser. 1, $2.688 cv. pfd. | 812,125 | $26,292,547 |
| ||
Allergan PLC Ser. A, 5.50% cv. pfd. | 13,426 | 14,061,318 |
| ||
American Tower Corp. $5.50 cv. pfd. R | 125,877 | 12,949,596 |
| ||
ArcelorMittal SA Ser. MTUS, $1.50 cv. pfd. (France) | 183,261 | 1,443,180 |
| ||
Frontier Communications Corp. Ser. A, $11.125 cum. cv. pfd. | 63,371 | 6,115,302 |
| ||
Oportun Financial Corp. Ser. A-1, 8.00% cv. pfd. (acquired 6/23/15, | ||
cost $7,592) (Private) † ∆∆ F | 2,664 | 6,833 |
| ||
Oportun Financial Corp. Ser. B-1, 8.00% cv. pfd. (acquired 6/23/15, | ||
cost $145,237) (Private) † ∆∆ F | 46,107 | 130,713 |
|
28 | Equity Income Fund |
CONVERTIBLE PREFERRED STOCKS (1.2%)* cont. | Shares | Value |
| ||
Oportun Financial Corp. Ser. C-1, 8.00% cv. pfd. (acquired 6/23/15, | ||
cost $341,111) (Private) † ∆∆ F | 67,016 | $307,000 |
| ||
Oportun Financial Corp. Ser. D-1, 8.00% cv. pfd. (acquired 6/23/15, | ||
cost $494,779) (Private) † ∆∆ F | 97,206 | 445,301 |
| ||
Oportun Financial Corp. Ser. E-1, 8.00% cv. pfd. (acquired 6/23/15, | ||
cost $277,459) (Private) † ∆∆ F | 50,539 | 249,713 |
| ||
Oportun Financial Corp. Ser. F, 8.00% cv. pfd. (acquired 6/23/15, cost | ||
$837,565) (Private) † ∆∆ F | 109,058 | 753,809 |
| ||
Oportun Financial Corp. Ser. F-1, 8.00% cv. pfd. (acquired 6/23/15, | ||
cost $2,349,227) (Private) † ∆∆ F | 824,290 | 2,114,304 |
| ||
Oportun Financial Corp. Ser. G, 8.00% cv. pfd. (acquired 6/23/15, cost | ||
$2,970,584) (Private) † ∆∆ F | 1,042,310 | 2,673,525 |
| ||
Oportun Financial Corp. Ser. H, 8.00 % cv. pfd. (acquired 2/6/15, cost | ||
$9,110,862) (Private) † ∆∆ F | 3,199,825 | 8,199,776 |
| ||
Total convertible preferred stocks (cost $94,072,991) | $75,742,917 | |
CONVERTIBLE BONDS AND NOTES (0.5%)* | Principal amount | Value |
| ||
MGIC Investment Corp. cv. sr. notes 5s, 2017 | $18,271,000 | $19,138,873 |
| ||
WESCO International, Inc. cv. company guaranty sr. unsec. | ||
notes 6s, 2029 | 6,471,000 | 11,004,744 |
| ||
Total convertible bonds and notes (cost $26,918,899) | $30,143,617 | |
SHORT-TERM INVESTMENTS (5.6%)* | Shares | Value |
| ||
Putnam Cash Collateral Pool, LLC 0.27% d | 53,150,775 | $53,150,775 |
| ||
Putnam Short Term Investment Fund 0.16% L | 294,568,934 | 294,568,934 |
| ||
Total short-term investments (cost $347,719,709) | $347,719,709 | |
TOTAL INVESTMENTS | ||
| ||
Total investments (cost $5,139,409,315) | $6,180,871,787 |
Key to holding’s abbreviations
ADR | American Depository Receipts: represents ownership of foreign securities on deposit with a |
custodian bank |
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from December 1, 2014 through November 30, 2015 (the reporting period). Within the following notes to the portfolio, references to “ASC 820” represent Accounting Standards Codification 820 Fair Value Measurements and Disclosures and references to “OTC”, if any, represent over-the-counter.
* Percentages indicated are based on net assets of $6,154,595,831.
† This security is non-income-producing.
∆∆ This security is restricted with regard to public resale. The total fair value of this security and any other restricted securities (excluding 144A securities), if any, held at the close of the reporting period was $17,383,924, or 0.3% of net assets.
d Affiliated company. See Note 1 to the financial statements regarding securities lending. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
F This security is valued at fair value following procedures approved by the Trustees. Securities may be classified as Level 2 or Level 3 for ASC 820 based on the securities’ valuation inputs (Note 1).
L Affiliated company (Note 5). The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
Equity Income Fund | 29 |
R Real Estate Investment Trust.
S Security on loan, in part or in entirety, at the close of the reporting period (Note 1).
Debt obligations are considered secured unless otherwise indicated.
The dates shown on debt obligations are the original maturity dates.
ASC 820 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1: Valuations based on quoted prices for identical securities in active markets.
Level 2: Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3: Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
Valuation inputs | ||||
| ||||
Investments in securities: | Level 1 | Level 2 | Level 3 | |
| ||||
Common stocks*: | ||||
| ||||
Consumer discretionary | $563,908,636 | $— | $— | |
| ||||
Consumer staples | 511,996,517 | — | — | |
| ||||
Energy | 554,281,140 | — | — | |
| ||||
Financials | 1,353,980,712 | — | 2,502,950 | |
| ||||
Health care | 692,618,227 | — | — | |
| ||||
Industrials | 664,847,586 | — | — | |
| ||||
Information technology | 646,213,855 | — | — | |
| ||||
Materials | 265,236,526 | — | — | |
| ||||
Telecommunication services | 194,194,114 | — | — | |
| ||||
Utilities | 277,485,281 | — | — | |
| ||||
Total common stocks | 5,724,762,594 | — | 2,502,950 | |
Convertible bonds and notes | — | 30,143,617 | — | |
| ||||
Convertible preferred stocks | — | 60,861,943 | 14,880,974 | |
| ||||
Short-term investments | 294,568,934 | 53,150,775 | — | |
| ||||
Totals by level | $6,019,331,528 | $144,156,335 | $17,383,924 |
* Common stock classifications are presented at the sector level, which may differ from the fund’s portfolio presentation.
During the reporting period, transfers within the fair value hierarchy, if any, (other than certain transfers involving non-U.S. equity securities as described in Note 1) did not represent, in the aggregate, more than 1% of the fund’s net assets measured as of the end of the period. Transfers are accounted for using the end of period pricing valuation method.
At the start and close of the reporting period, Level 3 investments in securities represented less than 1% of the fund’s net assets and were not considered a significant portion of the fund’s portfolio.
The accompanying notes are an integral part of these financial statements.
30 | Equity Income Fund |
Statement of assets and liabilities 11/30/15
ASSETS | |
| |
Investment in securities, at value, including $51,395,645 of securities on loan (Note 1): | |
Unaffiliated issuers (identified cost $4,791,689,606) | $5,833,152,078 |
Affiliated issuers (identified cost $347,719,709) (Notes 1 and 5) | 347,719,709 |
| |
Dividends, interest and other receivables | 15,962,864 |
| |
Receivable for shares of the fund sold | 27,434,100 |
| |
Prepaid assets | 65,954 |
| |
Total assets | 6,224,334,705 |
LIABILITIES | |
| |
Payable for shares of the fund repurchased | 8,810,334 |
| |
Payable for compensation of Manager (Note 2) | 2,368,723 |
| |
Payable for custodian fees (Note 2) | 28,279 |
| |
Payable for investor servicing fees (Note 2) | 1,964,989 |
| |
Payable for Trustee compensation and expenses (Note 2) | 922,307 |
| |
Payable for administrative services (Note 2) | 19,844 |
| |
Payable for distribution fees (Note 2) | 1,935,050 |
| |
Collateral on securities loaned, at value (Note 1) | 53,150,775 |
| |
Other accrued expenses | 538,573 |
| |
Total liabilities | 69,738,874 |
Net assets | $6,154,595,831 |
| |
REPRESENTED BY | |
| |
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $4,874,047,337 |
| |
Undistributed net investment income (Note 1) | 44,011,424 |
| |
Accumulated net realized gain on investments and foreign currency transactions (Note 1) | 195,074,598 |
| |
Net unrealized appreciation of investments | 1,041,462,472 |
| |
Total — Representing net assets applicable to capital shares outstanding | $6,154,595,831 |
(Continued on next page)
Equity Income Fund | 31 |
Statement of assets and liabilities (Continued)
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
| |
Net asset value and redemption price per class A share | |
($3,454,264,178 divided by 166,992,976 shares) | $20.69 |
| |
Offering price per class A share (100/94.25 of $20.69)* | $21.95 |
| |
Net asset value and offering price per class B share ($102,902,865 divided by 5,033,224 shares)** | $20.44 |
| |
Net asset value and offering price per class C share ($355,618,930 divided by 17,392,572 shares)** | $20.45 |
| |
Net asset value and redemption price per class M share ($51,229,960 divided by 2,507,415 shares) | $20.43 |
| |
Offering price per class M share (100/96.50 of $20.43)* | $21.17 |
| |
Net asset value, offering price and redemption price per class R share | |
($116,894,775 divided by 5,694,297 shares) | $20.53 |
| |
Net asset value, offering price and redemption price per class R5 share | |
($106,460,241 divided by 5,144,241 shares) | $20.70 |
| |
Net asset value, offering price and redemption price per class R6 share | |
($386,754,797 divided by 18,683,257 shares) | $20.70 |
| |
Net asset value, offering price and redemption price per class Y share | |
($1,580,470,085 divided by 76,385,902 shares) | $20.69 |
|
* On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
32 | Equity Income Fund |
Statement of operations Year ended 11/30/15
INVESTMENT INCOME | |
| |
Dividends (net of foreign tax of $968,383) | $148,606,068 |
| |
Interest (including interest income of $216,741 from investments in affiliated issuers) (Note 5) | 1,099,646 |
| |
Securities lending (Note 1) | 399,465 |
| |
Total investment income | 150,105,179 |
EXPENSES | |
| |
Compensation of Manager (Note 2) | 28,483,206 |
| |
Investor servicing fees (Note 2) | 11,877,007 |
| |
Custodian fees (Note 2) | 56,716 |
| |
Trustee compensation and expenses (Note 2) | 349,048 |
| |
Distribution fees (Note 2) | 14,221,361 |
| |
Administrative services (Note 2) | 156,708 |
| |
Other | 1,325,834 |
| |
Total expenses | 56,469,880 |
Expense reduction (Note 2) | (165,262) |
| |
Net expenses | 56,304,618 |
Net investment income | 93,800,561 |
| |
Net realized gain on investments (Notes 1 and 3) | 276,522,722 |
| |
Net realized gain on foreign currency transactions (Note 1) | 30,650 |
| |
Net unrealized depreciation of investments during the year | (404,096,182) |
| |
Net loss on investments | (127,542,810) |
Net decrease in net assets resulting from operations | $(33,742,249) |
|
The accompanying notes are an integral part of these financial statements.
Equity Income Fund | 33 |
Statement of changes in net assets
INCREASE IN NET ASSETS | Year ended 11/30/15 | Year ended 11/30/14 |
| ||
Operations: | ||
Net investment income | $93,800,561 | $77,930,715 |
| ||
Net realized gain on investments | ||
and foreign currency transactions | 276,553,372 | 474,693,178 |
| ||
Net unrealized appreciation (depreciation) of investments | (404,096,182) | 232,754,755 |
| ||
Net increase (decrease) in net assets resulting | ||
from operations | (33,742,249) | 785,378,648 |
| ||
Distributions to shareholders (Note 1): | ||
From ordinary income | ||
Net investment income | ||
| ||
Class A | (48,167,107) | (51,477,787) |
| ||
Class B | (669,946) | (839,114) |
| ||
Class C | (2,203,399) | (2,024,454) |
| ||
Class M | (455,472) | (463,975) |
| ||
Class R | (1,396,515) | (1,359,988) |
| ||
Class R5 | (1,523,791) | (228,262) |
| ||
Class R6 | (7,074,032) | (4,654,927) |
| ||
Class Y | (23,389,507) | (22,721,364) |
| ||
Net realized short-term gain on investments | ||
| ||
Class A | (20,939,832) | (15,089,817) |
| ||
Class B | (666,290) | (495,049) |
| ||
Class C | (1,847,076) | (1,012,876) |
| ||
Class M | (296,318) | (197,353) |
| ||
Class R | (703,962) | (453,695) |
| ||
Class R5 | (249,888) | (4,992) |
| ||
Class R6 | (2,278,527) | (710,699) |
| ||
Class Y | (8,526,419) | (5,299,148) |
| ||
From net realized long-term gain on investments | ||
Class A | (241,201,681) | (223,444,301) |
| ||
Class B | (7,674,858) | (7,329,039) |
| ||
Class C | (21,276,099) | (14,994,967) |
| ||
Class M | (3,413,226) | (2,925,232) |
| ||
Class R | (8,108,790) | (6,716,553) |
| ||
Class R5 | (2,878,415) | (73,909) |
| ||
Class R6 | (26,245,885) | (10,521,282) |
| ||
Class Y | (98,214,090) | (78,449,246) |
| ||
Increase from capital share transactions (Note 4) | 652,772,935 | 563,055,219 |
| ||
Total increase in net assets | 89,629,561 | 896,945,838 |
NET ASSETS | ||
| ||
Beginning of year | 6,064,966,270 | 5,168,020,432 |
| ||
End of year (including undistributed net investment income | ||
of $44,011,424 and $38,093,411, respectively) | $6,154,595,831 | $6,064,966,270 |
|
The accompanying notes are an integral part of these financial statements.
34 | Equity Income Fund |
This page left blank intentionally. |
Equity Income Fund | 35 |
Financial highlights (For a common share outstanding throughout the period)
INVESTMENT OPERATIONS: | LESS DISTRIBUTIONS: | RATIOS AND SUPPLEMENTAL DATA: | ||||||||||||
| ||||||||||||||
Ratio | Ratio | |||||||||||||
Net realized | From | of expenses | of net investment | |||||||||||
Net asset value, | and unrealized | Total from | From | net realized | Total return | Net assets, | to average | income (loss) | Portfolio | |||||
beginning | Net investment | gain (loss) | investment | net investment | gain | Total | Non-recurring | Net asset value, | at net asset | end of period | net assets | to average | turnover | |
Period ended | of period | income (loss)a | on investments | operations | income | on investments | distributions | reimbursements | end of period | value (%)b | (in thousands) | (%)c | net assets (%) | (%) |
| ||||||||||||||
Class A | ||||||||||||||
November 30, 2015 | $22.76 | .32 | (.43) | (.11) | (.29) | (1.67) | (1.96) | — | $20.69 | (.63) | $3,454,264 | .96 | 1.51 | 22 |
November 30, 2014 | 21.60 | .29 | 2.72 | 3.01 | (.32) | (1.53) | (1.85) | — | 22.76 | 14.99 | 3,590,810 | .98 | 1.37 | 29 |
November 30, 2013 | 17.25 | .34 | 4.89 | 5.23 | (.38) | (.50) | (.88) | — | 21.60 | 31.56 | 3,359,801 | 1.02 | 1.72 | 34 |
November 30, 2012 | 14.94 | .34 | 2.29 | 2.63 | (.32) | — | (.32) | — | 17.25 | 17.84 | 2,573,319 | 1.06 | 2.08 | 57 |
November 30, 2011 | 14.09 | .29 | .82 | 1.11 | (.26) | — | (.26) | —d,e | 14.94 | 7.91 | 2,308,957 | 1.07 | 1.92 | 71 |
| ||||||||||||||
Class B | ||||||||||||||
November 30, 2015 | $22.51 | .16 | (.43) | (.27) | (.13) | (1.67) | (1.80) | — | $20.44 | (1.41) | $102,903 | 1.71 | .76 | 22 |
November 30, 2014 | 21.39 | .13 | 2.68 | 2.81 | (.16) | (1.53) | (1.69) | — | 22.51 | 14.09 | 113,515 | 1.73 | .62 | 29 |
November 30, 2013 | 17.09 | .19 | 4.85 | 5.04 | (.24) | (.50) | (.74) | — | 21.39 | 30.58 | 109,988 | 1.77 | .97 | 34 |
November 30, 2012 | 14.80 | .21 | 2.28 | 2.49 | (.20) | — | (.20) | — | 17.09 | 16.99 | 89,691 | 1.81 | 1.32 | 57 |
November 30, 2011 | 13.95 | .17 | .82 | .99 | (.14) | — | (.14) | —d,e | 14.80 | 7.13 | 94,660 | 1.82 | 1.14 | 71 |
| ||||||||||||||
Class C | ||||||||||||||
November 30, 2015 | $22.52 | .16 | (.42) | (.26) | (.14) | (1.67) | (1.81) | — | $20.45 | (1.37) | $355,619 | 1.71 | .77 | 22 |
November 30, 2014 | 21.40 | .13 | 2.69 | 2.82 | (.17) | (1.53) | (1.70) | — | 22.52 | 14.12 | 306,308 | 1.73 | .63 | 29 |
November 30, 2013 | 17.11 | .19 | 4.84 | 5.03 | (.24) | (.50) | (.74) | — | 21.40 | 30.54 | 221,226 | 1.77 | .96 | 34 |
November 30, 2012 | 14.82 | .21 | 2.29 | 2.50 | (.21) | — | (.21) | — | 17.11 | 17.00 | 127,606 | 1.81 | 1.33 | 57 |
November 30, 2011 | 13.98 | .18 | .81 | .99 | (.15) | — | (.15) | —d,e | 14.82 | 7.11 | 109,414 | 1.82 | 1.20 | 71 |
| ||||||||||||||
Class M | ||||||||||||||
November 30, 2015 | $22.50 | .21 | (.42) | (.21) | (.19) | (1.67) | (1.86) | — | $20.43 | (1.13) | $51,230 | 1.46 | 1.01 | 22 |
November 30, 2014 | 21.38 | .18 | 2.69 | 2.87 | (.22) | (1.53) | (1.75) | — | 22.50 | 14.39 | 49,775 | 1.48 | .87 | 29 |
November 30, 2013 | 17.09 | .24 | 4.83 | 5.07 | (.28) | (.50) | (.78) | — | 21.38 | 30.86 | 43,327 | 1.52 | 1.22 | 34 |
November 30, 2012 | 14.80 | .25 | 2.29 | 2.54 | (.25) | — | (.25) | — | 17.09 | 17.30 | 33,497 | 1.56 | 1.57 | 57 |
November 30, 2011 | 13.96 | .22 | .81 | 1.03 | (.19) | — | (.19) | —d,e | 14.80 | 7.36 | 31,868 | 1.57 | 1.42 | 71 |
| ||||||||||||||
Class R | ||||||||||||||
November 30, 2015 | $22.60 | .26 | (.42) | (.16) | (.24) | (1.67) | (1.91) | — | $20.53 | (.89) | $116,895 | 1.21 | 1.26 | 22 |
November 30, 2014 | 21.47 | .24 | 2.69 | 2.93 | (.27) | (1.53) | (1.80) | — | 22.60 | 14.66 | 118,917 | 1.23 | 1.12 | 29 |
November 30, 2013 | 17.15 | .29 | 4.86 | 5.15 | (.33) | (.50) | (.83) | — | 21.47 | 31.24 | 99,722 | 1.27 | 1.48 | 34 |
November 30, 2012 | 14.85 | .29 | 2.30 | 2.59 | (.29) | — | (.29) | — | 17.15 | 17.60 | 74,914 | 1.31 | 1.82 | 57 |
November 30, 2011 | 14.01 | .26 | .81 | 1.07 | (.23) | — | (.23) | —d,e | 14.85 | 7.63 | 62,193 | 1.32 | 1.73 | 71 |
| ||||||||||||||
Class R5 | ||||||||||||||
November 30, 2015 | $22.77 | .38 | (.42) | (.04) | (.36) | (1.67) | (2.03) | — | $20.70 | (.30) | $106,460 | .65 | 1.81 | 22 |
November 30, 2014 | 21.63 | .39 | 2.68 | 3.07 | (.40) | (1.53) | (1.93) | — | 22.77 | 15.30 | 42,934 | .66 | 1.80 | 29 |
November 30, 2013 | 17.26 | .41 | 4.90 | 5.31 | (.44) | (.50) | (.94) | — | 21.63 | 32.14 | 14 | .66 | 2.08 | 34 |
November 30, 2012† | 15.86 | .18 | 1.31 | 1.49 | (.09) | — | (.09) | — | 17.26 | 9.43* | 11 | .28* | 1.05* | 57 |
| ||||||||||||||
Class R6 | ||||||||||||||
November 30, 2015 | $22.77 | .40 | (.42) | (.02) | (.38) | (1.67) | (2.05) | — | $20.70 | (.21) | $386,755 | .55 | 1.92 | 22 |
November 30, 2014 | 21.62 | .39 | 2.70 | 3.09 | (.41) | (1.53) | (1.94) | — | 22.77 | 15.42 | 311,320 | .56 | 1.80 | 29 |
November 30, 2013 | 17.26 | .42 | 4.90 | 5.32 | (.46) | (.50) | (.96) | — | 21.62 | 32.22 | 155,644 | .56 | 2.03 | 34 |
November 30, 2012† | 15.86 | .18 | 1.32 | 1.50 | (.10) | — | (.10) | — | 17.26 | 9.46* | 11 | .24* | 1.09* | 57 |
| ||||||||||||||
Class Y | ||||||||||||||
November 30, 2015 | $22.76 | .37 | (.42) | (.05) | (.35) | (1.67) | (2.02) | — | $20.69 | (.38) | $1,580,470 | .71 | 1.78 | 22 |
November 30, 2014 | 21.61 | .35 | 2.71 | 3.06 | (.38) | (1.53) | (1.91) | — | 22.76 | 15.22 | 1,531,387 | .73 | 1.63 | 29 |
November 30, 2013 | 17.26 | .38 | 4.89 | 5.27 | (.42) | (.50) | (.92) | — | 21.61 | 31.87 | 1,178,298 | .77 | 1.98 | 34 |
November 30, 2012 | 14.94 | .38 | 2.30 | 2.68 | (.36) | — | (.36) | — | 17.26 | 18.20 | 885,588 | .81 | 2.34 | 57 |
November 30, 2011 | 14.09 | .34 | .81 | 1.15 | (.30) | — | (.30) | —d,e | 14.94 | 8.19 | 595,481 | .82 | 2.26 | 71 |
|
See notes to financial highlights at the end of this section.
The accompanying notes are an integral part of these financial statements.
36 | Equity Income Fund | Equity Income Fund | 37 |
Financial highlights (Continued)
* Not annualized.
† For the period July 3, 2012 (commencement of operations) to November 30, 2012.
a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
c Includes amounts paid through expense offset and/or brokerage/service arrangements, if any (Note 2). Also excludes acquired fund fees and expenses, if any.
d Reflects a non-recurring reimbursement related to restitution amounts in connection with a distribution plan approved by the Securities and Exchange Commission (the SEC) which amounted to less than $0.01 per share outstanding on July 21, 2011. Also reflects a non-recurring reimbursement related to short-term trading related lawsuits, which amounted to less than $0.01 per share outstanding on May 11, 2011.
e Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
38 | Equity Income Fund |
Notes to financial statements 11/30/15
Within the following Notes to financial statements, references to “State Street” represent State Street Bank and Trust Company, references to “the SEC” represent the Securities and Exchange Commission, references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC and references to “OTC”, if any, represent over-the-counter. Unless otherwise noted, the “reporting period” represents the period from December 1, 2014 through November 30, 2015.
Putnam Equity Income Fund (the fund) is a Massachusetts business trust, which is registered under the Investment Company Act of 1940, as amended, as a diversified open-end management investment company. The goal of the fund is to seek capital growth and current income. The fund invests mainly in common stocks of midsize and large U.S. companies, with a focus on value stocks that offer the potential for capital growth, current income, or both. Value stocks are issued by companies that Putnam Management believes are currently undervalued by the market. If Putnam Management is correct and other investors ultimately recognize the value of the company, the price of its stock may rise. Putnam Management may consider, among other factors, a company’s valuation, financial strength, growth potential, competitive position in its industry, projected future earnings, cash flows and dividends when deciding whether to buy or sell investments.
The fund offers class A, class B, class C, class M, class R, class R5, class R6 and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 5.75% and 3.50%, respectively. Class A shares generally do not pay a contingent deferred sales charge and class M shares do not pay a contingent deferred sales charge. Prior to November 1, 2015, class M shares were able to pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are not available to all investors, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class R5, class R6 and class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee and in the case of class R5 and class R6 shares, bear a lower investor servicing fee, which is identified in Note 2. Class R5, class R6 and class Y shares are not available to all investors.
In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund’s management team expects the risk of material loss to be remote.
Note 1: Significant accounting policies
The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial 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. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements.
Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.
Security valuation Portfolio securities and other investments are valued using policies and procedures adopted by the Board of Trustees. The Trustees have formed a Pricing Committee to oversee the implementation of these procedures and have delegated responsibility for valuing the fund’s assets in accordance with these procedures to Putnam Management. Putnam Management has established an internal Valuation Committee that is responsible for making fair value determinations, evaluating the effectiveness of the pricing policies of the fund and reporting to the Pricing Committee.
Equity Income Fund | 39 |
Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities under Accounting Standards Codification 820 Fair Value Measurements and Disclosures (ASC 820). If no sales are reported, as in the case of some securities that are traded OTC, a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
Investments in open-end investment companies (excluding exchange-traded funds), if any, which can be classified as Level 1 or Level 2 securities, are valued based on their net asset value. The net asset value of such investment companies equals the total value of their assets less their liabilities and divided by the number of their outstanding shares.
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which would generally be classified as Level 1 securities, will be transferred to Level 2 of the fair value hierarchy when they are valued at fair value. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value, and are classified as Level 2 securities.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management in accordance with policies and procedures approved by the Trustees. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures, recovery rates, sales and other multiples and resale restrictions. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
To assess the continuing appropriateness of fair valuations, the Valuation Committee reviews and affirms the reasonableness of such valuations on a regular basis after considering all relevant information that is reasonably available. Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.
Interest income, net of any applicable withholding taxes, is recorded on the accrual basis. Dividend income, net of any applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.
All premiums/discounts are amortized/accreted on a yield-to-maturity basis.
Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The fair value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of
40 | Equity Income Fund |
investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate.
Securities lending The fund may lend securities, through its agent, to qualified borrowers in order to earn additional income. The loans are collateralized by cash in an amount at least equal to the fair value of the securities loaned. The fair value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund’s agent; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. Cash collateral is invested in Putnam Cash Collateral Pool, LLC, a limited liability company managed by an affiliate of Putnam Management. Investments in Putnam Cash Collateral Pool, LLC are valued at its closing net asset value each business day. There are no management fees charged to Putnam Cash Collateral Pool, LLC. At the close of the reporting period, the fund received cash collateral of $53,150,775 and the value of securities loaned amounted to $51,395,645.
Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the SEC. This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
Lines of credit The fund participates, along with other Putnam funds, in a $392.5 million syndicated unsecured committed line of credit provided by State Street ($292.5 million) and Northern Trust Company ($100 million) and a $235.5 million unsecured uncommitted line of credit provided by State Street. Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the higher of (1) the Federal Funds rate and (2) the overnight LIBOR plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.04% of the committed line of credit and 0.04% of the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.16% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the Code), applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
The fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.
The fund may also be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.
At November 30, 2015, the fund had a capital loss carryover of $50,004,462 available to the extent allowed by the Code to offset future net capital gain, if any. The amounts of the carryovers and the expiration dates are:
Loss carryover | |||
| |||
Short-term | Long-term | Total | Expiration |
| |||
$25,002,231 | N/A | $25,002,231 | November 30, 2016 |
| |||
25,002,231 | N/A | 25,002,231 | November 30, 2017 |
|
Equity Income Fund | 41 |
Under the Regulated Investment Company Modernization Act of 2010, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences from losses on wash sale transactions and from nontaxable dividends. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. At the close of the reporting period, the fund reclassified $3,002,779 to decrease undistributed net investment income, $147 to decrease paid-in capital and $3,002,926 to increase accumulated net realized gain.
The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
Unrealized appreciation | $1,374,531,130 |
Unrealized depreciation | (335,065,150) |
| |
Net unrealized appreciation | 1,039,465,980 |
Undistributed ordinary income | 44,011,424 |
Capital loss carryforward | (50,004,462) |
Undistributed long-term gain | 247,109,844 |
Cost for federal income tax purposes | $5,141,405,807 |
Note 2: Management fee, administrative services and other transactions
The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
0.630% | of the first $5 billion, | 0.430% | of the next $50 billion, | |
|
| |||
0.580% | of the next $5 billion, | 0.410% | of the next $50 billion, | |
|
| |||
0.530% | of the next $10 billion, | 0.400% | of the next $100 billion and | |
|
| |||
0.480% | of the next $10 billion, | 0.395% | of any excess thereafter. | |
|
|
Putnam Management has contractually agreed, through March 30, 2017, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses, acquired fund fees and expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were not reduced as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.
The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund’s assets are provided by State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing (except for class R5 and R6 shares) that
42 | Equity Income Fund |
included (1) a per account fee for each direct and underlying non-defined contribution account (“retail account”) of the fund and each of the other funds in its specified category, which was totaled and then allocated to each fund in the category based on its average daily net assets; (2) a specified rate of the fund’s assets attributable to defined contribution plan accounts; and (3) for the portion of the fund’s fiscal year beginning after January 1, 2015, a specified rate based on the average net assets in retail accounts. Putnam Investor Services has agreed that the aggregate investor servicing fees for each fund’s retail and defined contribution accounts will not exceed an annual rate of 0.320% of the fund’s average assets attributable to such accounts. Class R5 shares paid a monthly fee based on the average net assets of class R5 shares at an annual rate of 0.15%. Class R6 shares paid a monthly fee based on the average net assets of class R6 shares at an annual rate of 0.05%. During the reporting period, the expenses for each class of shares related to investor servicing fees were as follows:
Class A | $7,254,537 | Class R5 | 150,346 | |
|
| |||
Class B | 220,614 | Class R6 | 196,375 | |
|
| |||
Class C | 691,929 | Class Y | 3,001,237 | |
|
| |||
Class M | 105,079 | Total | $11,877,007 | |
|
| |||
Class R | 256,890 | |||
|
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. The fund also reduced expenses through brokerage/service arrangements. For the reporting period, the fund’s expenses were reduced by $9,514 under the expense offset arrangements and by $155,748 under the brokerage/service arrangements.
Each Independent Trustee of the fund receives an annual Trustee fee, of which $3,647, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.
The fund has adopted distribution plans (the Plans) with respect to its class A, class B, class C, class M and class R shares pursuant to Rule 12b–1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management Limited Partnership, an indirect wholly-owned subsidiary of Putnam Investments, LLC, for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. During the reporting period, the class specific expenses related to distribution fees were as follows:
Class A | $8,792,671 | Class M | 382,001 | |
|
| |||
Class B | 1,069,296 | Class R | 623,397 | |
|
| |||
Class C | 3,353,996 | Total | $14,221,361 | |
|
|
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $457,658 and $8,014 from the sale of class A and class M shares, respectively, and received $32,210 and $8,921 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
Equity Income Fund | 43 |
A deferred sales charge of up to 1.00% and 0.65% (no longer applicable effective November 1, 2015) is assessed on certain redemptions of class A and class M shares, respectively. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received $58 and no monies on class A and class M redemptions, respectively.
Note 3: Purchases and sales of securities
During the reporting period, the cost of purchases and the proceeds from sales, excluding short-term investments, were as follows:
Cost of purchases | Proceeds from sales | |
| ||
Investments in securities (Long-term) | $1,504,469,487 | $1,293,254,153 |
| ||
U.S. government securities (Long-term) | — | — |
| ||
Total | $1,504,469,487 | $1,293,254,153 |
|
Note 4: Capital shares
At the close of the reporting period, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
Year ended 11/30/15 | Year ended 11/30/14 | |||
| ||||
Class A | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 25,370,334 | $533,469,874 | 23,976,286 | $509,570,297 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 13,642,343 | 289,530,373 | 13,241,315 | 271,695,408 |
| ||||
39,012,677 | 823,000,247 | 37,217,601 | 781,265,705 | |
| ||||
Shares repurchased | (29,817,888) | (629,123,888) | (34,950,695) | (746,894,595) |
| ||||
Net increase | 9,194,789 | $193,876,359 | 2,266,906 | $34,371,110 |
| ||||
Year ended 11/30/15 | Year ended 11/30/14 | |||
| ||||
Class B | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 805,050 | $16,771,104 | 745,026 | $15,647,832 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 396,244 | 8,342,552 | 398,446 | 8,073,431 |
| ||||
1,201,294 | 25,113,656 | 1,143,472 | 23,721,263 | |
| ||||
Shares repurchased | (1,211,552) | (25,334,759) | (1,242,801) | (26,062,874) |
| ||||
Net decrease | (10,258) | $(221,103) | (99,329) | $(2,341,611) |
| ||||
Year ended 11/30/15 | Year ended 11/30/14 | |||
| ||||
Class C | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 5,391,517 | $112,409,767 | 4,213,089 | $89,078,929 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 987,657 | 20,783,465 | 722,016 | 14,656,557 |
| ||||
6,379,174 | 133,193,232 | 4,935,105 | 103,735,486 | |
| ||||
Shares repurchased | (2,589,058) | (53,819,470) | (1,668,611) | (35,241,874) |
| ||||
Net increase | 3,790,116 | $79,373,762 | 3,266,494 | $68,493,612 |
|
44 | Equity Income Fund |
Year ended 11/30/15 | Year ended 11/30/14 | |||
| ||||
Class M | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 390,842 | $8,077,457 | 320,019 | $6,746,311 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 195,493 | 4,106,994 | 174,260 | 3,532,657 |
| ||||
586,335 | 12,184,451 | 494,279 | 10,278,968 | |
| ||||
Shares repurchased | (291,086) | (6,065,113) | (308,476) | (6,454,776) |
| ||||
Net increase | 295,249 | $6,119,338 | 185,803 | $3,824,192 |
| ||||
Year ended 11/30/15 | Year ended 11/30/14 | |||
| ||||
Class R | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 2,405,796 | $50,237,849 | 1,457,402 | $30,802,016 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 447,862 | 9,447,334 | 389,896 | 7,944,952 |
| ||||
2,853,658 | 59,685,183 | 1,847,298 | 38,746,968 | |
| ||||
Shares repurchased | (2,421,918) | (49,851,318) | (1,230,199) | (26,059,231) |
| ||||
Net increase | 431,740 | $9,833,865 | 617,099 | $12,687,737 |
| ||||
Year ended 11/30/15 | Year ended 11/30/14 | |||
| ||||
Class R5 | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 4,307,162 | $88,919,775 | 2,078,680 | $44,569,618 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 220,664 | 4,652,094 | 14,337 | 307,163 |
| ||||
4,527,826 | 93,571,869 | 2,093,017 | 44,876,781 | |
| ||||
Shares repurchased | (1,269,172) | (26,709,261) | (208,099) | (4,550,625) |
| ||||
Net increase | 3,258,654 | $66,862,608 | 1,884,918 | $40,326,156 |
| ||||
Year ended 11/30/15 | Year ended 11/30/14 | |||
| ||||
Class R6 | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 8,405,481 | $182,059,726 | 7,071,721 | $149,136,691 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 1,680,100 | 35,598,444 | 769,545 | 15,886,908 |
| ||||
10,085,581 | 217,658,170 | 7,841,266 | 165,023,599 | |
| ||||
Shares repurchased | (5,072,200) | (105,210,375) | (1,370,379) | (29,434,084) |
| ||||
Net increase | 5,013,381 | $112,447,795 | 6,470,887 | $135,589,515 |
| ||||
Year ended 11/30/15 | Year ended 11/30/14 | |||
| ||||
Class Y | Shares | Amount | Shares | Amount |
| ||||
Shares sold | 27,560,090 | $576,990,559 | 24,635,045 | $526,255,439 |
| ||||
Shares issued in connection with | ||||
reinvestment of distributions | 5,746,588 | 121,839,378 | 4,957,299 | 101,897,352 |
| ||||
33,306,678 | 698,829,937 | 29,592,344 | 628,152,791 | |
| ||||
Shares repurchased | (24,199,308) | (514,349,626) | (16,842,153) | (358,048,283) |
| ||||
Net increase | 9,107,370 | $184,480,311 | 12,750,191 | $270,104,508 |
|
Equity Income Fund | 45 |
Note 5: Affiliated transactions
Transactions during the reporting period with Putnam Short Term Investment Fund, which is under common ownership and control, were as follows:
Fair value at the | Fair value at | ||||
beginning of | the end of | ||||
the reporting | Investment | the reporting | |||
Name of affiliate | period | Purchase cost | Sale proceeds | income | period |
| |||||
Putnam Short Term | |||||
Investment Fund* | $264,496,948 | $935,777,435 | $905,705,449 | $216,741 | $294,568,934 |
| |||||
Totals | $264,496,948 | $935,777,435 | $905,705,449 | $216,741 | $294,568,934 |
|
* Management fees charged to Putnam Short Term Investment Fund have been waived by Putnam Management.
Note 6: Market, credit and other risks
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations.
46 | Equity Income Fund |
Statement of Additional Information Supplement | August 1, 2016 |
SUPPLEMENT TO THE STATEMENT OF ADDITIONAL INFORMATION OF ALL PUTNAM RETAIL OPEN-END FUNDS
The section “Investor Servicing Agent” is replaced with the following:
Investor Servicing Agent
Putnam Investor Services, located at One Post Office Square, Boston, MA 02109, 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.
Effective September 1, 2016, the fee paid to Putnam Investor Services with respect to assets attributable to non-defined contribution plan accounts (which include accounts maintained directly with the fund, accounts underlying omnibus accounts maintained by financial intermediaries with the fund, accounts of Section 529 college savings plans that are allocated to the fund and accounts of certain funds that operate as funds-of-funds (other than the Putnam RetirementReady Funds) that are allocated to the fund (collectively “retail accounts”)) holding class A, class B, class C, class M, class R, class T and class Y shares, subject to certain limitations, is an annual fee that includes (1) a per account fee for each retail account of the fund that is applicable to the funds in its specified product category, and (2) a fee based on a specified rate of each fund’s average daily net assets that is based on the rate applicable to the funds in its specified product category. The fund categories used for purposes of calculating the per account fee described above are based on product type. The accounts of 529 plans and certain funds-of-funds (other than the Putnam RetirementReady Funds) are included in the determination of the number of accounts at the underlying fund level in proportion to the percentage of the investing fund’s net assets that are invested in the particular underlying fund.
For the Putnam RetirementReady Funds, the fees paid to Putnam Investor Services with respect to assets attributable to retail accounts holding class A, class B, class C, class M, class R and class Y shares, are based on a specified rate of the fund’s average daily net assets attributable to such retail accounts.
The fees paid to Putnam Investor Services with respect to defined contribution plan accounts holding class A, class B, class C, class M, class R, class T and class Y shares are based on a specified rate of the average of the net assets attributable to such defined contribution plan accounts invested in a fund as of the end of the month and the end of the prior month.
Putnam Investor Services has agreed, through August 31, 2018, that the aggregate investor servicing fees for each fund’s retail and defined contribution plan accounts will not exceed an annual rate of 0.250% of the fund’s average daily net assets attributable to such accounts.
The fee paid to Putnam Investor Services with respect to class R5 shares is based on an annual rate of 0.15% of each fund’s average daily net assets attributable to class R5 shares, except that an annual rate of 0.12% of each
fund’s average daily net assets attributable to class R5 shares applies to Putnam American Government Income Fund, Putnam Dynamic Asset Allocation Conservative Fund, Putnam Global Income Trust and Putnam Income Fund.
The fee paid to Putnam Investor Services with respect to class R6 shares is based on an annual rate of 0.05% of each fund’s average daily net assets attributable to class R6 shares.
The fee paid to Putnam Investor Services with respect to class I, class G and class P shares is based on an annual rate of 0.01% of each fund’s average daily net assets attributable to class I shares, class G and class P shares, respectively.
For the period from September 1, 2015 through August 31, 2016, the fee paid to Putnam Investor Services with respect to assets attributable to non-defined contribution plan accounts (which include accounts maintained directly with the fund, accounts underlying omnibus accounts maintained by financial intermediaries with the fund, accounts of Section 529 college savings plans that were allocated to the fund and accounts of certain funds that operate as funds-of-funds (including Putnam RetirementReady Funds) that were allocated to the fund (collectively “previously defined retail accounts”)) holding class A, class B, class C, class M, class R, class T and class Y shares, subject to certain limitations, was an annual fee that included (1) a per account fee for each previously defined retail account of the fund and each of the other funds in its specified category, which was totaled and then allocated among each of the funds in the category based on the average daily net assets of each fund, and (2) a fee based on a specified rate of each fund’s average daily net assets. The fund categories used for purposes of calculating the per account fee described above were based on product type. The accounts of 529 plans and certain funds-of-funds (including Putnam RetirementReady Funds) were included in the determination of the number of accounts at the underlying fund level in proportion to the percentage of the investing fund’s assets that were invested in the particular underlying fund.
Financial intermediaries (including brokers, dealers, banks, bank trust departments, registered investment advisers, financial planners, and retirement plan administrators) may own shares of the fund for the benefit of their customers in an omnibus account (including retirement plans). In these circumstances, the financial intermediaries or other third parties may provide certain sub-accounting and similar recordkeeping services for their customers’ accounts.
In recognition of these services, Putnam Investor Services may make payments to these financial intermediaries or other third parties. Payments may be based on the number of underlying accounts in an omnibus account or the assets or share class held in an account. Putnam Investor Services also makes payments to financial intermediaries that charge networking fees for certain services provided in connection with the maintenance of shareholder accounts. These payments are described above under the heading “Distribution Plans – Additional Dealer Payments.”
PUTNAM EQUITY INCOME FUND |
FORM N-14 |
PART C |
OTHER INFORMATION |
Item 15. Indemnification
Reference is made to Article VIII, sections 1 through 3, of the Registrant’s Amended and Restated Agreement and Declaration of Trust, which is incorporated by reference to Post-Effective Amendment No. 55 to the Registrant’s Registration Statement on Form N-1A under the Investment Company Act of 1940, as amended, (File No. 811-02742). In addition, the Registrant maintains a trustees and officers liability insurance policy under which the Registrant and its trustees and officers are named insureds. Certain service providers to the Registrant also have contractually agreed to indemnify and hold harmless the trustees against liability arising in connection with the service provider’s performance of services under the relevant agreement.
The Massachusetts business trusts comprising The Putnam Funds (each, a “Trust”) have also agreed to contractually indemnify each Trustee. The agreement between the Trusts and each Trustee, in addition to delineating certain procedural aspects relating to indemnification and advancement of expenses to the fullest extent permitted by the Registrant’s Amended and Restated Agreement and Declaration of Trust and Amended and Restated Bylaws and the laws of The Commonwealth of Massachusetts, the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940, as now or hereafter in force, provides that each Trust severally shall indemnify and hold harmless the Trustee against any and all expenses actually and reasonably incurred by the Trustee in any proceeding arising out of or in connection with the Trustee’s service to the Trust, unless the Trustee has been adjudicated in a final adjudication on the merits to have engaged in certain disabling conduct.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to trustees, officers and controlling persons of the Registrant by the Registrant pursuant to the Registrant’s organizational instruments or otherwise, the Registrant is aware that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and, therefore, is unenforceable.
Item 16. Exhibits
(1) Amended and Restated Agreement and Declaration of Trust dated April 17, 2014 -- Incorporated by reference to Post-Effective Amendment No. 55 to the Registrant’s Registration Statement filed on March 26, 2015.
(2)(a) Amended and Restated Bylaws dated as of October 17, 2014 -- Incorporated by reference to Post-Effective Amendment No. 55 to the Registrant’s Registration Statement filed on March 26, 2015.
(2)(b) Amended and Restated Bylaws dated as of April 22, 2016 -- Filed herewith.
(3) Not applicable.
(4) Agreement and Plan of Reorganization -- included as Appendix A to Part A hereof.
(5)(a) Portions of Agreement and Declaration of Trust Relating to Shareholders' Rights -- Incorporated by reference to Post-Effective Amendment No. 55 to the Registrant’s Registration Statement filed on March 26, 2015.
(5)(b) Portions of Bylaws Relating to Shareholders' Rights -- Incorporated by reference to Post-Effective Amendment No. 55 to the Registrant’s Registration Statement filed on March 26, 2015.
(6)(a) Management Contract with Putnam Investment Management, LLC dated February 27, 2014 -- Incorporated by reference to Post-Effective Amendment No. 53 to the Registrant’s Registration Statement filed on March 28, 2014.
(6)(b) Sub-Management Contract between Putnam Investment Management, LLC and Putnam Investments Limited dated February 27, 2014; Schedule A amended as of October 27, 2016 -- Filed herewith.
(7)(a) Amended and Restated Distributor's Contract with Putnam Retail Management Limited Partnership dated July 1, 2013 -- Incorporated by reference to Post-Effective Amendment No. 53 to the Registrant’s Registration Statement filed on March 28, 2014.
(7)(b)(i) Form of Dealer Sales Contract dated March 27, 2012 -- Incorporated by reference to Post-Effective Amendment No. 48 to the Registrant’s Registration Statement filed on May 3, 2012.
(7)(b)(ii) Schedule of Dealer Sales Contracts conforming in all material respects to the Form of Dealer Sales Contract filed as Exhibit (7)(b)(i) but which have not been filed as exhibits to the Registrant's Registration Statement in reliance on Rule 483(d)(2) under the Securities Act of 1933, as amended -- Incorporated by reference to Post-Effective Amendment No. 55 to the Registrant’s Registration Statement filed on March 26, 2015.
(7)(c)(i) Form of Financial Institution Sales Contract dated March 27, 2012 -- Incorporated by reference to Post-Effective Amendment No. 48 to the Registrant’s Registration Statement filed on May 3, 2012.
2 |
(7)(c)(ii) Schedule of Financial Institution Sales Contracts conforming in all material respects to the Form of Financial Institution Sales Contract filed as Exhibit (7)(c)(i) but which have not been filed as exhibits to the Registrant's Registration Statement in reliance on Rule 483(d)(2) under the Securities Act of 1933, as amended -- Incorporated by reference to Post-Effective Amendment No. 55 to the Registrant’s Registration Statement filed on March 26, 2015.
(8) Trustee Retirement Plan dated October 4, 1996, as amended July 21, 2000 -- Incorporated by reference to Post-Effective Amendment No. 37 to the Registrant's Registration Statement filed on March 29, 2005.
(9)(a) Master Custodian Agreement with State Street Bank and Trust Company dated January 1, 2007; Appendix A amended as of November 30, 2015 -- Incorporated by reference to Post-Effective Amendment No. 57 to the Registrant’s Registration Statement filed on March 28, 2016.
(9)(b) Amendment to Master Custodian Agreement with State Street Bank and Trust Company dated August 1, 2013 -- Incorporated by reference to Post-Effective Amendment No. 53 to the Registrant’s Registration Statement filed on March 28, 2014.
(10)(a) Class A Distribution Plan and Agreement dated January 1, 1990, as amended September 10, 1993 -- Incorporated by reference to Post-Effective Amendment No. 25 to the Registrant's Registration Statement.
(10)(b) Class B Distribution Plan and Agreement dated September 10, 1993 -- Incorporated by reference to Post-Effective Amendment No. 26 to the Registrant's Registration Statement filed on January 28, 1994.
(10)(c) Class C Distribution Plan and Agreement dated January 8, 1999 -- Incorporated by reference to Post-Effective Amendment No. 32 to the Registrant’s Registration Statement filed on March 29, 2000.
(10)(d) Class M Distribution Plan and Agreement dated November 28, 1994 -- Incorporated by reference to Post-Effective Amendment No. 27 to the Registrant's Registration Statement filed on March 30, 1995.
(10)(e) Class R Distribution Plan and Agreement dated November 15, 2002 -- Incorporated by reference to Post-Effective Amendment No. 35 to the Registrant’s Registration Statement filed on March 28, 2003.
(10)(f)(i) Form of Dealer Service Agreement -- Incorporated by reference to Post-Effective Amendment No. 30 to the Registrant's Registration Statement filed on March 27, 1998.
(10)(f)(ii) Schedule of Dealer Service Agreements conforming in all material respects to the Form of Dealer Service Agreement filed as Exhibit (10)(f)(i) but which have not been filed as exhibits to the Registrant's Registration Statement in reliance on
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Rule 483(d)(2) under the Securities Act of 1933, as amended -- Incorporated by reference to Post-Effective Amendment No. 55 to the Registrant’s Registration Statement filed on March 26, 2015.
(10)(g)(i) Form of Financial Institution Service Agreement -- Incorporated by reference to Post-Effective Amendment No. 30 to the Registrant's Registration Statement filed on March 27, 1998.
(10)(g)(ii) Schedule of Financial Institution Service Agreements conforming in all material respects to the Form of Financial Institution Service Agreement filed as Exhibit (10)(g)(i) but which have not been filed as exhibits to the Registrant's Registration Statement in reliance on Rule 483(d)(2) under the Securities Act of 1933, as amended -- Incorporated by reference to Post-Effective Amendment No. 55 to the Registrant’s Registration Statement filed on March 26, 2015.
(10)(h) Rule 18f-3 Plan dated November 1, 1999, as most recently amended March 18, 2016 -- Incorporated by reference to Post-Effective Amendment No. 57 to the Registrant’s Registration Statement filed on March 28, 2016.
(11) Opinion and consent of Ropes & Gray LLP -- To be filed by amendment.
(12) Opinion of Ropes & Gray LLP with respect to tax matters -- To be filed by post-effective amendment.
(13)(a) Amended & Restated Investor Servicing Agreement - Open-End Funds with Putnam Investment Management, LLC and Putnam Investor Services, Inc. dated July 1, 2013; Appendix A amended as of March 24, 2016 -- Incorporated by reference to Post-Effective Amendment No. 57 to the Registrant’s Registration Statement filed on March 28, 2016.
(13)(b) Letter of Indemnity with Putnam Investment Management, LLC dated December 18, 2003 -- Incorporated by reference to Post-Effective Amendment No. 37 to the Registrant's Registration Statement filed on March 29, 2005.
(13)(c) Liability Insurance Allocation Agreement dated December 18, 2003 -- Incorporated by reference to Post-Effective Amendment No. 37 to the Registrant’s Registration Statement filed on March 29, 2005.
(13)(d) Master Sub-Accounting Services Agreement between Putnam Investment Management, LLC and State Street Bank and Trust Company dated January 1, 2007; Appendix A amended as of November 30, 2015 -- Incorporated by reference to Post-Effective Amendment No. 57 to the Registrant’s Registration Statement filed on March 28, 2016.
(13)(e) Amendment to Master Sub-Accounting Services Agreement between Putnam Investment Management, LLC and State Street Bank and Trust Company dated August 1, 2013 -- Incorporated by reference to Post-Effective Amendment No. 53 to the Registrant’s Registration Statement filed on March 28, 2014.
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(13)(f) Master Interfund Lending Agreement with the Trusts party thereto and Putnam Investment Management, LLC dated July 16, 2010; Schedule A amended as of June 7, 2016; Schedule B amended as of March 24, 2016 -- Filed herewith.
(13)(g) Credit Agreement with State Street Bank and Trust Company and certain other lenders dated September 24, 2015 -- Incorporated by reference to Post-Effective Amendment No. 57 to the Registrant’s Registration Statement filed on March 28, 2016.
(13)(h) Joinder Agreement No. 1 to Credit Agreement with State Street Bank and Trust Company and certain other lenders dated August 29, 2016 -- Filed herewith.
(13)(i) Amendment No. 1 to Credit Agreement with State Street Bank and Trust Company, dated September 22, 2016 -- Filed herewith.
(13)(j) Amended and Restated Uncommitted Line of Credit Agreement with State Street Bank and Trust Company dated September 24, 2015 -- Incorporated by reference to Post-Effective Amendment No. 57 to the Registrant’s Registration Statement filed on March 28, 2016.
(13)(k) First Amendment to Amended and Restated Uncommitted Line of Credit Agreement with State Street Bank and Trust Company, dated August 29, 2016 -- Filed herewith.
(13)(l) Second Amendment to Amended and Restated Uncommitted Line of Credit Agreement with State Street Bank and Trust Company, dated September 22, 2016 -- Filed herewith.
(13)(m)(i) Form of Indemnification Agreement dated March 18, 2016 -- Filed herewith.
(13)(m)(ii) Schedule of Indemnification Agreements conforming in all material respects to the Form of Indemnification Agreement filed as Exhibit (13)(m)(i) but which have not been filed as exhibits to the Registrant’s Registration Statement in reliance on Rule 483(d)(2) under the Securities Act of 1933, as amended -- Filed herewith.
(13)(n) Expense Limitation Agreement with Putnam Investment Management, LLC dated June 24, 2016 -- Filed herewith.
(13)(o) Expense Limitation Agreement with Putnam Investor Services, Inc. (“PSERV”) dated June 24, 2016 -- Filed herewith.
(14) Consent of KPMG LLP, Independent Registered Public Accounting Firm -- To be filed by amendment.
(15) Not applicable.
(16) Power of Attorney -- Filed herewith.
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(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 “1933 Act”), the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus filed under paragraph (1) 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 1933 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.
(3) The Registrant agrees to file an opinion of counsel supporting the tax consequences of the proposed reorganization as an amendment to this registration statement within a reasonable time after receipt of such opinion.
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NOTICE |
A copy of the Agreement and Declaration of Trust of Putnam Equity Income Fund is on file with the Secretary of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Registrant.
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 [31st ] day of [January], 2017.
PUTNAM EQUITY INCOME FUND | ||
By: | /s/ JONATHAN S. HORWITZ | |
Name: | Jonathan S. Horwitz | |
Title: | Executive Vice President, Principal Executive | |
Officer and Compliance Liaison |
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 date indicated.
Signature | Title |
/s/ JAMESON A. BAXTER* | Chair, Board of Trustees |
Jameson A. Baxter | |
/s/ KENNETH R. LEIBLER* | Vice Chair, Board of Trustees |
Kenneth R. Leibler | |
/s/ ROBERT L. REYNOLDS* | President and Trustee |
Robert L. Reynolds | |
/s/ JONATHAN S. HORWITZ* | Executive Vice President, Principal |
Jonathan S. Horwitz | Executive Officer and Compliance |
Liaison | |
/s/ JANET C. SMITH* | Vice President, Principal Financial Officer, |
Janet C. Smith | Principal Accounting Officer and |
Assistant Treasurer |
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/s/ LIAQUAT AHAMED* | Trustee |
Liaquat Ahamed | |
/s/ RAVI AKHOURY* | Trustee |
Ravi Akhoury | |
/s/ BARBARA M. BAUMANN* | Trustee |
Barbara M. Baumann | |
/s/ ROBERT J. DARRETTA* | Trustee |
Robert J. Darretta | |
/s/ KATINKA DOMOTORFFY* | Trustee |
Katinka Domotorffy | |
/s/ JOHN A. HILL* | Trustee |
John A. Hill | |
/s/ PAUL L. JOSKOW* | Trustee |
Paul L. Joskow | |
/s/ GEORGE PUTNAM, III* | Trustee |
George Putnam, III | |
/s/ W. THOMAS STEPHENS* | Trustee |
W. Thomas Stephens |
* | By: /s/ JONATHAN S. HORWITZ, as | |
Attorney-in-Fact pursuant to Power of | ||
Attorney filed herewith | ||
Dated: [January 31], 2017 |
8 |
Exhibit Index |
Exhibit Number Exhibit Title
(2)(b) Amended and Restated Bylaws dated as of April 22, 2016.
(6)(b) Sub-Management Contract between Putnam Investment Management, LLC and Putnam Investments Limited dated February 27, 2014; Schedule A amended as of March 24-October 27, 2016.
(13)(f) Master Interfund Lending Agreement with the Trusts party thereto and Putnam Investment Management, LLC dated July 16, 2010; Schedule A amended as of June 7, 2016; Schedule B amended as of March 24, 2016
(13)(h) Joinder Agreement No. 1 to Credit Agreement with State Street Bank and Trust Company and certain other lenders dated August 29, 2016
(13)(i) Amendment No. 1 to Credit Agreement with State Street Bank and Trust Company, dated September 22, 2016
(13)(k) First Amendment to Amended and Restated Uncommitted Line of Credit Agreement with State Street Bank and Trust Company, dated August 29, 2016
(13)(l) Second Amendment to Amended and Restated Uncommitted Line of Credit Agreement with State Street Bank and Trust Company, dated September 22, 2016
(13)(m)(i) Form of Indemnification Agreement dated March 18, 2016
(13)(m)(ii) Schedule of Indemnification Agreements conforming in all material respects to the Form of Indemnification Agreement filed as Exhibit (13)(m)(i) but which have not been filed as exhibits to the Registrant’s Registration Statement in reliance on Rule 483(d)(2) under the Securities Act of 1933, as amended
(13)(n) Expense Limitation Agreement with Putnam Investment Management, LLC dated June 24, 2016
(13)(o) Expense Limitation Agreement with Putnam Investor Services, Inc. (“PSERV”) dated June 24, 2016
(16) Power of Attorney
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POWER OF ATTORNEY |
We, the undersigned Trustees and officers of each of the Trusts listed on Schedule A hereto, hereby severally constitute and appoint Jameson A. Baxter, George Putnam III, Jonathan S. Horwitz, Bryan Chegwidden and James E. Thomas, and each of them singly, our true and lawful attorneys, with full power to them and each of them, to sign for us, and in our names and in the capacities indicated below, the Registration Statements on Form N-14 of each of the Trusts listed on Schedule A hereto and any and all amendments (including post-effective amendments) to said Registration Statements and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto our said attorneys, and each of them acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratify and confirm all that said attorneys or any of them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand and seal on the date set forth below.
Signature | Title | Date |
/s/ Jameson A. Baxter | Chair of the Board and Trustee | January 27, 2017 |
Jameson A. Baxter | ||
/s/ Kenneth R. Leibler | Vice Chair of the Board and Trustee | January 27, 2017 |
Kenneth R. Leibler | ||
/s/ Robert L. Reynolds | President and Trustee | January 27, 2017 |
Robert L. Reynolds | ||
/s/ Jonathan S. Horwitz | Executive Vice President, Principal | January 27, 2017 |
Jonathan S. Horwitz | Executive Officer and Compliance | |
Liaison | ||
/s/ Janet C. Smith | Vice President, Principal Financial | January 27, 2017 |
Janet C. Smith | Officer, Principal Accounting | |
Officer and Assistant Treasurer | ||
/s/ Liaquat Ahamed | Trustee | January 27, 2017 |
Liaquat Ahamed |
/s/ Ravi Akhoury | Trustee | January 27, 2017 |
Ravi Akhoury | ||
/s/ Barbara M. Baumann | Trustee | January 27, 2017 |
Barbara M. Baumann | ||
/s/ Robert J. Darretta | Trustee | January 27, 2017 |
Robert J. Darretta | ||
/s/ Katinka Domotorffy | Trustee | January 27, 2017 |
Katinka Domotorffy | ||
/s/ John A. Hill | Trustee | January 27, 2017 |
John A. Hill | ||
/s/ Paul L. Joskow | Trustee | January 27, 2017 |
Paul L. Joskow | ||
Trustee | January 27, 2017 | |
Robert E. Patterson | ||
/s/ George Putnam, III | Trustee | January 27, 2017 |
George Putnam, III | ||
/s/ W. Thomas Stephens | Trustee | January 27, 2017 |
W. Thomas Stephens |
Schedule A
Registration Statement of Putnam Equity Income Fund on Form N-14 relating to the proposed merger of The Putnam Fund for Growth and Income with and into Putnam Equity Income Fund.
Registration Statement of Putnam Variable Trust on Form N-14 relating to the proposed merger of Putnam VT Growth and Income Fund with and into Putnam VT Equity Income Fund.
Registration Statement of Putnam Global Natural Resources Fund on Form N-14 relating to the proposed merger of Putnam Global Energy Fund with and into Putnam Global Natural Resources Fund.
Registration Statement of Putnam High Yield Advantage Fund on Form N-14 relating to the proposed merger of Putnam High Yield Trust with and into Putnam High Yield Advantage Fund.
Registration Statement of Putnam Tax Exempt Income Fund on Form N-14 relating to the proposed merger of Putnam Michigan Tax Exempt Income Fund and Putnam Arizona Tax Exempt Income Fund with and into Putnam Tax Exempt Income Fund.
Registration Statement of Putnam Funds Trust on Form N-14 relating to the proposed merger of Putnam Global Dividend Fund with and into Putnam Global Sector Fund.
PUTNAM AMERICAN GOVERNMENT INCOME FUND, |
PUTNAM ARIZONA TAX EXEMPT INCOME FUND, |
PUTNAM ASSET ALLOCATION FUNDS, |
PUTNAM CALIFORNIA TAX EXEMPT INCOME FUND, |
PUTNAM CONVERTIBLE SECURITIES FUND, |
PUTNAM DIVERSIFIED INCOME TRUST, |
PUTNAM EQUITY INCOME FUND, |
PUTNAM EUROPE EQUITY FUND, |
THE PUTNAM FUND FOR GROWTH AND INCOME, |
PUTNAM FUNDS TRUST, |
GEORGE PUTNAM BALANCED FUND, |
PUTNAM GLOBAL EQUITY FUND, |
PUTNAM GLOBAL HEALTH CARE FUND, |
PUTNAM GLOBAL INCOME TRUST, |
PUTNAM GLOBAL NATURAL RESOURCES FUND, |
PUTNAM GLOBAL UTILITIES FUND, |
PUTNAM HIGH YIELD ADVANTAGE FUND, |
PUTNAM HIGH YIELD TRUST, |
PUTNAM INCOME FUND, |
PUTNAM INTERNATIONAL EQUITY FUND, |
PUTNAM INVESTMENT FUNDS, |
PUTNAM INVESTORS FUND, |
PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND, |
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND, |
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND, |
PUTNAM MONEY MARKET FUND, |
PUTNAM MULTI-CAP GROWTH FUND, |
PUTNAM NEW JERSEY TAX EXEMPT INCOME FUND, |
PUTNAM NEW YORK TAX EXEMPT INCOME FUND, |
PUTNAM OHIO TAX EXEMPT INCOME FUND, |
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND, |
PUTNAM RETIREMENTREADY FUNDS, |
PUTNAM TAX EXEMPT INCOME FUND, |
PUTNAM TAX EXEMPT MONEY MARKET FUND, |
PUTNAM TAX-FREE INCOME TRUST, |
PUTNAM U.S. GOVERNMENT INCOME TRUST, |
PUTNAM VARIABLE TRUST, AND |
PUTNAM VOYAGER FUND |
(each a “Trust” and together, the “Trusts”) |
Amendment to Amended and Restated Bylaws |
WHEREAS, ARTICLE 13, Section 13.1 of the Amended and Restated Bylaws (the “Bylaws”) of the Trusts permits the Board of Trustees of the Trusts (the “Trustees”) to amend or repeal, in whole or in part, the Bylaws;
WHEREAS, the Trustees desire to amend the Bylaws to add Article 14, Section 14.1, entitled “Claims,” which clarifies and defines the distinction between “direct” shareholder claims and “derivative” claims brought by or on behalf of the Trusts;
NOW, THEREFORE, the Bylaws are hereby amended as follows:
1. | The following shall be added as ARTICLE 14, Section 14.1: |
14.1 Claims. As used herein, a “direct Shareholder claim" shall refer to (i) a claim based upon alleged violations of a Shareholder’s individual rights independent of any harm to the Trust, including a Shareholder’s voting rights under Article 10, rights to receive a dividend payment as may be declared from time to time, rights to inspect books and records, or other similar rights personal to the Shareholder and independent of any harm to the Trust; and (ii) a claim for which a direct shareholder action is expressly provided under the U.S. federal securities laws. Any claim asserted by a Shareholder that is not a direct Shareholder claim, including without limitation any claims purporting to be brought on behalf of the Trust or involving any alleged harm to the Trust, shall be considered a “derivative claim" as used herein.
This Amendment is effective as of April 22, 2016.
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PUTNAM
FUNDS
SUB-MANAGEMENT CONTRACT
This Sub-Management Contract is dated as of February 27, 2014 between PUTNAM INVESTMENT MANAGEMENT, LLC, a Delaware limited liability company (the “Manager”) and PUTNAM INVESTMENTS LIMITED, a company organized under the laws of England and Wales (the “Sub-Manager”).
WHEREAS, the Manager is the investment manager of each of the investment companies registered under the United States Investment Company Act of 1940, as amended, that are identified on Schedule A hereto, as it may from time to time be amended by the Manager (the “Funds”), and a registered investment adviser under the United States Investment Advisers Act of 1940, as amended;
WHEREAS, the Sub-Manager is licensed as an investment manager by the Financial Conduct Authority of the United Kingdom (the “FCA”); and
WHEREAS, the Manager desires to engage the Sub-Manager from time to time to manage a portion of certain of the Funds:
NOW THEREFORE, in consideration of the mutual covenants herein contained, it is agreed as follows:
1. | SERVICES TO BE RENDERED BY SUB-MANAGER. |
(a) The Sub-Manager, at its expense, will furnish continuously an investment program for that portion of any Fund the management of which is allocated from time to time by the Manager to the Sub-Manager (an “Allocated Sleeve”). The Manager shall, in its sole discretion, determine which Funds will have an Allocated Sleeve and the amount of assets allocated from time to time to each such Allocated Sleeve; provided that, with respect to any Fund, the Trustees of such Fund must have approved the use of the Sub-Manager prior to the creation of an Allocated Sleeve for such Fund. The Sub-Manager will determine what investments shall be purchased, held, sold or exchanged by any Allocated Sleeve and what portion, if any, of the assets of the Allocated Sleeve shall be held uninvested and shall, on behalf of the Fund, make changes in the Fund’s investments held in such Allocated Sleeve.
(b) The Manager may also, at its discretion, request the Sub-Manager to provide assistance with purchasing and selling securities for any Fund, including the placement of orders with broker-dealers selected in accordance with Section 1(d), even if the Manager has not established an Allocated Sleeve for such Fund.
(c) The Sub-Manager at its expense will furnish all necessary investment and management facilities, including salaries of personnel, required for it to execute its duties faithfully.
(d) The Sub-Manager shall place all orders for the purchase and sale of portfolio investments for any Allocated Sleeve with brokers or dealers selected by the Sub-Manager. In the selection of such brokers or dealers and the placing of such orders, the Sub-Manager shall use its best efforts to obtain for the related Fund the most favorable price and execution available, except to
the extent it may be permitted to pay higher brokerage commissions for brokerage and research services as described below. In using its best efforts to obtain for the Fund the most favorable price and execution available, the Sub-Manager, bearing in mind the Fund’s best interests at all times, shall consider all factors it deems relevant, including by way of illustration, price, the size of the transaction, the nature of the market for the security, the amount of the commission, the timing of the transaction taking into account market prices and trends, the reputation, experience and financial stability of the broker or dealer involved and the quality of service rendered by the broker or dealer in other transactions. Subject to such policies as the Trustees of the Funds may determine, the Sub-Manager shall not be deemed to have acted unlawfully or to have breached any duty created by this Contract or otherwise solely by reason of its having caused a Fund to pay a broker or dealer that provides brokerage and research services to the Manager or the Sub-Manager an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Sub-Manager determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or its overall responsibilities with respect to the Fund and to other clients of the Manager or the Sub-Manager as to which the Manager or the Sub-Manager exercises investment discretion. The Sub-Manager agrees that in connection with purchases or sales of portfolio investments for any Fund, neither the Sub-Manager nor any officer, director, employee or agent of the Sub-Manager shall act as a principal or receive any commission other than as provided in Section 3.
(e) The Sub-Manager shall not be obligated to pay any expenses of or for the Manager or any Fund not expressly assumed by the Sub-Manager pursuant to this Section 1.
(f) In the performance of its duties, the Sub-Manager will comply with the provisions of the Agreement and Declaration of Trust and By-Laws of each applicable Fund and such Fund’s stated investment objectives, policies and restrictions, and will use its best efforts to safeguard and promote the welfare of such Fund and to comply with other policies which the Manager or the Trustees may from time to time determine and shall exercise the same care and diligence expected of the Manager.
2. | OTHER AGREEMENTS, ETC. |
It is understood that any of the shareholders, Trustees, officers and employees of a Fund may be a shareholder, director, officer or employee of, or be otherwise interested in, the Sub-Manager, and in any person controlled by or under common control with the Sub-Manager, and that the Sub-Manager and any person controlled by or under common control with the Sub-Manager may have an interest in such Fund. It is also understood that the Sub-Manager and any person controlled by or under common control with the Sub-Manager have and may have advisory, management, service or other contracts with other organizations and persons, and may have other interests and business.
3. | COMPENSATION. |
Except as provided below, the Manager will pay to the Sub-Manager as compensation for the Sub-Manager’s services rendered, a fee, computed and paid quarterly at the annual rate of
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0.35% per annum of average aggregate net asset value of the assets in equity and asset allocation Allocated Sleeves and 0.40% per annum of average aggregate net asset value of the assets in fixed income Allocated Sleeves, except for fixed income Allocated Sleeves in certain fixed income Funds enumerated as follows (with the per annum fee provided in parentheses): Putnam Money Market Liquidity Fund (0.20%), Putnam Government Money Market Fund (0.20%), Putnam Short Term Investment Fund (0.20%), Putnam Money Market Fund (0.25%), Putnam VT Government Money Market Fund (0.25%), Putnam Short Duration Income Fund (0.25%), Putnam Short-Term Municipal Income Fund (0.25%), Putnam American Government Income Fund (0.25%), Putnam Income Fund (0.25%), Putnam U.S. Government Income Trust (0.25%), Putnam VT American Government Income Fund (0.25%), and Putnam VT Income Fund (0.25%).
Such average net asset value shall be determined by taking an average of all of the determinations of such net asset value during a quarter at the close of business on each business day during such quarter while this Contract is in effect. Such fee shall be payable for each quarter within 30 days after the close of such quarter. The Sub-Manager shall look only to the Manager for payment of its fees. No Fund shall have any responsibility for paying any fees due the Sub-Manager.
With respect to each of Putnam High Income Securities Fund, Putnam Master Intermediate Income Trust and Putnam Premier Income Trust, the Manager will pay to the Sub-Manager as compensation for the Sub-Manager’s services rendered, a fee, computed and paid quarterly at the annual rate of 0.40% of Average Weekly Assets in Allocated Sleeves. “Average Weekly Assets” means the average of the weekly determinations of the difference between the total assets of the Fund (including any assets attributable to leverage for investment purposes) attributable to an Allocated Sleeve and the total liabilities of the Fund (excluding liabilities incurred in connection with leverage for investment purposes) attributable to such Allocated Sleeve, determined at the close of the last business day of each week, for each week which ends during the quarter. Such fee shall be payable for each quarter within 30 days after the close of such quarter. As used in this Section 3, “leverage for investment purposes” means any incurrence of indebtedness the proceeds of which are to be invested in accordance with the Fund’s investment objective. For purposes of calculating Average Weekly Assets, liabilities associated with any instruments or transactions used to leverage the Fund’s portfolio for investment purposes (whether or not such instruments or transactions are “covered” within the meaning of the Investment Company Act of 1940 and the rules and regulations thereunder, giving effect to any interpretations of the Securities and Exchange Commission and its staff) are not considered liabilities. For purposes of calculating Average Weekly Assets, the total assets of the Fund will be deemed to include (a) any proceeds from the sale or transfer of an asset (the “Underlying Asset”) of the Fund to a counterparty in a reverse repurchase or dollar roll transaction and (b) the value of such Underlying Asset as of the relevant measuring date.
In the event that the Manager’s management fee from any of Putnam High Income Securities Fund, Putnam Master Intermediate Income Trust or Putnam Premier Income Trust is reduced pursuant to the investment management contract between such Fund and the Manager because during any Measurement Period (as defined below) the amount of interest payments and fees with respect to indebtedness or other obligation of the Fund incurred for investment leverage purposes, plus additional expenses attributable to any such leverage for investment purposes, exceeds the portion of the Fund’s net income and net short-term capital gains (but not long-term
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capital gains) accruing during such Measurement Period as a result of the fact that such indebtedness or other obligation was outstanding during the Measurement Period, the fee payable to the Sub-Manager with respect to such Fund shall be reduced in the same proportion as the fee paid to the Manager with respect to such Fund is so reduced. “Measurement Period” shall be any period for which payments of interest or fees (whether designated as such or implied) are payable in connection with any indebtedness or other obligation of the Fund incurred for investment purposes.
If the Sub-Manager shall serve for less than the whole of a quarter, the foregoing compensation shall be prorated.
4. | ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT. |
This Contract shall automatically terminate without the payment of any penalty, in the event of its assignment; and this Contract shall not be amended with respect to any Allocated Sleeve unless such amendment be approved at a meeting by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the Trustees of the related Fund who are not interested persons of such Fund or of the Manager.
5. | EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT. |
This Contract shall become effective upon its execution, and shall remain in full force and effect continuously thereafter (unless terminated automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto or, with respect to any Allocated Sleeve, the related Fund may at any time terminate this Contract by not more than sixty days’ nor less than thirty days’ written notice delivered or mailed by registered mail, postage prepaid, to the other party, or
(b) With respect to any Allocated Sleeve, if (i) the Trustees of the related Fund or the shareholders by the affirmative vote of a majority of the outstanding shares of such Fund, and (ii) a majority of the Trustees of such Fund who are not interested persons of such Fund or of the Manager, by vote cast in person at a meeting called for the purpose of voting on such approval, do not specifically approve at least annually the continuance of this Contract, then this Contract shall automatically terminate at the close of business on the anniversary of its execution, or upon the expiration of one year from the effective date of the last such continuance, whichever is later, or
(c) With respect to any Allocated Sleeve, automatically upon termination of the Manager’s investment management contract with the related Fund.
Action by a Fund under (a) above may be taken either (i) by vote of a majority of its Trustees, or (ii) by the affirmative vote of a majority of the outstanding shares of such Fund.
Termination of this Contract pursuant to this Section 5 will be without the payment of any penalty.
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6. | CERTAIN DEFINITIONS. |
For the purposes of this Contract, the “affirmative vote of a majority of the outstanding shares of a Fund” means the affirmative vote, at a duly called and held meeting of shareholders of such Fund, (a) of the holders of 67% or more of the shares of such Fund present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding shares of such Fund entitled to vote at such meeting are present in person or by proxy, or (b) of the holders of more than 50% of the outstanding shares of such Fund entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms “affiliated person,” “control,” “interested person” and “assignment” shall have their respective meanings defined in the United States Investment Company Act of 1940 and the Rules and Regulations thereunder (the “1940 Act”), subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act; the term “specifically approve at least annually” shall be construed in a manner consistent with the 1940 Act, and the Rules and Regulations thereunder; and the term “brokerage and research services” shall have the meaning given in the United States Securities Exchange Act of 1934 and the Rules and Regulations thereunder.
7. | NON-LIABILITY OF SUB-MANAGER. |
In the absence of willful misfeasance, bad faith or gross negligence on the part of the Sub-Manager, or reckless disregard of its obligations and duties hereunder, the Sub-Manager shall not be subject to any liability to the Manager, any Fund or to any shareholder of any Fund, for any act or omission in the course of, or connected with, rendering services hereunder.
8. | ADDITIONAL PROVISIONS. |
(a) The Sub-Manager represents that it is regulated by the FCA in the conduct of its investment business. The Sub-Manager has in operation a written procedure in accordance with FCA rules for the effective consideration and proper handling of complaints from customers. Any complaint by the Manager or any Fund should be sent to the Compliance Officer of the Sub-Manager. The Manager and any Fund is also entitled to make any complaints about the Sub-Manager to the Financial Ombudsman Service established by the FCA. The Manager and any Fund may also request a statement describing its rights to compensation in the event of the Sub-Manager’s inability to meet its liabilities.
(b) The Manager represents that it and each Fund are “Professional Customers” in the meaning of the FCA’s rules.
(c) Although each Fund is not a party hereto and shall have no responsibility for the Manager’s or the Sub-Manager’s obligations hereunder, each Fund is named as explicit third party beneficiary of the parties’ agreements hereunder.
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IN WITNESS WHEREOF, PUTNAM INVESTMENTS LIMITED and PUTNAM INVESTMENT MANAGEMENT, LLC have each caused this instrument to be signed in duplicate on its behalf by an officer duly authorized, all as of the day and year first above written.
PUTNAM INVESTMENTS LIMITED
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By: |
/s/ Simon Davis Simon Davis
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PUTNAM INVESTMENT MANAGEMENT, LLC
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By: |
/s/ James. P. Pappas James P. Pappas Director of Trustee Relations and Authorized Person | |
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Schedule A
Effective as of October 27, 2016 unless otherwise noted
Putnam Absolute Return 100 Fund
Putnam Absolute Return 300 Fund
Putnam Absolute Return 500 Fund
Putnam Absolute Return 700 Fund
Putnam American Government Income Fund
Putnam AMT-Free Municipal Fund
Putnam Arizona Tax Exempt Income Fund
Putnam Asia Pacific Equity Fund
Putnam California Tax Exempt Income Fund
Putnam Capital Spectrum Fund
Putnam Capital Opportunities Fund
Putnam Convertible Securities Fund
Putnam Diversified Income Trust
Putnam Dynamic Asset Allocation Balanced Fund
Putnam Dynamic Asset Allocation Conservative Fund
Putnam Dynamic Asset Allocation Equity Fund
Putnam Dynamic Asset Allocation Growth Fund
Putnam Dynamic Risk Allocation Fund
Putnam Equity Income Fund
Putnam Emerging Markets Equity Fund
Putnam Emerging Markets Income Fund
Putnam Europe Equity Fund
Putnam Equity Spectrum Fund
Putnam Floating Rate Income Fund
George Putnam Balanced Fund
Putnam Global Consumer Fund
Putnam Global Dividend Fund
Putnam Global Energy Fund
Putnam Global Equity Fund
Putnam Global Financials Fund
Putnam Global Health Care Fund
Putnam Global Income Trust
Putnam Global Industrials Fund
Putnam Global Natural Resources Fund
Putnam Global Sector Fund
Putnam Global Technology Fund
Putnam Global Telecommunications Fund
Putnam Global Utilities Fund
Putnam Government Money Market Fund (effective October 16, 2015)
The Putnam Fund for Growth and Income
Putnam Growth Opportunities Fund
Putnam High Income Securities Fund
Putnam High Yield Advantage Fund
A-1
Putnam High Yield Trust
Putnam Income Fund
Putnam Intermediate-Term Municipal Income Fund
Putnam International Capital Opportunities Fund
Putnam International Equity Fund
Putnam International Value Fund
Putnam International Growth Fund
Putnam Investors Fund
Putnam Low Volatility Equity Fund
Putnam Managed Municipal Income Trust
Putnam Massachusetts Tax Exempt Income Fund
Putnam Master Intermediate Income Trust
Putnam Michigan Tax Exempt Income Fund
Putnam Minnesota Tax Exempt Income Fund
Putnam Money Market Fund
Putnam Mortgage Opportunities Fund
Putnam Mortgage Recovery Fund
Putnam Multi-Cap Core Fund
Putnam Multi-Cap Growth Fund
Putnam Multi-Cap Value Fund
Putnam Municipal Opportunities Trust
Putnam New Jersey Tax Exempt Income Fund
Putnam New York Tax Exempt Income Fund
Putnam Ohio Tax Exempt Income Fund
Putnam Pennsylvania Tax Exempt Income Fund
Putnam Premier Income Trust
Putnam Research Fund
Putnam Retirement Income Fund Lifestyle 1
Putnam Retirement Income Fund Lifestyle 2
Putnam Retirement Income Fund Lifestyle 3
Putnam RetirementReady 2060 Fund
Putnam RetirementReady 2055 Fund
Putnam RetirementReady 2050 Fund
Putnam RetirementReady 2045 Fund
Putnam RetirementReady 2040 Fund
Putnam RetirementReady 2035 Fund
Putnam RetirementReady 2030 Fund
Putnam RetirementReady 2025 Fund
Putnam RetirementReady 2020 Fund
Putnam Short Duration Income Fund (effective March 7, 2014)
Putnam Short Term Investment Fund
Putnam Short-Term Municipal Income Fund
Putnam Small Cap Growth Fund
Putnam Small Cap Value Fund
Putnam Strategic Volatility Equity Fund
A-2
Putnam Tax Exempt Income Fund
Putnam Tax-Free High Yield Fund
Putnam U.S. Government Income Trust
Putnam Voyager Fund
Putnam VT Absolute Return 500 Fund
Putnam VT American Government Income Fund
Putnam VT Capital Opportunities Fund
Putnam VT Diversified Income Fund
Putnam VT Equity Income Fund
Putnam VT George Putnam Balanced Fund
Putnam VT Global Asset Allocation Fund
Putnam VT Global Equity Fund
Putnam VT Global Health Care Fund
Putnam VT Global Utilities Fund
Putnam VT Government Money Market Fund
Putnam VT Growth and Income Fund
Putnam VT Growth Opportunities Fund
Putnam VT High Yield Fund
Putnam VT Income Fund
Putnam VT International Equity Fund
Putnam VT International Value Fund
Putnam VT International Growth Fund
Putnam VT Investors Fund
Putnam VT Multi-Cap Growth Fund
Putnam VT Multi-Cap Value Fund
Putnam VT Research Fund
Putnam VT Small Cap Value Fund
Putnam VT Voyager Fund
PUTNAM INVESTMENTS LIMITED | |
By: /s/ Simon Davis | |
Simon Davis | |
PUTNAM INVESTMENT MANAGEMENT, LLC | |
By: /s/ James P Pappas | |
James P. Pappas | |
Director of Trustee Relations and Authorized Person |
A-3
MASTER INTERFUND LENDING AGREEMENT |
This Master Interfund Lending Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Master Agreement”), dated as of July 16, 2010 (the “Effective Date”), is by and among each investment company listed on Schedule A or Schedule B hereto (collectively, the “Trusts,” and each portfolio series of a Trust (or if the relevant Trust has no portfolio series, then the relevant Trust) shall be referred to herein as a “Fund” and collectively as the “Funds”) and Putnam Investment Management, LLC (the “Adviser”).
WHEREAS, the Trusts and the Adviser have received an exemptive order (the “Order”) dated April 10, 2002 from the U.S. Securities and Exchange Commission permitting the Funds to participate in a joint lending and borrowing facility (the “Lending Facility”);
WHEREAS, the Funds listed on Schedule A hereto (as amended from time to time) are permitted to borrow cash in accordance with the terms and conditions of the Order to satisfy redemption requests, to cover unanticipated cash shortfalls such as a Sales Fail (defined below), or for other temporary purposes (each such borrowing Fund is hereinafter referred to as a “Borrower”);
WHEREAS, the Funds listed on Schedule B hereto (as amended from time to time) are permitted to lend cash to one or more Borrowers from time to time on the terms set forth below and in accordance with the terms and conditions of the Order (each such lending Fund is hereinafter referred to as a “Lender”);
NOW THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have meanings assigned to them below:
“1940 Act” means the Investment Company Act of 1940, as amended.
“Bank Loan Rate” for any day means the rate calculated by the Credit Facility Team according to a formula established by the Board of Trustees of each Trust intended to approximate the lowest interest rate at which bank short-term loans would be available to a Borrower.
“Borrowing Instructions” has the meaning specified in Section 3.1.1 hereof.
“Business Day” means a day on which the New York Stock Exchange is open for the purpose of transacting business.
“Credit Arrangements” means the credit arrangements that a Fund may have for borrowing for temporary or emergency purposes, including borrowings from banks and other institutional lenders.
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“Credit Facility Team” means the officers and employees of the fund administration, middle office, trading and investment departments of the Adviser who are responsible for administering the Interfund Lending Facility.
“Interest Rate” means, for each date on which interest accrues hereunder, the average of (i) the higher of the OTD Rate and the Repo Rate and (ii) the Bank Loan Rate.
“Lending Instructions” has the meaning specified in Section 3.1.1 hereof.
“Loan” has the meaning specified in Section 2 hereof.
“Loan Account” has the meaning specified in Section 3.5 hereof.
“Maximum Amount” has the meaning specified in Section 2 hereof.
“Obligations” means all of the obligations (whether direct or indirect, absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising) of a Borrower to a Lender hereunder.
“OTD Rate” on any day means the highest interest rate available to a Lender from investment in overnight time deposits.
“Outstanding Secured Borrowing” means any loan made to a Fund either under this Master Agreement or under any other agreement that is secured by assets of the Fund.
“Prospectus” means with respect to each Borrower the prospectus required to be delivered by the Borrower to offerees of its securities pursuant to the Securities Act of 1933, as amended.
“Repo Rate” on any day means the highest interest rate available to a Lender from investment in overnight repurchase agreements.
“Sales Fail” in connection with the attempted sale of a security means the cash shortfall resulting from circumstances beyond the seller’s control, such as the delay in the delivery of cash to the seller’s custodian or improper delivery instructions by the broker effecting the transaction.
“SEC” means the United States Securities and Exchange Commission.
“Secured Loan” has the meaning specified in Section 2(e) hereof.
“Security Agreement” has the meaning specified in Section 3.11(d) hereof.
“Statement of Additional Information” means with respect to each Borrower the Statement of Additional Information which must be provided by the Borrower to recipients of its Prospectus upon request pursuant to rules and regulations adopted by the SEC.
“Unsecured Loan” means any Loan other than a Secured Loan.
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2. Lending Facility. Subject to the terms and conditions of this Master Agreement, each Lender may from time to time in its discretion loan its available cash to any Borrower (a “Loan”). Each Loan shall be made for a term no longer than the least of (a) the maximum term on any outstanding loan or advance to the Borrower under its Credit Arrangements; (b) seven (7) days; or (c) the number of days required for the Borrower to receive payment for securities sold at or prior to the time the Loan is made in an amount sufficient to repay the Loan. The maximum principal amount of all Loans outstanding with respect to any Borrower at any time shall not exceed the Maximum Amount the Borrower is permitted to borrow at such time under:
(a) applicable laws and regulations;
(b) the provisions of Section 5.2 hereof;
(c) agreements with federal, state, local or foreign governmental authorities or regulators applicable to the Borrower or limitations specified in the Order applicable to the Borrower’s borrowing and pledging activities, all as amended and in effect from time to time;
(d) limitations on borrowing adopted by the Borrower in its Prospectus, Statement of Additional Information or elsewhere, as amended and in effect from time to time; and
(e) in the case of Loans for which the Borrower is required to provide collateral pursuant to Section 3.11 hereof (“Secured Loans”), any limitations specified in the Security Agreement (as defined below) and any limitations on the pledging of assets adopted by the Borrower in its Prospectus, Statement of Additional Information or elsewhere.
As used herein, the term “Maximum Amount” means the maximum amount that the Borrower is permitted to borrow in accordance with the provisions of the preceding sentence.
3. Loan Requirements.
3.1 Procedural Requirements. All loans shall be requested and funded in accordance with the procedures set forth herein and such other procedures as may be approved and adopted from time to time by the Board of Trustees of the applicable Trust (the “Interfund Lending Procedures”), including a majority of the trustees who are not “interested persons” as that term is used in Section 2(a)(19) of the 1940 Act.
3.1.1 Borrowing and Lending Instructions. The Adviser’s investment personnel for each participating Fund shall provide the Credit Facility Team with standing instructions as to their desire to have the Fund act as a Lender when such Fund has uninvested cash balances (“Lending Instructions”). If the Chief Investment Officer of the Adviser or an alternative person as specified in the Interfund Lending Procedures (the “CIO”) determines that a Fund has borrowing needs that are not first met by borrowings under any custody agreement between the Borrower and the Borrower’s custodian that are secured by such custodian’s lien on assets of the Borrower, then the CIO shall instruct the Credit Facility Team as to such Fund’s desire to have the Fund act as a Borrower (“Borrowing Instructions”). The Adviser’s investment personnel may revoke or change
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Lending Instructions, and the CIO may revoke or change Borrowing Instructions, with respect to a Fund by notifying the Credit Facility Team.
3.1.2 Allocation Procedures. On each Business Day, the Credit Facility Team shall seek to collect data on the uninvested cash of Funds listed on Schedule B hereto from such Funds’ custodian. On each occasion that a Fund delivers Borrowing Instructions to the Credit Facility Team, the Credit Facility Team will seek to match the amount and term of the Fund’s borrowing needs with the cash available from the Funds that have provided Lending Instructions in accordance with allocation and administrative procedures established by the Board of Trustees. The Credit Facility Team shall allocate the borrowing demand and lending needs among the Funds on what the Credit Facility Team deems to be an equitable basis and in accordance with the Interfund Lending Procedures. The Credit Facility Team shall not solicit cash for Loans from any Funds or publish or disseminate the amount of any current borrowing demand to the Adviser’s investment personnel.
No Loan may be made unless the Interest Rate is more favorable for the Lender than both the OTD Rate and the Repo Rate and more favorable for the Borrower than the Bank Loan Rate.
3.1.3 Funding the Loans. If a Loan has been allocated to a Lender and Borrower pursuant to Section 3.1.2 hereof, and the Loan is otherwise in compliance with the requirements set forth in the Order, the Lender shall make such Loan to the Borrower. The proceeds of each Loan made by the Lender to the Borrower shall be wired (or transferred if Borrower and Lender have the same custodian) at the Borrower’s expense in accordance with the wiring instructions for each Fund, as in effect from time to time, to an account maintained on the Borrower’s behalf by its custodian.
3.1.4 Obligations Arising from Loan. Each Loan made by the Lender to Borrower shall:
(a) obligate the Borrower to borrow the principal amount of the Loan at the Interest Rate applicable thereto for the term thereof solely for use by the Borrower;
(b) constitute a representation and warranty by the Borrower to the Lender that
(i) the Loan requested thereby
(A) is permitted under the Borrower’s most recent Prospectus and Statement of Additional Information,
(B) is in accordance with the requirements of the Order applicable to the Borrower,
(C) will not, when made, cause the aggregate indebtedness of the Borrower to exceed the Maximum Amount then in effect, and
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(D) will be used by the Borrower only in accordance with Section 3.7 hereof; and
(ii) all of the representations and warranties of the Borrower contained in Section 4 hereof are true and correct as of the date of such Loan as though made on and as of such date; and
(iii) all materials facts about the Borrower’s intended participation in the Lending Facility are fully disclosed in the Borrower’s Statement of Additional Information; and
(c) constitute a representation and warranty by the Lender to the Borrower that the Loan thereby
(i) is permitted under the Lender’s most recent Prospectus and Statement of Additional Information;
(ii) is in accordance with the requirements of the Order applicable to the Lender; and
(iii) all materials facts about the Lender’s intended participation in the Lending Facility are fully disclosed in the Lender’s Statement of Additional Information.
3.2 Repayment of Loans. The principal amount of each Loan shall be repaid by the Borrower from the assets of the Borrower on the earlier of one (1) Business Day after demand by the Lender or the expiration of the term of the Loan.
3.3 Interest. The outstanding principal amount of each Loan shall bear interest until maturity at the Interest Rate. Interest accrued on each Loan shall be paid by the Borrower upon the earlier of (a) mutually agreed times, or (b) the maturity of such Loan. Amounts overdue hereunder (including, without limitation, overdue principal, and, to the extent permitted by law, overdue interest, fees, charges and expenses) shall bear interest until paid at an annual rate equal to the sum of (i) the Interest Rate applicable to such Loan prior to its maturity and (ii) two percent (2%).
3.4 Prepayments. Loans may be prepaid in whole or in part prior to the date on which such Loan is due and payable without premium or penalty.
3.5 Loan Records Accounts. Promptly after a Loan has been made, the Credit Facility Team shall note on its records for the Borrower and Lender, confirming (a) the principal amount of such Loan, (b) the Interest Rate applicable thereto and (c) the maturity thereof. The Credit Facility Team will maintain a separate account on its books for each Lender and Borrower (a “Loan Account”) on which will be recorded, in accordance with the Adviser’s customary accounting practice, (a) all Loans made by a Lender to a Borrower, (b) all payments of such Loans made to a Lender, and (c) all other charges and expenses properly chargeable to the Borrower. The debit balance of each Fund’s Loan Account shall reflect the amount of the Borrower’s indebtedness from time to time to the Lenders hereunder. Any written statement
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maintained by the Credit Facility Team regarding the Loan shall, in the absence of manifest error, constitute conclusive evidence of the indebtedness of the Borrower to the Lender as of the date of such statement, provided, however, that the failure of the Credit Facility Team to make such statement shall not impair the validity or binding nature of the Borrower’s Obligations with respect to such Loan.
3.6 Computations. All computations hereunder shall be computed on the basis of the actual number of days elapsed and a 360-day year.
3.7 Use of Proceeds. The proceeds of each Loan made hereunder with respect to any Fund shall be used only by such Fund in accordance with its Prospectus and Statement of Additional Information for temporary purposes to satisfy redemption requests, to cover unanticipated cash shortfalls such as a Sales Fail, or for other temporary purposes as permitted by the Interfund Lending Procedures.
3.8 Discretionary Facility. It is acknowledged and agreed by each Borrower that each Lender has no obligation to make any Loan hereunder unless it has issued Lending Instructions, and that the decision whether or not to issue Lending Instructions under this Master Agreement is within the sole and exclusive discretion of each Lender. It is acknowledged and agreed by each Lender that no Borrower is obligated to borrow money hereunder unless it has issued Borrowing Instructions.
3.9 Termination of Participation in the Lending Facility. Each Lender and each Borrower may terminate its participation in this Master Agreement at any time by written notice to the Credit Facility Team; provided that on or before the date of any termination the relevant Lender or Borrower has no Loans outstanding. The Adviser may at any time by delivery of a revised Schedule A or Schedule B, as applicable, to the Credit Facility Team add additional Funds that are eligible to rely on the Order as parties to this Master Agreement, whereupon those additional Funds shall be treated for all purposes as a Borrower and as a Lender, as applicable.
3.10 Recourse to Assets. Loans made to any Borrower shall be repaid solely from the assets of such Borrower, and a Lender shall have no right of recourse or offset against the assets of any other Fund with respect to such Loans or any default in respect thereto. Each Lender’s liability under this Master Agreement with respect to a Loan shall be solely limited to the Lender’s assets and each Borrower hereby waives any and all rights it may have against any other Funds with respect to such Loan or any default by Lender with respect thereto.
3.11 Collateral Security for Loans.
(a) As a condition precedent to making any Loan to any Borrower or continuing any Loan made to any Borrower, the Borrower covenants and agrees that in the event that (i) the Borrower’s outstanding borrowings from all sources immediately after the Loan would exceed 10% of its total assets, (ii) the Borrower’s outstanding borrowings from all sources exceed 10% of the Borrower’s total assets for any reason (such as a decline in net asset value or because of shareholder redemptions), or (iii) the Borrower has Outstanding Secured Borrowings, within one (1) Business Day (except as required by Section 3.11(b) below), the Borrower will
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(i) repay all its outstanding Loans;
(ii) reduce its outstanding indebtedness to 10% or less of its total assets; or
(iii) secure each outstanding Loan by the pledge of segregated collateral for such Loan and by transfer of such collateral into a segregated account in the name of the Lender or the entering into, by the Borrower, the Lender and the Borrower’s custodian, of a control agreement satisfactory to the Lender. The minimum market value of the stock and other portfolio securities of the Borrower required to be pledged as collateral to the Lender hereunder with respect to any Secured Loan shall be determined by the Lender in its discretion but, in all cases, will have a market value at least equal to 102% of the outstanding principal value of the loan.
Until each Loan that is outstanding at any time that a Borrower’s outstanding borrowings exceed 10% of its assets is repaid or the Borrower’s outstanding borrowings cease to exceed 10% of its total assets, the Borrower shall mark the value of the collateral to market each day and will pledge and transfer to a segregated account in the name of the Lender such additional collateral as is necessary to maintain the market value of the collateral that secures each outstanding Loan at least equal to 102% of the outstanding principal value of the Loan. Subject to Sections 3.11(b) and (c) hereof, once a Borrower’s outstanding borrowings cease to exceed 10% of its total assets, segregated collateral will no longer be required.
(b) Any Loan to a Borrower with Outstanding Secured Borrowings (i) will be at an interest rate equal to or lower than that of any outstanding bank loan, (ii) will be secured at least on an equal priority basis with at least an equivalent percentage of collateral to loan value as any outstanding bank loan that requires collateral, and (iii) will have a maturity no longer than any outstanding bank loan (and in any event not more than seven (7) days).
(c) Notwithstanding Sections 3.11(a) and (b), if any other lender to a Borrower imposes conditions with respect to the quality of or access to collateral securing a borrowing, the Borrower’s collateral for any Loan will be subject to the same conditions (if the other lender is another Fund) or the same or better conditions (in any other circumstance).
(d) Each pledge of collateral required pursuant to this Section 3.11 shall be made in accordance with and subject to the terms and conditions set forth in the collateral security agreement dated as of the Effective Date and signed by each Trust, substantially in the form set forth in Schedule C hereto (the “Security Agreement”).
(e) If requested by the Lender, the Borrower agrees to enter into, and use reasonable efforts to cause its custodian to enter into, a control agreement with the Lender on terms satisfactory to the Lender.
3.12 Records and Reports. Each Fund will maintain and preserve for a period of not less than six years from the end of the fiscal year in which any transaction under this Master Agreement has occurred, the first two years in an easily accessible place, written records of all
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Loans to which it was a party setting forth: (i) a description of the terms of the transaction, including the amount, the maturity, and the rate of interest on the Loan, (ii) the rate of interest available at the time on short-term repurchase agreements and commercial bank borrowings, and (iii) a quarterly report of the Credit Facility Team to the applicable Board of Trustees and the other information presented to the applicable Board of Trustees related to their review of the Lending Facility. On a quarterly basis, the Credit Facility Team will prepare a report for the applicable Board of Trustees (i) concerning the participation of the Funds in the Lending Facility and the terms and other conditions of any extensions of credit under the Lending Facility and (ii) reporting on the operations of the Lending Facility.
4. Representations and Warranties
Each Borrower represents and warrants to each Lender and each Lender represents and warrants to each Borrower that:
(a) it is a series of the applicable Trust that is duly organized and validly existing under the laws of its jurisdiction of organization and is qualified to do business in every other jurisdiction where lack of such qualification would have a material adverse effect on its business, assets or condition (financial or otherwise);
(b) the applicable Trust is registered as an open-end management investment company under the 1940 Act;
(c) the execution, delivery and performance by the applicable Trust of this Master Agreement
(i) are within its power,
(ii) have been duly authorized by all necessary action, and
(iii) will not
(A) contribute to or result in a breach of or default under or conflict with any existing law, order, regulation or ruling of any governmental or regulatory agency or authority, any order, writ, injunction or ruling of any court or other tribunal, or any indenture, lease agreement, instrument or other undertaking to which the Trust is a party or by which it is or its property or assets may be bound or affected, or
(B) result in the imposition of any liens or encumbrances on any property or assets of the Trust (except as contemplated hereby), or
(C) require any additional approval or consent of, or filing with, shareholders of such Trust or any governmental or regulatory agency or authority bearing on the validity of any borrowing pursuant to this Master Agreement, or
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(D) violate any provision of the Trust’s Agreement and Declaration of Trust or any amendment thereof, any of its investment policies and limitations, or any provision of its most recent Prospectus or Statement of Additional Information;
(d) this Master Agreement is a legally valid and binding obligation of the applicable Trust, enforceable against the Fund in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws or equitable principles relating to or limiting the rights of creditors generally; and
(e) it is not in material violation of any material term of its most recent Prospectus or Statement of Additional Information, or of its organizational documents, or of any investment, borrowing or other similar type of policy or restriction to which it is subject, or of any material term of any material agreement or instrument to which it is a party, or, to the best of its knowledge, of any judgment, decree, order, statute, rule or governmental regulation applicable to it.
5. Covenants
5.1 Covenants in Effect Until Termination of Master Agreement. Until all of the obligations have been performed in full and its participation in the Lending Facility has been terminated as provided herein, each Borrower covenants that it will:
(a) maintain its legal existence and business; provided, however, that nothing contained in this Section 5.1(a) shall prohibit the merger or consolidation of any Borrower with or into another person upon written notice thereof to the Lenders under any Loans then outstanding, subject to the requirement that the surviving entity (if not previously a Borrower) be admitted as such in accordance with this Master Agreement, and subject to the further requirement that the surviving entity assumes all of the obligations of such Borrower under this Master Agreement, including, without limitation, the obligations of such Borrower with respect to any Loans outstanding to such Borrower at the time of such merger or consolidation;
(b) at any time and from time to time, at its own expense, promptly execute and deliver or file all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Lender may request, in order to perfect, protect, validate or preserve any security interest granted or pledged to the Lender pursuant to Section 3.11 hereof or to enable the Lender to exercise and enforce its rights and remedies thereunder with respect thereto;
(c) file all federal and other tax returns, reports and declarations required by all relevant jurisdictions on or before the due dates for such returns, reports and declarations and will pay all taxes and other governmental assessments and charges as and when they become due;
(d) comply in all material respects with all of its investment policies and restrictions and all applicable statutes, rules, regulations and orders of, and all applicable restrictions
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imposed by, all governmental authorities in respect of the conduct of its business and the ownership of its properties; provided that such Borrower shall not be required by reason of this section to comply therewith at any time while such Borrower shall be contesting its obligations to do so in good faith by appropriate proceedings promptly initiated and diligently conducted;
(e) promptly notify the Lender of any material change in its agreements with governmental authorities or regulators or its investment policies or restrictions or of any Credit Arrangements or modifications thereof; and
(f) upon request from the Lender from time to time, furnish to the Lender at reasonable times and intervals any information with respect to its financial standing and history or its property or business or prospects.
5.2 Covenants in Effect While Loans Are Outstanding.
The Borrower covenants that, so long as any principal of or interest on any Loan made to it is outstanding, it will:
(a) not, as long as any Unsecured Loan is outstanding hereunder, create or permit to exist any encumbrance in favor of any person or entity other than the Lender upon any of the assets of the Borrower other than (a) encumbrances created in connection with portfolio investments of the Borrower and (b) to secure the Borrower’s obligations under any Credit Arrangement by any assets not then pledged as collateral hereunder, in each case to the extent permitted by the provisions of its Prospectus and Statement of Additional Information;
(b) not take out any Loan that
(i) immediately after such Loan would cause the total of such loans to exceed 33 1/3% of the Borrower’s total assets, or
(ii) would cause such Borrower’s total loans to exceed 10% of such Borrower’s total assets unless any Loan hereunder is secured in accordance with Section 3.11 hereof;
(c) not, as long as any Loan made with respect to the Borrower is outstanding, allow the total amount of such Borrower’s Loans, as measured on the day when the most recent Loan was made, to exceed the greater of 125% of such Borrower’s total net cash redemptions for the preceding seven (7) calendar days and 102% of Sales Fails for the preceding seven (7) calendar days;
(d) notify the Lender if it draws on its Credit Arrangements, borrows from other Lenders under the Master Agreement, or borrows from other parties; and
(e) notify the Lender promptly of
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(i) any material changes in its method of business, Prospectus, Statement of Additional Information, and
(ii) the occurrence of any event which would make any of the representations and warranties contained herein, or in any document, instrument or certificate delivered in connection herewith, untrue or inaccurate in any material respect.
The Lender covenants that
(a) its Loans to a single Borrower will not exceed 5% of the Lender’s net assets; and
(b) its aggregate Loans to all Borrowers constitute 15% or less of the Lender’s net assets at the time of any Loan.
6. Documents to be Delivered Prior to Initial Loan. The Borrower shall deliver to the Lender prior to the first Loan between the parties any documents as the Lender shall have requested in order to comply with applicable rules and regulations promulgated by governmental and regulatory authorities.
7. Default
7.1 Events of Default. The occurrence of any one or more of the following events (“Events of Default”) shall constitute an immediate Event of Default with respect to the Borrower:
(a) The Borrower shall fail to pay principal of, or interest on, any Loan as and when due, or the Borrower shall fail to perform any of its other Obligations; or
(b) There shall be a default by the Borrower under any Credit Arrangement, whether such Credit Arrangement now exists or shall hereafter be created, which default extends beyond any period of grace provided with respect thereto and which default relates to
(i) the obligations to pay the principal of or interest on any such indebtedness under the Credit Arrangement, or
(ii) an obligation other than the obligation to pay the principal of or interest on any such indebtedness and the effect of such default is to cause, or to permit the lender under the Credit Arrangement to cause, with the giving of notice if required, such indebtedness to become due prior to its stated maturity; or
(c) Any representation or warranty made by the Borrower in Section 4 of this Master Agreement, or in connection with any Loan made to or pledge of pledged collateral made by the Borrower, shall prove to have been incorrect in any material respect when made; or
(d) The Borrower shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any governmental or public authority shall take over
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possession or control of a substantial part of the Borrower’s business; or any of the Borrower’s property shall become subject to attachment or other involuntary lien or levy; or any action or proceeding shall be commenced by the Borrower seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief or debtors, seeking the entry of an order for relief of the appointment of a receiver, trustee, or similar official for it or for any substantial part of its property, or any such proceeding is commenced against it which results in the entry of an order for such relief or such proceeding is not dismissed or stayed for a period of sixty (60) days following such commencement; or
(e) An event of default occurs under any agreement evidencing an outstanding bank loan to the Borrower; provided that, in such circumstance, that event of default will automatically (without need for action or notice by the Lender) constitute an immediate event of default entitling the Lender to call the Loan (and exercise all rights with respect to any collateral) and that such a call will be deemed made if the lending bank exercises its right to call its loan under its agreement with the Borrower.
7.2 Remedies
7.2.1 Arbitration. In the event an Event of Default under Section 7.1(a) has occurred and not been cured within two Business Days from the Loan’s maturity or from the time the Lender makes a demand for payment (and none of the Events of Default specified in Section 7.1(d) has occurred), the Lender and the Borrower agree that such matter shall be submitted for binding arbitration to an independent arbitrator selected by the Board of Trustees of the Lender and Borrower. If the dispute involves a Lender and Borrower with different Boards of Trustees, the respective Boards of Trustees of the Lender and Borrower will select an independent arbitrator that is satisfactory to each party. Such independent arbitrator’s decision shall be binding and conclusive between the Lender and the Borrower. Such Arbitrator shall submit at least annually a written report of any dispute to the Boards of Trustees of the Funds describing the nature of any dispute and the actions taken by the Lender and Borrower to resolve the dispute.
7.2.2 Other Rights and Remedies. If an Event of Default has occurred and has not been resolved pursuant to Section 7.2.1, or any other Event of Default has occurred, then the Lender shall be entitled to exercise any and all rights and remedies available to it at law or in equity, including without limitation any rights and remedies that may be available to it under the Security Agreement referred to in Section 3.11 to the Master Agreement and, with respect to an Event of Default specified in Section 7.1(e), any rights and remedies available to it under Section 7.1(e), and the Borrower shall pay to the Lender all reasonable expenses and disbursements incurred by the Lender in connection with the enforcement of its rights and remedies under this Master Agreement including the reasonable fees and out-of-pocket expenses of counsel for the Lender with respect thereto.
8. Notice. Except as otherwise expressly provided herein, all notices hereunder to any party shall be in writing and shall be delivered in hand, mailed by United States registered or certified first-class mail, postage prepaid or sent by fax, addressed to such party to the attention of the
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person specified in the following sentence at the address set forth for such party below, or to such other person or address as such party may designate to the other party hereto by notice delivered in accordance with this Section 8. All notices to the Borrower shall be addressed to the Treasurer of the Borrower and all notices from the Borrower to the Lender shall be addressed to the Treasurer of the Lender. Written notice to the Credit Facility Team shall be sent to the following address: Putnam Investment Management, LLC, One Post Office Square, Boston, MA 02109. The address for all Funds listed in this Master Agreement is: One Post Office Square, Boston, MA 02109.
9. Amendments. Neither this Master Agreement nor any provision hereof may be amended in any respect except by a statement in writing executed by the parties hereto.
10. Assignment. All of the terms of this Master Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns; provided, that the Borrower shall not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Lender.
11. Survival of Covenants, Representations and Warranties. All covenants, agreements, representations and warranties made herein or in any documents or other papers delivered by or on behalf of the Borrowers, or any of them, pursuant hereto shall be deemed to have been relied upon by the Lenders, regardless of any investigation made by or on behalf of the Lenders and shall survive the execution and delivery of this Master Agreement and the making by the Lenders of the Loans as herein contemplated and shall continue in full force and effect so long as any Loan, Obligation or any other amount due under this Agreement remains outstanding and unpaid or unsatisfied.
12. Section Headings. The descriptive section headings in this Master Agreement have been inserted for convenience of reference only and shall not be deemed to limit or otherwise affect the construction of any provision thereof or hereof.
13. Counterparts. This Master Agreement and the documents contemplated hereby may be executed simultaneously in any number of counterparts each of which when so executed and delivered shall be an original, but all of which shall together constitute but one and the same document.
14. Severability. If any of the provisions of this Master Agreement or any instrument delivered hereunder or the application thereof to any party hereto or to any person or circumstances is held invalid, the remainder of this Master Agreement or such instrument and the application thereof to any party hereto or to any other person or circumstances shall not be affected thereby.
15. Governing Law. This Master Agreement shall be governed by, and construed in accordance with, the laws of The Commonwealth of Massachusetts, without giving effect to principles of conflicts of law.
16. Entire Agreement. This Master Agreement and the other documents contemplated hereby and executed in connection herewith express the entire understanding of the parties with respect to the transactions contemplated hereby.
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17. Limitation of Liability of the Board of Trustees. A copy of the Agreement and Declaration of Trust of each Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of each Trust as Trustees of such Trust and not individually and that the obligations of or arising out of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the applicable Trust.
[The remainder of this page is intentionally left blank.] |
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IN WITNESS WHEREOF, each of the parties hereto has caused this Master Agreement to be duly executed as an instrument under seal by its duly authorized officer as of the date first written above.
ALL TRUSTS LISTED ON SCHEDULE A OR SCHEDULE B | ||
By: /s/ Jonathan S. Horwitz | ||
Name: | Jonathan S. Horwitz | |
Title: | Executive Vice President, Principal Executive Officer and Compliance Liaison | |
PUTNAM INVESTMENT MANAGEMENT, LLC | ||
By: /s/ James P. Pappas | ||
Name: | James P. Pappas | |
Title: | Director, Trustee Relations |
SCHEDULE A – Borrowing Funds |
As amended as of June 7, 2016
Except as otherwise indicated below, for each Fund, the Master Agreement was effective as of the Effective Date.
Putnam American Government Income Fund | |
Putnam Arizona Tax Exempt Income Fund | |
Putnam Asset Allocation Funds | |
-Balanced Portfolio | |
-Conservative Portfolio | |
-Growth Portfolio | |
Putnam California Tax Exempt Income Fund | |
Putnam Convertible Securities Fund | |
Putnam Diversified Income Trust | |
Putnam Equity Income Fund | |
Putnam Europe Equity Fund | |
Putnam Funds Trust | |
-Putnam Absolute Return 100 Fund | |
-Putnam Absolute Return 300 Fund | |
-Putnam Absolute Return 500 Fund | |
-Putnam Absolute Return 700 Fund | |
-Putnam Asia Pacific Equity Fund | |
-Putnam Asset Allocation: Equity Portfolio | |
-Putnam Capital Spectrum Fund | |
-Putnam Dynamic Risk Allocation Fund (effective 9/9/11) | |
-Putnam Emerging Markets Equity Fund | |
-Putnam Emerging Markets Income Fund (effective 12/14/12) | |
-Putnam Equity Spectrum Fund | |
-Putnam Floating Rate Income Fund | |
-Putnam Global Consumer Fund | |
-Putnam Global Dividend Fund (effective 12/14/12) | |
-Putnam Global Energy Fund | |
-Putnam Global Financials Fund | |
-Putnam Global Industrials Fund | |
-Putnam Global Sector Fund | |
-Putnam Global Technology Fund | |
-Putnam Global Telecommunications Fund | |
-Putnam Intermediate-Term Municipal Income Fund (effective 12/14/12) | |
-Putnam International Value Fund | |
-Putnam Low Volatility Equity Fund (effective 12/14/12) | |
-Putnam Mortgage Opportunities Fund (effective 4/6/15) | |
-Putnam Multi-Cap Core Fund (effective 5/14/10) | |
-Putnam Retirement Income Fund Lifestyle 2 (effective 5/13/11) | |
-Putnam Retirement Income Fund Lifestyle 3 |
-Putnam Short Duration Income Fund (effective 6/17/11) | |
-Putnam Short Term Municipal Income Fund (effective 12/14/12) | |
-Putnam Small Cap Growth Fund | |
-Putnam Strategic Volatility Fund (effective 12/14/12) | |
George Putnam Balanced Fund | |
Putnam Global Equity Fund | |
Putnam Global Health Care Fund | |
Putnam Global Income Trust | |
Putnam Global Natural Resources Fund | |
Putnam Global Utilities Fund | |
The Putnam Fund for Growth and Income | |
Putnam High Yield Advantage Fund | |
Putnam High Yield Trust | |
Putnam Income Fund | |
Putnam International Equity Fund | |
Putnam Investment Funds | |
-Putnam Capital Opportunities Fund | |
-Putnam Growth Opportunities Fund | |
-Putnam International Capital Opportunities Fund | |
-Putnam International Growth Fund | |
-Putnam Multi-Cap Value Fund | |
-Putnam Research Fund | |
-Putnam Small Cap Value Fund | |
Putnam Investors Fund | |
Putnam Massachusetts Tax Exempt Income Fund | |
Putnam Michigan Tax Exempt Income Fund | |
Putnam Minnesota Tax Exempt Income Fund | |
Putnam Multi-Cap Growth Fund | |
Putnam New Jersey Tax Exempt Income Fund | |
Putnam New York Tax Exempt Income Fund | |
Putnam Ohio Tax Exempt Income Fund | |
Putnam Pennsylvania Tax Exempt Income Fund | |
Putnam RetirementReady® Funds | |
-Putnam Retirement Income Fund Lifestyle 1 | |
-Putnam RetirementReady 2060 Fund (effective 11/30/15) | |
-Putnam RetirementReady 2055 Fund (effective 6/11/10) | |
-Putnam RetirementReady 2050 Fund | |
-Putnam RetirementReady 2045 Fund | |
-Putnam RetirementReady 2040 Fund | |
-Putnam RetirementReady 2035 Fund | |
-Putnam RetirementReady 2030 Fund | |
-Putnam RetirementReady 2025 Fund | |
-Putnam RetirementReady 2020 Fund | |
Putnam Tax Exempt Income Fund | |
Putnam Tax-Free Income Trust | |
-Putnam AMT-Free Municipal Fund |
-Putnam Tax-Free High Yield Fund | |
Putnam U.S. Government Income Trust | |
Putnam Variable Trust | |
-Putnam VT Absolute Return 500 Fund (effective 5/13/11) | |
-Putnam VT American Government Income Fund | |
-Putnam VT Capital Opportunities Fund | |
-Putnam VT Diversified Income Fund | |
-Putnam VT Equity Income Fund | |
-Putnam VT George Putnam Balanced Fund | |
-Putnam VT Global Asset Allocation Fund | |
-Putnam VT Global Equity Fund | |
-Putnam VT Global Health Care Fund | |
-Putnam VT Global Utilities Fund | |
-Putnam VT Growth and Income Fund | |
-Putnam VT Growth Opportunities Fund | |
-Putnam VT High Yield Fund | |
-Putnam VT Income Fund | |
-Putnam VT International Equity Fund | |
-Putnam VT International Value Fund | |
-Putnam VT International Growth Fund | |
-Putnam VT Investors Fund | |
-Putnam VT Multi-Cap Growth Fund | |
-Putnam VT Multi-Cap Value Fund | |
-Putnam VT Research Fund | |
-Putnam VT Small Cap Value Fund | |
-Putnam VT Voyager Fund | |
Putnam Voyager Fund |
EACH TRUST LISTED ABOVE, ON BEHALF OF EACH OF ITS FUNDS LISTED ABOVE | ||
By: /s/ Jonathan S. Horwitz | ||
Name: | Jonathan S. Horwitz | |
Title: | Executive Vice President, Principal Executive Officer and Compliance Liaison | |
PUTNAM INVESTMENT MANAGEMENT, LLC | ||
By: /s/ James P. Pappas | ||
Name: | James P. Pappas | |
Title: | Director, Trustee Relations |
SCHEDULE B – Lending Funds |
As amended as of March 24, 2016
Except as otherwise indicated below, for each Fund, the Master Agreement was effective as of the Effective Date.
Putnam American Government Income Fund | |
Putnam Asset Allocation Funds | |
-Balanced Portfolio | |
-Conservative Portfolio | |
-Growth Portfolio | |
Putnam Convertible Securities Fund | |
Putnam Diversified Income Trust | |
Putnam Equity Income Fund | |
Putnam Europe Equity Fund | |
Putnam Funds Trust | |
-Putnam Absolute Return 100 Fund | |
-Putnam Absolute Return 300 Fund | |
-Putnam Absolute Return 500 Fund | |
-Putnam Absolute Return 700 Fund | |
-Putnam Asia Pacific Equity Fund | |
-Putnam Asset Allocation: Equity Portfolio | |
-Putnam Capital Spectrum Fund | |
-Putnam Dynamic Risk Allocation Fund (effective 9/9/11) | |
-Putnam Emerging Markets Equity Fund | |
-Putnam Emerging Markets Income Fund (effective 12/14/12) | |
-Putnam Equity Spectrum Fund | |
-Putnam Floating Rate Income Fund | |
-Putnam Global Consumer Fund | |
-Putnam Global Dividend Fund (effective 12/14/12) | |
-Putnam Global Energy Fund | |
-Putnam Global Financials Fund | |
-Putnam Global Industrials Fund | |
-Putnam Global Sector Fund | |
-Putnam Global Technology Fund | |
-Putnam Global Telecommunications Fund | |
-Putnam Intermediate-Term Municipal Income Fund (effective 12/14/12) | |
-Putnam International Value Fund | |
-Putnam Low Volatility Equity Fund (effective 12/14/12) | |
-Putnam Money Market Liquidity Fund | |
-Putnam Mortgage Opportunities Fund (effective 4/6/15) | |
-Putnam Multi-Cap Core Fund (effective 5/14/10) | |
-Putnam Retirement Income Fund Lifestyle 2 (effective 5/13/11) | |
-Putnam Retirement Income Fund Lifestyle 3 | |
-Putnam Short Duration Income Fund (effective 6/17/11) |
-Putnam Short Term Investment Fund (effective 11/9/12) | |
-Putnam Short Term Municipal Income Fund (effective 12/14/12) | |
-Putnam Small Cap Growth Fund | |
-Putnam Strategic Volatility Fund (effective 12/14/12) | |
George Putnam Balanced Fund | |
Putnam Global Equity Fund | |
Putnam Global Health Care Fund | |
Putnam Global Income Trust | |
Putnam Global Natural Resources Fund | |
Putnam Global Utilities Fund | |
The Putnam Fund for Growth and Income | |
Putnam High Income Securities Fund | |
Putnam High Yield Advantage Fund | |
Putnam High Yield Trust | |
Putnam Income Fund | |
Putnam International Equity Fund | |
Putnam Investment Funds | |
-Putnam Capital Opportunities Fund | |
-Putnam Government Money Market Fund (effective 10/16/15) | |
-Putnam Growth Opportunities Fund | |
-Putnam International Capital Opportunities Fund | |
-Putnam International Growth Fund | |
-Putnam Multi-Cap Value Fund | |
-Putnam Research Fund | |
-Putnam Small Cap Value Fund | |
Putnam Investors Fund | |
Putnam Master Intermediate Income Trust | |
Putnam Money Market Fund | |
Putnam Multi-Cap Growth Fund | |
Putnam Premier Income Trust | |
Putnam RetirementReady® Funds | |
-Putnam Retirement Income Fund Lifestyle 1 | |
-Putnam RetirementReady 2060 Fund (effective 11/30/15) | |
-Putnam RetirementReady 2055 Fund (effective 6/11/10) | |
-Putnam RetirementReady 2050 Fund | |
-Putnam RetirementReady 2045 Fund | |
-Putnam RetirementReady 2040 Fund | |
-Putnam RetirementReady 2035 Fund | |
-Putnam RetirementReady 2030 Fund | |
-Putnam RetirementReady 2025 Fund | |
-Putnam RetirementReady 2020 Fund | |
Putnam U.S. Government Income Trust |
Putnam Variable Trust | |
-Putnam VT Absolute Return 500 Fund (effective 5/13/11) | |
-Putnam VT American Government Income Fund | |
-Putnam VT Capital Opportunities Fund | |
-Putnam VT Diversified Income Fund | |
-Putnam VT Equity Income Fund | |
-Putnam VT George Putnam Balanced Fund | |
-Putnam VT Global Asset Allocation Fund | |
-Putnam VT Global Equity Fund | |
-Putnam VT Global Health Care Fund | |
-Putnam VT Global Utilities Fund | |
-Putnam VT Growth and Income Fund | |
-Putnam VT Growth Opportunities Fund | |
-Putnam VT High Yield Fund | |
-Putnam VT Income Fund | |
-Putnam VT International Equity Fund | |
-Putnam VT International Value Fund | |
-Putnam VT International Growth Fund | |
-Putnam VT Investors Fund | |
-Putnam VT Money Market Fund | |
-Putnam VT Multi-Cap Growth Fund | |
-Putnam VT Multi-Cap Value Fund | |
-Putnam VT Research Fund | |
-Putnam VT Small Cap Value Fund | |
-Putnam VT Voyager Fund | |
Putnam Voyager Fund |
EACH TRUST LISTED ABOVE, ON BEHALF OF EACH OF ITS FUNDS LISTED ABOVE | ||
By: /s/ Jonathan S. Horwitz | ||
Name: | Jonathan S. Horwitz | |
Title: | Executive Vice President, Principal Executive Officer and Compliance Liaison | |
PUTNAM INVESTMENT MANAGEMENT, LLC | ||
By: /s/ James P. Pappas | ||
Name: | James P. Pappas | |
Title: | Director, Trustee Relations |
SCHEDULE C |
COLLATERAL SECURITY AGREEMENT |
This Collateral Security Agreement (this “Agreement”) is made this 16th day of July, 2010, by and among each investment company listed on the signature pages hereto (each, a “Trust” and collectively, the “Trusts”), on behalf of each Borrower and Lender (as such terms are defined in the Master Agreement (defined below)).
WHEREAS, each Trust, on behalf of each Borrower and Lender, have entered into a Master Interfund Lending Agreement dated as of July 16, 2010 by and among each Trust and Putnam Investment Management, LLC (the “Master Agreement”) in accordance with the terms of (i) the exemptive order from the U.S. Securities and Exchange Commission dated April 10, 2002 exempting such Borrowers and Lenders and Putnam Investment Management, LLC from certain provisions of the Investment Company Act of 1940, as amended; and (ii) the Interfund Lending Procedures, as in effect from time to time, for Loans by and among the Funds;
NOW, THEREFORE, each Borrower, in consideration of Loans heretofore, now or from time to time hereafter made, given or extended to the Borrower by a Lender, hereby agrees with the Lenders as follows:
1. Capitalized terms used herein which are not otherwise defined herein shall have the respective meanings ascribed thereto in the Master Agreement.
2. Effective upon the transfer of collateral, pursuant to Section 3.11 of the Master Agreement, or as provided herein, to an account owned or controlled by a Lender, as security for the payment of any and all loans heretofore, now or from time to time hereafter made, given or extended to a Borrower by the Lender under and pursuant to the Master Agreement (which loans shall hereinafter be referred to collectively as the “Secured Liabilities” and each individually as a “Secured Liability”), the Lender shall have, and the Borrower hereby grants to the Lender, a security interest in (i) any and all securities and other instruments owned by the Borrower which have been or at any time shall be delivered to the Lender or its custodian by or on behalf of the Borrower or have or at any time shall otherwise come into the possession, custody or control of the Lender or its custodian, including securities and other instruments held in depository trust companies and other institutions and clearing agencies in segregated accounts in the name of the Lender; (ii) all right, title, interest and power (including the power of hypothecation and disposition) of the Borrower in, or in respect of any and all securities and other instruments owned by the Borrower which have or at any time shall come into the possession, custody or control of the Lender or its custodian in any way for any purpose whatsoever, whether or not the Lender shall have accepted said property for the purpose or purposes for which said property was delivered to or otherwise caused to come into the possession, custody or control of the Lender or its custodian; and (iii) all proceeds of any of the foregoing. All property shall be deemed to be in the possession, custody or control of the Lender as soon as it is transferred to the Lender or its custodian
or if the Lender and the Borrower enter into a control agreement satisfactory to the Lender with the Borrowers custodian. If the Lender shall at any time deem itself insecure in respect of any Secured Liability, the Borrower will deliver to the Lender or its custodian upon demand additional collateral owned by the Borrower satisfactory to the Lender. The term collateral as hereinafter used shall mean and include the securities and other instruments, together with proceeds of the securities and other instruments, and any and all property, rights, titles, powers, sums, receivables or claims which by virtue of the provisions of this Agreement are or shall be at the time in question subject to a security interest in favor of the Lender.
3. Upon the occurrence and during the continuance of an Event of Default (as defined in the Master Agreement), or any time or times thereafter, (i) the Lender may exercise any and all rights and remedies (a) granted to the Lender by the Uniform Commercial Code as in effect in The Commonwealth of Massachusetts or otherwise allowed at law, and/or (b) otherwise provided by this Agreement or the Master Agreement, and (ii) any and all Secured Liabilities of the Borrower shall, at the option of the Lender, become due and payable without notice or demand, notwithstanding any credit or time allowed to the Borrower by any instrument or other document evidencing the same or otherwise.
4. Upon the occurrence and during the continuance of an Event of Default, the Lender shall have full power and authority to sell any or all of the collateral of the Borrower. Except as required by law, such sale or other disposition may be made without advertisement or any notice to the Borrower or to any other person. Where reasonable notification of the time or place of such sale or other disposition is so required, such requirement shall be met if such notice is given in the manner prescribed in Paragraph 10 hereof at least five days before the time of such sale or other disposition to each person entitled to such notice, addressed, if to the Borrower, in the manner specified in said Paragraph 10, or, if to any person, to such person at such persons last address known to the Lender. After deducting all costs and expenses of collection, storage, custody, sale or other disposition and delivery (including legal costs and reasonable attorneys fees) and all other charges against the collateral, the residue of the proceeds of any such sale or other disposition shall be applied to the payment of any and all of the Secured Liabilities, due or to become due, in such order of preference as the Lender may determine, proper allowance for interest on liabilities not then due being made, and, unless otherwise provided by law, any surplus shall be returned to the Borrower.
5. The Borrower will pay when due all taxes, assessments, liens, premiums or other charges against the collateral and, if the Borrower and the Lender agree it is appropriate, the Borrower will fully insure the same in favor and to the satisfaction of the Lender against loss by any risk to which the collateral or any part thereof may be subject and will on demand deposit with the Lender the policies covering any such insurance. Although under no obligation to do so, the Lender may at any time and from time to time pay any taxes, assessments, liens, premiums or other charges against the collateral, and may insure the same or otherwise protect the value thereof and the property represented
thereby, and in such event all expenditures so incurred shall be chargeable to the Borrower and secured by the collateral of the Borrower. The Lender shall be under no obligation to take any steps necessary to preserve rights in any collateral against prior parties but may do so at its option. Upon the occurrence and during the continuance of an Event of Default, the Lender may at any time and from time to time transfer into its own name or that of its nominee any securities constituting part of the collateral of the Borrower and receive the income thereon and hold the same as additional collateral or apply it to the payment of any or all of the Secured Liabilities and may at any time notify the obligor(s) on any collateral to make payment of the Lender of any amounts due or to become due thereon.
6. Upon the occurrence and during the continuance of an Event of Default, the Lender may, at any time and from time to time, transfer or assign the whole or any part of any Secured Liability and may transfer therewith, or assign to and set apart for the account of the transferee or assignee thereof, in either event as security therefor, the whole or any part of the collateral of the Borrower. If the Lender does so transfer or assign and set apart the whole or any part of the collateral, the transferee or assignee thereof, without notice to the Borrower, shall thereupon become vested with, and may thereafter exercise, every right and power hereby given to the Lender in respect thereof, and the Lender shall thereafter be forever relieved and fully discharged from any liability or responsibility in respect thereof, except that the Lender shall continue to use reasonable care in the custody and preservation of any collateral so assigned and set apart while such collateral remains in the possession of the Lender. Such transferee or assignee shall have no right or power in respect of any part of the collateral not so transferred or assigned and set apart, in respect whereof the Lender shall retain all rights and powers hereby given in respect thereof.
7. Except as provided in Paragraphs 4, 5 and 6 hereof, the Lender shall at no time transfer or assign the whole or any part of any Secured Liability or assign, transfer or set aside the whole or any part of the collateral held in security therefor except to an assignee of the Loans secured thereby.
8. Upon the request of the Borrower following the payment in full of all loans and Secured Liabilities and termination of the Master Agreement, the Lender shall (i) return or cause to be returned to the Borrower all collateral which shall remain in the possession, custody or control of the Lender or its custodian at such time, and (ii) shall deliver to the Borrower such instruments, UCC termination statements and other documents, and provide for delivery of such instructions to the custodian, in each case as the Borrower may reasonably request for the purpose of releasing (in fact and as a matter of record) the security interest created by this Agreement.
9. Except as is otherwise expressly provided herein or by law, the Borrower waives all demands and notices in connection with this Agreement or the enforcement of the Lenders rights hereunder and also waives presentment, demand, notice, protest and all other demands and notices in connection with any Secured Liability or the enforcement of the Lenders rights with respect thereto and hereby consents that the time
of payment of any Secured Liability may be extended from time to time and that no such extension or other indulgence granted to any other party primarily or secondarily liable on any Secured Liability, no discharge or release of any such party and no substitution, release or surrender of collateral of the Borrower shall discharge or otherwise affect the liability of the Borrower on or in respect of any Secured Liability. No delay or omission on the part of the Lender in exercising any right hereunder shall operate as a waiver of such right on any one occasion and shall not be construed as a bar to or waiver of any such right on any future occasion.
10. Any demand upon or notice to the Borrower permitted or required hereunder shall be sufficient if, and effective when, deposited in the mails, postage prepaid, addressed to the Borrower at One Post Office Square, Boston, MA 02109 or at such other address of the Borrower appearing on the first page of this Agreement or at such other address as the Borrower may furnish to the Lender as the address to which such demands, notices or other communications addressed to the Borrower shall be mailed or forwarded.
11. This Agreement may be terminated by the Borrower giving written notice of such termination to the Lender, provided, however, that such termination shall not be effective unless and until all loans and Secured Liabilities (including those contingent or not yet due) existing as of the time of receipt of such notice by the Lender have been paid in full.
12. The Borrower will pay on demand all costs and expenses (including legal costs and reasonable attorneys’ fees) incurred or paid by the Lender in collecting any loan or Secured Liability upon any default in respect thereof, and all costs and expenses so incurred shall be secured by the collateral.
13. This Agreement shall inure to the benefit of the Lender, its successors and assigns, and shall be binding upon the Borrower, its successors and assigns.
14. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Massachusetts.
15. A copy of the Agreement and Declaration of Trust of each Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of each Trust as Trustees of such Trust and not individually and that the obligations of or arising out of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the applicable Trust.
[Signature Page Follows] |
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above.
ALL TRUSTS LISTED ON SCHEDULE A OR SCHEDULE B TO THE MASTER | ||
AGREEMENT, AS SUCH SCHEDULES ARE AMENDED FROM TIME TO TIME | ||
By: /s/ Jonathan S. Horwitz | ||
Name: | Jonathan S. Horwitz | |
Title: | Executive Vice President, Principal Executive Officer and Compliance | |
Liaison |
EXECUTION COPY
JOINDER AGREEMENT NO. 1
JOINDER AGREEMENT NO. 1 (this “Agreement”), dated as of August 29, 2016, to the Credit Agreement, dated as of September 24, 2015, among each trust company listed on Schedule A hereto, the Banks and other lending institutions party thereto, and State Street Bank and Trust Company, as Agent (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”). Each term that is defined in the Credit Agreement and not herein defined has the meaning ascribed thereto by the Credit Agreement when used herein.
1. Request. (a) Pursuant to Section 2.12(a) of the Credit Agreement, the Borrowers (the “Existing Borrowers”) hereby request that each of the following trusts, if any, be added as a “Company” for all purposes of the Loan Documents (each a “New Company”):
New Company | Company Borrower (Y or N) |
N/A | N/A |
N/A | N/A |
(b) Pursuant to Section 2.12(a) of the Credit Agreement, the Borrowers hereby request that each of the following Series, if any, of each Company (including a New Company) listed below, if any, be added as a “Fund” for all purposes of the Loan Documents (each a “New Fund”):
Company | Series |
Putnam Investment Funds | Putnam Government Money Market Fund |
2. Joinder. By signing below, each Bank and the Agent hereby agrees, and each of the other parties hereto hereby agrees, that (a) each such New Company shall be deemed to be a “Company” for all purposes under the Loan Documents, (b) each such New Fund shall be deemed to be a “Fund” for all purposes of the Loan Documents, and (c) Schedule 2 to the Credit Agreement shall be automatically amended and restated in the form of Schedule 2 to this Agreement. Each New Company hereby represents and warrants that it is correctly identified as a Company Borrower in paragraph 1(a) above.
3. New Borrowers. For purposes of this Agreement, “New Borrower” means (a) each New Company that is a Company Borrower, and (b) each other Company (including a New Company) acting on behalf of, and for the account of, each Series thereof that is a New Fund.
4. Effectiveness. This Agreement shall become effective upon the first date that each of the following conditions shall have first been satisfied (the date, if any, on which such conditions shall have first been satisfied being referred to herein as the “Joinder Effective Date”):
(a) the Agent shall have received a counterpart of this Agreement signed by each Existing Borrower and each New Borrower;
(b) the Agent shall have received a certificate of the Clerk, Secretary or Assistant Secretary (or other officer acceptable to the Agent) of each New Borrower, dated the Joinder Effective Date, in all respects satisfactory to the Agent (i)(1) attaching a true complete and correct copy of all its Charter Documents, or (2)(x) if previously delivered to the Agent under the Loan Documents, all amendments, restatements, supplements or other modifications to its Charter Documents since the date the Related Company thereof became a party to the Credit Agreement, or (y) certifying that no such amendments, restatements, supplements or other modifications have occurred, or (ii) attaching a copy of all of the Offering Documents, as of the Joinder Effective Date, of each New Borrower and such other material as accurately and completely sets forth all Investment Policies and Restrictions of such New Borrower not reflected in the Offering Documents, (iii) attaching the resolutions of the Managing Body of such New Borrower authorizing the transactions contemplated hereby and certifying that such resolutions are in full force and effect, and (iv) certifying as to the incumbency of authorized persons of such Borrower or New Borrower executing this Agreement;
(c) with respect to each New Borrower, the Agent shall have received a federal reserve form FR U-1 executed on behalf of such New Borrower;
(d) one or more opinions of counsel to each New Borrower covering such matters relating to the transactions contemplated hereby as the Agent may request, in form and substance satisfactory to the Agent; and
(e) all fees and expenses payable in connection with this Agreement, including, without limitation, the reasonable fees and expenses of counsel to the Agent to the extent invoiced, shall have been paid.
5. No Defense; Representations and Warranties; No Default. Each Borrower (including each New Borrower) hereby (a) reaffirms and admits the validity and enforceability of each Loan Document and this Agreement and the respective obligations of such Borrower thereunder, and agrees and admits that such Borrower has no defense to or offset against any such obligation, and (b) represents and warrants that (i) no Default with respect to such Borrower has occurred and is continuing, (ii) all of the representations and warranties of such Borrower contained herein and in any other Loan Document are true and correct on and as of the date hereof (after giving effect to this Agreement) as if made on and as of such date (unless any representation and warranty relates to an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date), and (iii) it has received a copy of each Loan Document.
6. Binding Effect; Several Agreement. All covenants, promises and agreements by or on behalf of any party hereto that are contained in this Agreement shall bind and inure to the benefit of each other party hereto and their respective successors and assigns.
7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
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8. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one contract. Delivery of an executed counterpart of this Agreement by facsimile transmission or electronic transmission in “portable document format” shall be as effective as delivery of a manually executed counterpart of this Agreement.
9. Headings. Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.
[the remainder of this page has been intentionally left blank]
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the date first above written.
Each trust company listed on Schedule A hereto
By: | /s/ Jonathan S. Horwitz |
Name: | Jonathan S. Horwitz ______ |
Title: | Executive Vice President ______ |
STATE STREET BANK AND TRUST COMPANY, as Agent and as a Bank
By: /s/ Janet B. Nolin
Name: Janet B. Nolin
Title: Vice President
THE NORTHERN TRUST COMPANY, as a Bank
By: | /s/ Graham A. Warning |
Name: Graham A. Warning
Title: Vice President
[Putnam Funds - Joinder No.1 to Credit Agreement]
Schedule 2
List of Companies, Funds and Fiscal Year End Date
Company | Fund | Fiscal Year End Date |
Putnam American Government Income Fund | Putnam American Government Income Fund |
September 30 |
Putnam Arizona Tax Exempt Income Fund | Putnam Arizona Tax Exempt Income Fund |
May 31 |
Putnam Asset Allocation Funds | Putnam Dynamic Asset Allocation Balanced Fund | September 30 |
Putnam Dynamic Asset Allocation Conservative Fund | September 30 | |
Putnam Dynamic Asset Allocation Growth Fund | September 30 | |
Putnam California Tax Exempt Income Fund | Putnam California Tax Exempt Income Fund | September 30 |
Putnam Convertible Securities Fund | Putnam Convertible Securities Fund | October 31 |
Putnam Diversified Income Trust | Putnam Diversified Income Trust | September 30 |
Putnam Equity Income Fund | Putnam Equity Income Fund | November 30 |
Putnam Europe Equity Fund | Putnam Europe Equity Fund | June 30 |
Putnam Funds Trust | Putnam Absolute Return 100 Fund | October 31 |
Putnam Absolute Return 300 Fund | October 31 | |
Putnam Absolute Return 500 Fund | October 31 | |
Putnam Absolute Return 700 Fund | October 31 | |
Putnam Asia Pacific Equity Fund | April 30 | |
Putnam Dynamic Asset Allocation Equity Fund | May 31 | |
Putnam Capital Spectrum Fund | April 30 | |
Putnam Dynamic Risk Allocation Fund | May 31 | |
Putnam Emerging Markets Equity Fund | August 31 | |
Putnam Emerging Markets Income Fund | November 30 | |
Putnam Equity Spectrum Fund | April 30 | |
Putnam Floating Rate Income Fund | February 28 | |
Putnam Global Consumer Fund | August 31 | |
Putnam Global Dividend Fund | November 30 | |
Putnam Global Energy Fund | August 31 | |
Putnam Global Financials Fund | August 31 | |
Putnam Global Industrials Fund | August 31 | |
Putnam Global Technology Fund | August 31 | |
Putnam Global Telecommunications Fund | August 31 | |
Putnam Intermediate-Term Municipal Income Fund | November 30 | |
Putnam International Value Fund | June 30 | |
Putnam Low Volatility Equity Fund | July 31 | |
Putnam Mortgage Opportunities Fund | May 31 | |
Putnam Multi-Cap Core Fund | April 30 | |
Putnam Retirement Income Fund Lifestyle 2 | August 31 | |
Putnam Retirement Income Fund Lifestyle 3 | February 28 | |
Putnam Short Duration Income Fund | July 31 | |
Putnam Short-Term Municipal Income Fund | November 30 | |
Putnam Small Cap Growth Fund | June 30 | |
Putnam Strategic Volatility Equity Fund | July 31 | |
Putnam Global Equity Fund | October 31 | |
Putnam Global Health Care Fund | August 31 | |
Putnam Global Income Trust | October 31 | |
Putnam Global Natural Resources Fund | August 31 |
Putnam Global Utilities Fund | August 31 | |
Putnam High Yield Advantage Fund | November 30 | |
Putnam High Yield Trust | August 31 | |
Putnam Income Fund | October 31 | |
Putnam International Equity Fund | June 30 | |
Putnam Investment Funds | Putnam Capital Opportunities Fund | April 30 |
Putnam Government Money Market Fund | September 30 | |
Putnam Growth Opportunities Fund | July 31 | |
Putnam International Capital Opportunities Fund | August 31 | |
Putnam International Growth Fund | September 30 | |
Putnam Multi-Cap Value Fund | April 30 | |
Putnam Research Fund | July 31 | |
Putnam Small Cap Value Fund | February 28 | |
Putnam Investors Fund | Putnam Investors Fund | July 31 |
Putnam Massachusetts Tax Exempt Income Fund | Putnam Massachusetts Tax Exempt Income Fund | May 31 |
Putnam Michigan Tax Exempt Income Fund | Putnam Michigan Tax Exempt Income Fund | May 31 |
Putnam Minnesota Tax Exempt Income Fund | Putnam Minnesota Tax Exempt Income Fund | May 31 |
Putnam Money Market Fund | Putnam Money Market Fund | September 30 |
Putnam Mortgage Recovery Fund (closed-end fund) | Putnam Mortgage Recovery Fund | August 31 |
Putnam Multi-Cap Growth Fund | Putnam Multi-Cap Growth Fund | June 30 |
Putnam New Jersey Tax Exempt Income Fund | Putnam New Jersey Tax Exempt Income Fund | May 31 |
Putnam New York Tax Exempt Income Fund | Putnam New York Tax Exempt Income Fund | November 30 |
Putnam Ohio Tax Exempt Income Fund | Putnam Ohio Tax Exempt Income Fund | May 31 |
Putnam Pennsylvania Tax Exempt Income Fund | Putnam Pennsylvania Tax Exempt Income Fund | May 31 |
Putnam Tax Exempt Income Fund | Putnam Tax Exempt Income Fund | September 30 |
Putnam Tax-Free Income Trust | Putnam AMT-Free Municipal Fund | July 31 |
Putnam Tax-Free High Yield Fund | July 31 | |
Putnam U.S. Government Income Trust | Putnam U.S. Government Income Trust | September 30 |
Putnam Variable Trust | Putnam VT Absolute Return 500 Fund | December 31 |
Putnam VT American Government Income Fund | December 31 | |
Putnam VT Capital Opportunities Fund | December 31 | |
Putnam VT Diversified Income Fund | December 31 | |
Putnam VT Equity Income Fund | December 31 | |
Putnam VT Global Asset Allocation Fund | December 31 | |
Putnam VT Global Equity Fund | December 31 | |
Putnam VT Global Health Care Fund | December 31 | |
Putnam VT Global Utilities Fund | December 31 | |
Putnam VT Growth And Income Fund | December 31 | |
Putnam VT Growth Opportunities Fund | December 31 | |
Putnam VT High Yield Fund | December 31 | |
Putnam VT Income Fund | December 31 | |
Putnam VT International Equity Fund | December 31 | |
Putnam VT International Growth Fund | December 31 | |
Putnam VT International Value Fund | December 31 | |
Putnam VT Investors Fund | December 31 | |
Putnam VT Government Money Market Fund | December 31 | |
Putnam VT Multi-Cap Growth Fund | December 31 | |
Putnam VT Multi-Cap Value Fund | December 31 | |
Putnam VT Research Fund | December 31 | |
Putnam VT Small Cap Value Fund | December 31 | |
Putnam VT George Putnam Balanced Fund | December 31 | |
Putnam VT Voyager Fund | December 31 | |
Putnam Voyager Fund | Putnam Voyager Fund | July 31 |
George Putnam Balanced Fund | George Putnam Balanced Fund | July 31 |
The Putnam Fund for Growth and Income | The Putnam Fund for Growth and Income | October 31 |
Schedule A
List of Companies
Putnam American Government Income Fund
Putnam Arizona Tax Exempt Income Fund
Putnam Asset Allocation Funds
Putnam California Tax Exempt Income Fund
Putnam Convertible Securities Fund
Putnam Diversified Income Trust
Putnam Equity Income Fund
Putnam Europe Equity Fund
Putnam Funds Trust
Putnam Global Equity Fund
Putnam Global Health Care Fund
Putnam Global Income Trust
Putnam Global Natural Resources Fund
Putnam Global Utilities Fund
Putnam High Yield Advantage Fund
Putnam High Yield Trust
Putnam Income Fund
Putnam International Equity Fund
Putnam Investment Funds
Putnam Investors Fund
Putnam Massachusetts Tax Exempt Income Fund
Putnam Michigan Tax Exempt Income Fund
Putnam Minnesota Tax Exempt Income Fund
Putnam Money Market Fund
Putnam Mortgage Recovery Fund (closed-end fund)
Putnam Multi-Cap Growth Fund
Putnam New Jersey Tax Exempt Income Fund
Putnam New York Tax Exempt Income Fund
Putnam Ohio Tax Exempt Income Fund
Putnam Pennsylvania Tax Exempt Income Fund
Putnam Tax Exempt Income Fund
Putnam Tax-Free Income Trust
Putnam U.S. Government Income Trust
Putnam Variable Trust
Putnam Voyager Fund
George Putnam Balanced Fund
The Putnam Fund for Growth and Income
EXECUTION COPY
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT NO. 1 (this “Amendment”), dated as of September 22, 2016, to the Credit Agreement, dated as of September 24, 2015, among each trust company listed on Schedule A hereto, the Banks and other lending institutions party thereto, and State Street Bank and Trust Company, as Agent, as amended, supplemented or otherwise modified by Joinder Agreement No. 1, dated as of August 29, 2016 (as the same has been or may be further amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”).
Recitals
I. Each term that is defined in the Credit Agreement and not herein defined has the meaning ascribed thereto by the Credit Agreement when used herein.
II. The Borrowers desire to amend the Credit Agreement and the Banks have agreed thereto, in each case upon the terms and conditions herein contained.
Agreements
Accordingly, in consideration of the Recitals and the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Section 1.01 of the Credit Agreement is hereby amended by inserting the following new defined terms, each in appropriate alphabetical order:
“Amendment Effective Date” has the meaning ascribed thereto by Amendment No. 1, dated as of September 22, 2016, to this Credit Agreement.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“Bail-In Legislation” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“Write-Down and Conversion Powers” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
2. Clause (ii) of the defined term “Adjusted Net Assets” contained in Section 1.01 of the Credit Agreement is hereby amended and restated in the entirety as follows: “(ii) the fair market value of all assets pledged or otherwise segregated to secure such liability, provided, however, this clause (ii) shall not include any assets solely on account of such assets being subject to a first-priority lien granted in favor of State Street Bank and Trust Company as Custodian in the ordinary course of business.”
3. The defined term “Termination Date” contained in Section 1.01 of the Credit Agreement is hereby amended by replacing the date “September 22, 2016” with the date “September 21, 2017”.
4. Section 2.07(a) of the Credit Agreement is hereby amended (A) by replacing the phrase “at the rate of 0.16% per annum” contained therein with the phrase “(i) from the Effective Date to but excluding the Amendment Effective Date, the applicable rate set forth from time to time in this Credit Agreement at which the commitment fee accrues, and (ii) from and after the Amendment Effective Date, a rate per annum equal to 0.21%” and (B) amending and restating the final sentence thereof as follows: “Commitment fees accrued through each calendar quarter shall be due and payable on the 15th day of the calendar month immediately succeeding such calendar quarter, and all accrued and unpaid commitment fees shall be due and payable on the Termination Date.”
5. Section 4.01(a) of the Credit Agreement is hereby amended by inserting the following new sentence at the end thereof: “Such Borrower is not an EEA Financial Institution.”
6. Section 5.01(c) of the Credit Agreement are hereby amended by replacing the phrase “simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above” with “on June 30 and December 31 of each year”.
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7. Section 5.01(h) of the Credit Agreement is hereby amended and restated in its entirety as follows:
(h) from time to time such additional documents and information as the Agent, at the request of any Bank, may (x) reasonably request regarding the business or financial position of such Borrower, and (y) request in order to comply with “know-your-customer” and other anti-terrorism, anti-money laundering and similar rules and regulations and related policies.
8. Section 5.10 of the Credit Agreement is hereby amended by inserting the phrase “, provided that in no event shall the proceeds of any Loan be used for anything other than its general business purposes or working capital purposes” immediately before the period at the end thereof.
9. The first sentence of Section 8.04(a) of the Credit Agreement is hereby amended and restated in its entirety as follows:
(a) Notwithstanding anything to the contrary contained in this Agreement or any of the other Loan Documents, any Bank (X) that has become subject of a Bail-in Action, or has a direct or indirect parent company that becomes the subject of a Bail-in Action, or (Y) that:
(i) willfully does not,
(ii) does not as a result of a Failure (as defined below), or
(iii) has announced in writing it will not,
(A) make available to the Agent its pro rata share of any Loan or any other amount required to be paid by it hereunder, or (B) comply with the provisions of Section 9.04 hereof with respect to making dispositions and arrangements with the other Banks, where such Bank’s share of any payment received, whether by setoff or otherwise, is in excess of its pro rata share of such payments due and payable to all of the Banks, in each case as, when and to the full extent required by the provisions of this Agreement, in each case referred to in clause (X) or (Y) mentioned above, shall be deemed delinquent (a “Delinquent Bank”) and shall be deemed a Delinquent Bank until such time as such delinquency is satisfied.
10. Section 9.01(b) of the Credit Agreement is hereby amended by inserting the phrase “such procedures, for the purposes of Sections 5.01(a) and (b) hereof and notwithstanding any other provision of this Section 9.01(b), including the timely filing of such documents with the SEC and such documents’ availability on EDGAR and/or Putnam.com/funddocuments,” immediately following the phrase “procedures approved by the Agent”.
11. Section 9.09(b) of the Credit Agreement is hereby amended by (a) deleting the word “or” immediately before clause (v) thereof, and (b) inserting a new clause (vi) immediately following the phrase “provisions of this Section 9.09”, as follows: “, or (vi) any service providers
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for such Bank and its Affiliates, so long as such service provider first agrees to be bound by the provisions of this Section 9.09”.
12. Article 9 of the Credit Agreement is hereby amended by adding a new Section 9.16 of follows:
Section 9.16 Acknowledgement and Consent to Bail-In of EEA Financial Institutions. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Bank that is an EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b) the effects of any Bail-in Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
13. Schedule 1 to the Credit Agreement (the “Existing Schedule”) is hereby amended and restated in its entirety in the form of Schedule 1 hereto (the “New Schedule”). For purposes hereof, the Banks listed on the Existing Schedule are referred to herein as the “Existing Banks”. Each Bank that is listed on the Existing Schedule but is not listed on the New Schedule is referred to herein as a “Departing Bank”. Each Bank that is listed on the New Schedule and the Existing Schedule is referred to herein as a “Continuing Bank” and, collectively, the “Continuing Banks”.
14. If any Loans shall be outstanding to any Borrower on the Amendment Effective
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Date, then (1) each Continuing Bank shall be deemed to have entered into a master assignment and acceptance agreement, in form and substance substantially similar to Exhibit D to the Credit Agreement, pursuant to which such Continuing Bank shall have assigned or accepted, as the case may be, a portion of the outstanding Loans to each Borrower necessary to reflect proportionately the Commitment Amounts as adjusted in accordance with the New Schedule and (2) in connection with such assignments, such Continuing Bank shall pay to the Agent, for the account of the other Continuing Banks, such amount as shall be necessary to appropriately reflect the assignment of Loans to it pursuant hereto.
15. Each Departing Bank’s (a) Commitment is hereby terminated and (b) Commitment Amount is hereby reduced to zero. Each Departing Bank is no longer a Bank.
16. Paragraphs 1 through 15 of this Amendment shall not be effective until the earliest date upon which each of the following conditions shall be satisfied (the “Amendment Effective Date”):
(a) the Agent shall have received from each Borrower and each Continuing Bank either (i) a counterpart of this Amendment executed on behalf of the such party or (ii) written evidence satisfactory to the Agent (which may include facsimile or electronic mail transmission (in printable format) of a signed signature page of this Amendment) that the each such party has executed a counterpart of this Amendment;
(b) the Agent shall have received from each Borrower a manually signed certificate from the Secretary or Assistant Secretary of such Borrower, in all respects satisfactory to the Agent, (i) certifying as to the incumbency of authorized persons of each Borrower executing this Amendment, (ii) attaching true, complete and correct copies of the resolutions duly adopted by each Borrower’s Managing Body approving this Amendment and the transactions contemplated hereby, all of which are in full force and effect on the Amendment Effective Date, and (iii) certifying that each Borrower’s Charter Documents have not been amended, supplemented or otherwise modified since September 24, 2015 or, if so, attaching true, complete and correct copies of each such amendment, supplement or modification;
(c) (i) the Agent shall have received from each Borrower, for the account of each Departing Bank, an amount equal to all sums (whether or not then due) owing by such Borrower to such Departing Banks under the Loan Documents (collectively, the “Departing Bank Payoff Amount”) and (ii) the aggregate outstanding principal amount of the Loans on the Amendment Effective Date shall not exceed $317,500,000;
(d) the Agent shall have received from the Borrowers, for the account of each Continuing Bank in connection herewith, an upfront fee equal to 0.04% of such Continuing Bank’s Commitment Amount as reflected on the New Schedule;
(e) the Agent shall have received a copy of a Federal Reserve Form FR U-1 for each Continuing Bank, duly executed and delivered by each Borrower, in
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form and substance acceptable to the Agent;
(f) the Agent shall have received such information as the Agent, at the request of any Continuing Bank, shall have requested in order to comply with “know-your-customer” and other anti-terrorism, anti-money laundering and similar rules and regulations and related policies; and
(g) the Agent shall have received all (i) reasonable out-of-pocket costs and expenses of the Agent (including the reasonable fees and disbursements of counsel to the Agent) incurred in connection with the preparation, negotiation, execution and delivery of this Amendment on or prior to the Amendment Effective Date, and (ii) fees then payable hereunder or under a separate fee letter, if any.
17. Each Continuing Bank, the Agent, and each Borrower hereby agree that, notwithstanding anything to the contrary contained in the Loan Documents (including provisions regarding the pro rata sharing of payments), the Agent shall pay to each Departing Bank an amount equal to the Departing Bank Payoff Amount of such Departing Bank promptly after the receipt thereof by the Agent.
18. Each Borrower (a) reaffirms and admits the validity and enforceability of each Loan Document to which it is a party and all of its obligations thereunder and agrees and admits that (i) it has no defense to any such obligation, and (ii) it shall not exercise any setoff or offset to any such obligation, and (b)(1) represents and warrants that, as of the Amendment Effective Date, no Default has occurred and is continuing, and (2) the representations and warranties by such Borrower contained in the Agreement and the other Loan Documents to which it is a party are true on and as of the Amendment Effective Date with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date).
19. In all other respects, the Loan Documents shall remain in full force and effect, and no amendment, supplement or other modification in respect of any term or condition of any Loan Document shall be deemed to be an amendment, supplement or other modification in respect of any other term or condition contained in any Loan Document.
20. This Amendment may be executed in any number of counterparts, all of which when taken together shall constitute a single contract. It shall not be necessary in making proof of this Amendment to produce or account for more than one counterpart executed and delivered (including by facsimile, or by e-mail transmission of a signed signature page of this Amendment) by the party to be charged.
21. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF MASSACHUSETTS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
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IN WITNESS WHEREOF, each party hereto has caused this Amendment No. 1 to be executed on its behalf by its duly authorized representative(s) as of the date first above written.
EACH TRUST LISTED ON SCHEDULE A HERETO
By: | /s/Jonathan Horwitz |
Name: | Jonathan Horwitz |
Title: | Executive Vice President |
Putnam Funds - Amendment No. 1 |
STATE STREET BANK AND TRUST COMPANY, as Agent and as a Bank
By: | /s/ Janet B. Nolin |
Name: | Janet B. Nolin |
Title: | Vice President |
Putnam Funds - Amendment No. 1 |
SCHEDULE 1
Addresses for Notices, Applicable Lending Offices, Commitment Amounts and Commitment Percentages
BORROWERS: Address for Notices:
Putnam Investments One Post Office Square Boston, MA 02109 Attn: Robert T. Burns Vice President and Chief Legal Officer Tel: (617) - 760 - 7043
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BANKS: STATE STREET BANK AND TRUST COMPANY Domestic Lending Office, LIBOR Lending Office and Office for Notices to the Agent for Borrowings and Payments: (a) if by overnight courier service: State Street Bank and Trust Company Customer Service Unit M/S CCB0900 One Iron Street Boston, MA 02210 Attn: Eduardo Chaves Tel: (617) 662-8574 Fax: (617) 988-6677 Attn: Peter Connolly Tel: (617) 662-8588 Fax: (617) 988-6677 (b) in all other cases: State Street Bank and Trust Company Customer Service Unit M/S CCB0900 One Iron Street PO Box 5501 Boston, MA 02206-5501 Attn: Eduardo Chaves Tel: (617) 662-8574 Fax: (617) 988-6677 Attn: Peter Connolly Tel: (617) 662-8588 Fax: (617) 988-6677 Email: ais-loanops-csu@statestreet.com Office for all Other Notices: (a) if by overnight courier: State Street Bank and Trust Company Mutual Fund Lending Department M/S CCB0900 One Iron Street Boston, MA 02210 Attn: Janet Nolin, Vice President Tel: (617)-662-8629
(b) in all other cases: State Street Bank and Trust Company Mutual Fund Lending Department M/S CCB0900 One Iron Street PO Box 5501 Boston, MA 02206-5501 Attn: Janet Nolin, Vice President Tel: (617)-662-8629 Email: JBNolin@StateStreet.com |
COMMITMENT AMOUNT $317,500,000 |
COMMITMENT PERCENTAGE 100.0%
|
Schedule A
List of Trusts and Companies
Putnam American Government Income Fund | Putnam Massachusetts Tax Exempt Income Fund |
Putnam Arizona Tax Exempt Income Fund | Putnam Michigan Tax Exempt Income Fund |
Putnam Asset Allocation Funds | Putnam Minnesota Tax Exempt Income Fund |
Putnam California Tax Exempt Income Fund | Putnam Money Market Fund |
Putnam Convertible Securities Fund | Putnam Mortgage Recovery Fund (closed-end fund) |
Putnam Diversified Income Trust | Putnam Multi-Cap Growth Fund |
Putnam Equity Income Fund | Putnam New Jersey Tax Exempt Income Fund |
Putnam Europe Equity Fund | Putnam New York Tax Exempt Income Fund |
Putnam Funds Trust | Putnam Ohio Tax Exempt Income Fund |
Putnam Global Equity Fund | Putnam Pennsylvania Tax Exempt Income Fund |
Putnam Global Health Care Fund | Putnam Tax Exempt Income Fund |
Putnam Global Income Trust | Putnam Tax-Free Income Trust |
Putnam Global Natural Resources Fund | Putnam U.S. Government Income Trust |
Putnam Global Utilities Fund | Putnam Variable Trust |
Putnam High Yield Advantage Fund | Putnam Voyager Fund |
Putnam High Yield Trust | George Putnam Balanced Fund |
Putnam Income Fund | The Putnam Fund for Growth and Income |
Putnam International Equity Fund |
Putnam Investment Funds |
Putnam Investors Fund |
[GRAPHIC OMITTED: STATE STREET LOGO]
August 29, 2016
Each of the Borrowers listed
on Appendix I hereto
One Post Office Square
Boston, MA 02109
Attention: Jonathan S. Horwitz,
Executive Vice President, Principal Executive Officer
Treasurer and Compliance Liaison
RE: First Amendment to Putnam Funds Amended and Restated Uncommitted Line of Credit
Ladies and Gentlemen:
Pursuant to an amended and restated letter agreement dated as of September 24, 2015 (as amended from time to time, the “Loan Agreement”) among State Street Bank and Trust Company (the “Bank”) and each of the management investment companies registered under the Investment Company Act listed on Appendix I attached thereto (each, a “Borrower”), the Bank has made available to each of the Borrowers, for itself or on behalf of designated fund series thereof, a $235,500,000 uncommitted, unsecured line of credit (the “Uncommitted Line”). The obligations of the Borrowers arising under the Uncommitted Line are evidenced by an amended and restated promissory note in the original principal amount of $235,500,000, dated September 24, 2015, executed by each of the Borrowers, for itself or on behalf of such designated fund series thereof, in favor of the Bank (as amended, the “Note”). Any capitalized term not otherwise defined herein shall have the same meaning as set forth in the Loan Agreement.
The Borrowers have requested, and the Bank has agreed, to make certain changes to the Loan Documents in connection therewith as set forth below. Therefore, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows:
I. | Amendments to Loan Documents |
Subject to the terms and conditions hereof, the Loan Documents are hereby amended as follows:
1. Putnam Government Money Market Fund, a newly established portfolio series of Putnam Investment Funds (the “New Fund”), is hereby added as a Fund for all purposes under the terms of the Loan Agreement and Note, and each of the Loan Agreement and Note is hereby deemed amended to reflect the foregoing. Putnam Investment Funds, for and on behalf of Putnam Government Money Market Fund, hereby agree to be bound by all of the terms and conditions of
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the Loan Documents as a Fund thereunder for all purposes as if it had been an original Fund party thereto.
2. The Borrowers have informed the Bank that Putnam Tax Exempt Money Market Fund was liquidated on March 23, 2016. Putnam Tax Exempt Money Market Fund is hereby terminated as a Borrower and a Fund for all purposes under the Loan Documents and all references in the Loan Agreement, the Note and the other Loan Documents to Putnam Tax Exempt Money Market Fund are hereby deleted in their entirety.
3. The Borrowers have further informed the Bank that Putnam VT Money Market Fund, a portfolio series of Putnam Variable Trust, has changed its name to Putnam VT Government Money Market Fund effective April 30, 2016. In furtherance of the foregoing, all references in the Loan Agreement, the Note and the other Loan Documents to Putnam VT Money Market Fund are hereby deleted in their entirety and replaced with references to Putnam VT Government Money Market Fund.
4. The Appendix I attached to the Loan Agreement and the Note and the Appendix I (or other applicable schedule, appendix or exhibit designation), as applicable, attached to each other certificate, agreement or form executed and/or delivered in connection with the Loan Agreement which includes such an Appendix I (or other applicable schedule, appendix or exhibit designation) listing the Borrowers and Funds, is hereby deleted and the Appendix I attached hereto is substituted in each instance therefor, such revised Appendix I reflecting the changes described in paragraphs 1-3 above.
II. Miscellaneous
1. Other than as expressly amended hereby, all terms and conditions of the Loan Agreement, Note and all related Loan Documents shall remain unchanged and are hereby ratified and affirmed as of the date hereof.
2. Each of the Borrowers, for itself and on behalf of its respective Funds (including the New Funds), represents and warrants to the Bank as follows: (a) no Default or Event of Default has occurred and is continuing on the date hereof under the Loan Documents; (b) each of the representations and warranties contained in the Loan Agreement is true and correct in all respects with respect to such Borrower, for itself and its respective Funds, on and as of the date of this letter amendment except to the extent such representation and warranty is made as of an earlier date; (c) the execution, delivery and performance of this letter amendment and the Loan Documents, as amended hereby (collectively, the “Amended Loan Documents”): (i) are, and will be, within such Borrower's power and authority, (ii) have been authorized by all necessary proceedings, (iii) do not, and will not, require any consent or approval from any governmental authority or any other party other than those which have been received, (iv) will not contravene any provision of, or exceed any limitation contained in, the declaration of trust, by-laws or other organizational documents or Prospectus of such Borrower or any law, rule or regulation applicable to such Borrower, and (v) do not constitute a default under any other agreement, order
State Street: Limited Access |
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or undertaking binding on such Borrower; and (d) each of the Amended Loan Documents constitutes the legal, valid, binding and enforceable obligation of such Borrower, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally and by general equitable principles.
3. Upon receipt of a fully executed copy of this letter amendment and such other documents or instruments as the Bank may reasonably request, this letter amendment shall be deemed to be an instrument under seal and an amendment to the Loan Agreement to be governed by the laws of The Commonwealth of Massachusetts.
4. A copy of the Agreement and Declaration of Trust of each Borrower, as amended or restated from time to time, is on file with the Secretary of The Commonwealth of Massachusetts. Notice is hereby given, and it is expressly agreed, that the obligations of any such Borrower under this letter amendment, the Loan Agreement as amended by this letter amendment, and the other Loan Documents as amended by this letter amendment, shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of such Borrower personally, but bind only the trust property of such Borrower. Furthermore, notice is given that the assets and liabilities of each Fund are separate and distinct and that the obligations of or arising out of the Loan Agreement as amended by this letter amendment and the other Loan Documents as amended by this letter amendment with respect to each Fund are several and not joint. In the case of each Borrower, the execution and delivery of this letter amendment on its behalf has been authorized by its trustees, and this letter amendment has been executed and delivered by an authorized officer, in each case acting in such capacity and not individually, and neither such authorization by the trustees nor such execution and delivery shall be deemed to have been made by any of them individually, but shall bind only the trust property of such Borrower.
[Remainder of Page Intentionally Left Blank]
State Street: Limited Access |
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Putnam Uncommitted Line First Amendment Signature Page 1
This letter amendment may be executed in counterparts each of which shall be deemed to be an original document.
Very truly yours, |
STATE STREET BANK AND |
TRUST COMPANY, as Bank |
By: | ___/s/ Janet B. Nolin_______________ |
Janet B. Nolin |
Vice President |
Acknowledged and Accepted:
PUTNAM AMERICAN GOVERNMENT INCOME FUND
PUTNAM ARIZONA TAX EXEMPT INCOME FUND
PUTNAM ASSET ALLOCATION FUNDS, on behalf of
its fund series as listed in Appendix I attached hereto
PUTNAM CALIFORNIA TAX EXEMPT INCOME FUND
PUTNAM CONVERTIBLE SECURITIES FUND
PUTNAM DIVERSIFIED INCOME TRUST
PUTNAM EQUITY INCOME FUND
PUTNAM EUROPE EQUITY FUND
PUTNAM FUNDS TRUST, on behalf of
its fund series as listed in Appendix I attached hereto
PUTNAM GLOBAL EQUITY FUND
PUTNAM GLOBAL HEALTH CARE FUND
PUTNAM GLOBAL INCOME TRUST
PUTNAM GLOBAL NATURAL RESOURCES FUND
PUTNAM GLOBAL UTILITIES FUND
PUTNAM HIGH YIELD ADVANTAGE FUND
PUTNAM HIGH YIELD TRUST
PUTNAM INCOME FUND
PUTNAM INTERNATIONAL EQUITY FUND
PUTNAM INVESTMENT FUNDS, on behalf of
its fund series as listed in Appendix I attached hereto
PUTNAM INVESTORS FUND
PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND
PUTNAM MONEY MARKET FUND
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Putnam Uncommitted Line First Amendment Signature Page 2
PUTNAM MORTGAGE RECOVERY FUND
PUTNAM MULTI-CAP GROWTH FUND
PUTNAM NEW JERSEY TAX EXEMPT INCOME FUND
PUTNAM NEW YORK TAX EXEMPT INCOME FUND
PUTNAM OHIO TAX EXEMPT INCOME FUND
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
PUTNAM TAX EXEMPT INCOME FUND
PUTNAM TAX-FREE INCOME TRUST, on behalf of
its fund series as listed in Appendix I attached hereto
PUTNAM US GOVERNMENT INCOME TRUST
PUTNAM VARIABLE TRUST, on behalf of
its fund series as listed in Appendix I attached hereto
PUTNAM VOYAGER FUND
GEORGE PUTNAM BALANCED FUND
THE PUTNAM FUND FOR GROWTH AND INCOME
By: ___/s/ Jonathan Horwitz_______________
Jonathan Horwitz
Executive Vice President, of each of the foregoing
State Street: Limited Access
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Putnam Uncommitted Line First Amendment Signature Page 3
Acknowledged:
STATE STREET BANK AND TRUST COMPANY,
as Custodian
By: ___/s/ Andrew Erickson______________
Name: Andrew Erickson
Title: Executive Vice President
State Street: Limited Access
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APPENDIX i
List of Borrowers and Funds
PUTNAM AMERICAN GOVERNMENT INCOME FUND |
PUTNAM ARIZONA TAX EXEMPT INCOME FUND
|
PUTNAM ASSET ALLOCATION FUNDS on behalf of: |
Putnam Dynamic Asset Allocation Balanced Fund |
Putnam Dynamic Asset Allocation Conservative Fund |
Putnam Dynamic Asset Allocation Growth Fund
|
PUTNAM CALIFORNIA TAX EXEMPT INCOME FUND |
PUTNAM CONVERTIBLE SECURITIES FUND |
PUTNAM DIVERSIFIED INCOME TRUST |
PUTNAM EQUITY INCOME FUND |
PUTNAM EUROPE EQUITY FUND |
PUTNAM FUNDS TRUST on behalf of: |
Putnam Absolute Return 100 Fund |
Putnam Absolute Return 300 Fund |
Putnam Absolute Return 500 Fund |
Putnam Absolute Return 700 Fund |
Putnam Asia Pacific Equity Fund Putnam Dynamic Asset Allocation Equity Fund |
Putnam Capital Spectrum Fund |
Putnam Dynamic Risk Allocation Fund |
Putnam Emerging Markets Equity Fund Putnam Emerging Markets Income Fund |
Putnam Equity Spectrum Fund |
Putnam Floating Rate Income Fund |
Putnam Global Consumer Fund Putnam Global Dividend Fund |
Putnam Global Energy Fund |
Putnam Global Financials Fund |
Putnam Global Industrials Fund |
Putnam Global Technology Fund |
Putnam Global Telecommunications Fund Putnam Intermediate-Term Municipal Income Fund |
Putnam International Value Fund Putnam Low Volatility Equity Fund Putnam Mortgage Opportunities Fund |
Putnam Multi-Cap Core Fund |
Putnam Retirement Income Fund Lifestyle 2 |
Putnam Retirement Income Fund Lifestyle 3 |
Putnam Short Duration Income Fund Putnam Short-Term Municipal Income Fund |
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Putnam Small Cap Growth Fund Putnam Strategic Volatility Equity Fund
|
PUTNAM GLOBAL EQUITY FUND |
PUTNAM GLOBAL HEALTH CARE FUND |
PUTNAM GLOBAL INCOME TRUST |
PUTNAM GLOBAL NATURAL RESOURCES FUND |
PUTNAM GLOBAL UTILITIES FUND |
PUTNAM HIGH YIELD ADVANTAGE FUND |
PUTNAM HIGH YIELD TRUST |
PUTNAM INCOME FUND |
PUTNAM INTERNATIONAL EQUITY FUND |
PUTNAM INVESTMENT FUNDS on behalf of: |
Putnam Capital Opportunities Fund |
Putnam Government Money Market Fund |
Putnam Growth Opportunities Fund |
Putnam International Capital Opportunities Fund |
Putnam International Growth Fund |
Putnam Multi-Cap Value Fund |
Putnam Research Fund |
Putnam Small Cap Value Fund
|
PUTNAM INVESTORS FUND |
PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND |
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND |
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND |
PUTNAM MONEY MARKET FUND |
PUTNAM MORTGAGE RECOVERY FUND PUTNAM MULTI-CAP GROWTH FUND |
PUTNAM NEW JERSEY TAX EXEMPT INCOME FUND |
PUTNAM NEW YORK TAX EXEMPT INCOME FUND |
PUTNAM OHIO TAX EXEMPT INCOME FUND |
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND |
PUTNAM TAX EXEMPT INCOME FUND |
PUTNAM TAX-FREE INCOME TRUST on behalf of: |
Putnam AMT-Free Municipal Fund |
Putnam Tax-Free High Yield Fund
|
PUTNAM US GOVERNMENT INCOME TRUST |
PUTNAM VARIABLE TRUST on behalf of: |
Putnam VT Absolute Return 500 Fund |
Putnam VT American Government Income Fund |
Putnam VT Capital Opportunities Fund |
Putnam VT Diversified Income Fund |
State Street: Limited Access
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Putnam VT Equity Income Fund |
Putnam VT Global Asset Allocation Fund |
Putnam VT Global Equity Fund |
Putnam VT Global Health Care Fund |
Putnam VT Global Utilities Fund |
Putnam VT Government Money Market Fund (f/k/a Putnam VT Money Market Fund) |
Putnam VT Growth and Income Fund |
Putnam VT Growth Opportunities Fund |
Putnam VT High Yield Fund |
Putnam VT Income Fund |
Putnam VT International Equity Fund |
Putnam VT International Growth Fund |
Putnam VT International Value Fund |
Putnam VT Investors Fund |
Putnam VT Multi-Cap Growth Fund |
Putnam VT Multi-Cap Value Fund |
Putnam VT Research Fund |
Putnam VT Small Cap Value Fund |
Putnam VT George Putnam Balanced Fund |
Putnam VT Voyager Fund
|
PUTNAM VOYAGER FUND |
GEORGE PUTNAM BALANCED FUND |
THE PUTNAM FUND FOR GROWTH AND INCOME |
State Street: Limited Access
September 22, 2016
Each of the Borrowers listed
on Appendix I hereto
One Post Office Square
Boston, MA 02109
Attention: Jonathan S. Horwitz,
Executive Vice President, Principal Executive Officer
Treasurer and Compliance Liaison
RE: Second Amendment to Putnam Funds Amended and Restated Uncommitted Line of Credit
Ladies and Gentlemen:
Pursuant to an amended and restated letter agreement dated as of September 24, 2015 (as amended from time to time, the “Loan Agreement”) among State Street Bank and Trust Company (the “Bank”) and each of the management investment companies registered under the Investment Company Act listed on Appendix I attached thereto (each, a “Borrower”), the Bank has made available to each of the Borrowers, for itself or on behalf of designated fund series thereof, a $235,500,000 uncommitted, unsecured line of credit (the “Uncommitted Line”). The obligations of the Borrowers arising under the Uncommitted Line are evidenced by an amended and restated promissory note in the original principal amount of $235,500,000, dated September 24, 2015, executed by each of the Borrowers, for itself or on behalf of such designated fund series thereof, in favor of the Bank (as amended, the “Note”). Any capitalized term not otherwise defined herein shall have the same meaning as set forth in the Loan Agreement.
The Borrowers have requested, and the Bank has agreed, to make certain changes to the Loan Documents in connection therewith as set forth below. Therefore, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows:
I. | Amendments to Loan Documents |
Subject to the terms and conditions hereof, the Loan Documents are hereby amended as follows:
1. Section I(1) of the Loan Agreement is hereby amended by deleting the first sentence in its entirety and substituting the following therefor: “The Uncommitted Line shall expire on September 21, 2017 (the “Expiration Date”), unless extended by mutual agreement of the Bank and the Borrowers or, with respect to any Fund, terminated by a Borrower on behalf of such Fund as provided herein.”
September 22, 2016
Page 2
2. Section I(5)(b) of the Loan Agreement is amended by deleting the words “100 Huntington Avenue, Tower 2, Floor 4, Boston, Massachusetts” in the first sentence of such Section and substituting in place thereof the words: “Channel Center – CCB0900, One Iron Street, Boston, Massachusetts 02210”.
3. Section II(1) of the Loan Agreement is hereby further amended by: (a) deleting the word “and” which appears at the end of Section II(1)(j); (b) deleting the period which appears at the end of Section II(1)(k) and substituting in place thereof a semicolon and the word “and”; and (c) inserting immediately after the end of Section II(1)(k), the following new paragraph (l):
(l) to provide such documents and information requested by the Bank that are required in order to comply with “know-your-customer” and other anti-terrorism, anti-money laundering and similar rules and regulations and related policies.
4. Section II(1) of the Loan Agreement is hereby further amended by amending and restating the first and second sentences of the standalone paragraph at the end of Section II(1) to read as follow: “Notwithstanding anything to the contrary in Section II(1)(f) above, but without in any way limiting the rights of the Bank set forth therein, unless the Bank shall request paper copies of the financial and other information otherwise required to be furnished by the Borrowers to the Bank pursuant to subsections (i), (ii) and (iii) of such Section II(1)(f) above, the Borrowers may deliver all such information to the Bank in a printable format by electronic means. The Borrowers may make such electronic delivery by: (i) sending such information as an electronic mail attachment to such electronic mail addresses as shall be designated by the Bank, as applicable; or (ii) notifying the Bank by electronic mail (to such electronic mail addresses as shall be designated by the Bank, as applicable) that the documents are available on a website accessible to the Bank and further indicating a website hyperlink directing the user directly to the referenced documents posted thereon; provided that such information shall be made available on or before the dates specified in said subsections (i), (ii) and (iii) of such Section II(1)(f) above; and provided further that the timely posting of the information required to be furnished pursuant to subsection (i) of such Section II(1)(f) above on EDGAR or the website located at putnam.com/funddocuments shall be deemed to satisfy such Borrower’s obligation to provide notification to the Bank of the availability of such documents in accordance with clause (ii) hereof.”
5. Section II(3)(b)(i) of the Loan Agreement is hereby amended by deleting such clause in its entirety and inserting the following thereof: “(i) shall fail to perform any term, covenant or agreement contained in any of Sections II(1)(a)-(c) hereof, Sections II(1)(d)(iv)–(xiii) hereof, Section II(1)(f) hereof or in any of Sections II(1)(i)-(l) hereof; or.”
6. Section II(5)(a)(ii) of the Loan Agreement is hereby amended and restated in its entirety to read as follows: “(ii) if to the Bank to Janet B. Nolin, Vice President or Mutual Fund
State Street: Limited Access
September 22, 2016
Page 3
Lending Department Head at (A) if via USPS: M/S CCB0900, One Iron Street, State Street Bank, PO Box 5501, Boston, MA 02206-5501, (B) if via overnight courier: M/S CCB0900, State Street Bank, One Iron Street, Boston, MA 02210 or (C) if via facsimile: (617) 988-6677.”
7. Section 16 of the Loan Agreement is hereby amended by amending and restating in its entirety subclause (ii) in the definition of “Adjusted Net Assets” to read as follows: “(ii) the fair market value of all assets pledged, hypothecated or otherwise segregated to secure such liability, provided, however, this clause (ii) shall not include any assets solely on account of such assets being subject to a first-priority lien granted in favor of State Street Bank and Trust Company as Custodian in the ordinary course of business.”
8. Each of (a) Exhibit A to the Loan Agreement and (b) the Note is hereby amended by deleting the words “100 Huntington Avenue, Tower 2, Floor 4, Boston, Massachusetts 02116” in the first paragraph thereof and substituting in place thereof the words: “Channel Center – CCB0900, One Iron Street, Boston Massachusetts 02210”.
9. Exhibit B to the Loan Agreement is hereby amended by adding the words “, except to the extent permitted by Section II(1)(g) of the Agreement,” after the word “collateral” in Section 9 thereof.
II. | Closing Fee |
As a condition precedent to the effectiveness of this letter agreement, the Borrowers shall pay to the Bank a non-refundable fee of $94,200 for closing the renewal of the Uncommitted Line, which fee shall be non-refundable and deemed fully earned by the Bank upon the date of this letter agreement.
III. Miscellaneous
1. Other than as expressly amended hereby, all terms and conditions of the Loan Agreement, Note and all related Loan Documents shall remain unchanged and are hereby ratified and affirmed as of the date hereof.
2. Each of the Borrowers, for itself and on behalf of its respective Funds (including the New Funds), represents and warrants to the Bank as follows: (a) no Default or Event of Default has occurred and is continuing on the date hereof under the Loan Documents; (b) each of the representations and warranties contained in the Loan Agreement is true and correct in all respects with respect to such Borrower, for itself and its respective Funds, on and as of the date of this letter amendment except to the extent such representation and warranty is made as of an earlier date; (c) the execution, delivery and performance of this letter amendment and the Loan Documents, as amended hereby (collectively, the “Amended Loan Documents”): (i) are, and will be, within such Borrower's power and authority, (ii) have been authorized by all necessary proceedings, (iii) do not, and will not, require any consent or approval from any governmental authority or any other party other than those which have been received, (iv) will not contravene any provision of, or exceed any limitation contained in, the declaration of trust, by-laws or other
State Street: Limited Access
September 22, 2016
Page 4
organizational documents or Prospectus of such Borrower or any law, rule or regulation applicable to such Borrower, and (v) do not constitute a default under any other agreement, order or undertaking binding on such Borrower; and (d) each of the Amended Loan Documents constitutes the legal, valid, binding and enforceable obligation of such Borrower, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally and by general equitable principles.
3. Upon receipt of a fully executed copy of this letter amendment and such other documents or instruments as the Bank may reasonably request, this letter amendment shall be deemed to be an instrument under seal and an amendment to the Loan Agreement to be governed by the laws of The Commonwealth of Massachusetts.
4. A copy of the Agreement and Declaration of Trust of each Borrower, as amended or restated from time to time, is on file with the Secretary of The Commonwealth of Massachusetts. Notice is hereby given, and it is expressly agreed, that the obligations of any such Borrower under this letter amendment, the Loan Agreement as amended by this letter amendment, and the other Loan Documents as amended by this letter amendment, shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of such Borrower personally, but bind only the trust property of such Borrower. Furthermore, notice is given that the assets and liabilities of each Fund are separate and distinct and that the obligations of or arising out of the Loan Agreement as amended by this letter amendment and the other Loan Documents as amended by this letter amendment with respect to each Fund are several and not joint. In the case of each Borrower, the execution and delivery of this letter amendment on its behalf has been authorized by its trustees, and this letter amendment has been executed and delivered by an authorized officer, in each case acting in such capacity and not individually, and neither such authorization by the trustees nor such execution and delivery shall be deemed to have been made by any of them individually, but shall bind only the trust property of such Borrower.
[Remainder of Page Intentionally Left Blank]
State Street: Limited Access
Putnam Uncommitted Line Second Amendment Signature Page 1
This letter amendment may be executed in counterparts each of which shall be deemed to be an original document.
Very truly yours,
STATE STREET BANK AND
TRUST COMPANY, as Bank
By: _/s/ Janet B. Nolin_________________
Janet B. Nolin
Vice President
Acknowledged and Accepted:
PUTNAM AMERICAN GOVERNMENT INCOME FUND
PUTNAM ARIZONA TAX EXEMPT INCOME FUND
PUTNAM ASSET ALLOCATION FUNDS, on behalf of
its fund series as listed in Appendix I attached hereto
PUTNAM CALIFORNIA TAX EXEMPT INCOME FUND
PUTNAM CONVERTIBLE SECURITIES FUND
PUTNAM DIVERSIFIED INCOME TRUST
PUTNAM EQUITY INCOME FUND
PUTNAM EUROPE EQUITY FUND
PUTNAM FUNDS TRUST, on behalf of
its fund series as listed in Appendix I attached hereto
PUTNAM GLOBAL EQUITY FUND
PUTNAM GLOBAL HEALTH CARE FUND
PUTNAM GLOBAL INCOME TRUST
PUTNAM GLOBAL NATURAL RESOURCES FUND
PUTNAM GLOBAL UTILITIES FUND
PUTNAM HIGH YIELD ADVANTAGE FUND
PUTNAM HIGH YIELD TRUST
PUTNAM INCOME FUND
PUTNAM INTERNATIONAL EQUITY FUND
PUTNAM INVESTMENT FUNDS, on behalf of
its fund series as listed in Appendix I attached hereto
PUTNAM INVESTORS FUND
PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND
PUTNAM MONEY MARKET FUND
PUTNAM MORTGAGE RECOVERY FUND
Putnam Uncommitted Line Second Amendment Signature Page 2
PUTNAM MULTI-CAP GROWTH FUND
PUTNAM NEW JERSEY TAX EXEMPT INCOME FUND
PUTNAM NEW YORK TAX EXEMPT INCOME FUND
PUTNAM OHIO TAX EXEMPT INCOME FUND
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
PUTNAM TAX EXEMPT INCOME FUND
PUTNAM TAX-FREE INCOME TRUST, on behalf of
its fund series as listed in Appendix I attached hereto
PUTNAM US GOVERNMENT INCOME TRUST
PUTNAM VARIABLE TRUST, on behalf of
its fund series as listed in Appendix I attached hereto
PUTNAM VOYAGER FUND
GEORGE PUTNAM BALANCED FUND
THE PUTNAM FUND FOR GROWTH AND INCOME
By: /s/ Jonathan Horwitz_______________________
Jonathan Horwitz
Executive Vice President, of each of the foregoing
APPENDIX i
List of Borrowers and Funds
PUTNAM AMERICAN GOVERNMENT INCOME FUND |
PUTNAM ARIZONA TAX EXEMPT INCOME FUND
|
PUTNAM ASSET ALLOCATION FUNDS on behalf of: |
Putnam Dynamic Asset Allocation Balanced Fund |
Putnam Dynamic Asset Allocation Conservative Fund |
Putnam Dynamic Asset Allocation Growth Fund
|
PUTNAM CALIFORNIA TAX EXEMPT INCOME FUND |
PUTNAM CONVERTIBLE SECURITIES FUND |
PUTNAM DIVERSIFIED INCOME TRUST |
PUTNAM EQUITY INCOME FUND |
PUTNAM EUROPE EQUITY FUND |
PUTNAM FUNDS TRUST on behalf of: |
Putnam Absolute Return 100 Fund |
Putnam Absolute Return 300 Fund |
Putnam Absolute Return 500 Fund |
Putnam Absolute Return 700 Fund |
Putnam Asia Pacific Equity Fund Putnam Dynamic Asset Allocation Equity Fund |
Putnam Capital Spectrum Fund |
Putnam Dynamic Risk Allocation Fund |
Putnam Emerging Markets Equity Fund Putnam Emerging Markets Income Fund |
Putnam Equity Spectrum Fund |
Putnam Floating Rate Income Fund |
Putnam Global Consumer Fund Putnam Global Dividend Fund |
Putnam Global Energy Fund |
Putnam Global Financials Fund |
Putnam Global Industrials Fund |
Putnam Global Technology Fund |
Putnam Global Telecommunications Fund Putnam Intermediate-Term Municipal Income Fund |
Putnam International Value Fund Putnam Low Volatility Equity Fund Putnam Mortgage Opportunities Fund |
Putnam Multi-Cap Core Fund |
Putnam Retirement Income Fund Lifestyle 2 |
Putnam Retirement Income Fund Lifestyle 3 |
Putnam Short Duration Income Fund Putnam Short-Term Municipal Income Fund |
Putnam Small Cap Growth Fund Putnam Strategic Volatility Equity Fund
|
PUTNAM GLOBAL EQUITY FUND |
PUTNAM GLOBAL HEALTH CARE FUND |
PUTNAM GLOBAL INCOME TRUST |
PUTNAM GLOBAL NATURAL RESOURCES FUND |
PUTNAM GLOBAL UTILITIES FUND |
PUTNAM HIGH YIELD ADVANTAGE FUND |
PUTNAM HIGH YIELD TRUST |
PUTNAM INCOME FUND |
PUTNAM INTERNATIONAL EQUITY FUND |
PUTNAM INVESTMENT FUNDS on behalf of: |
Putnam Capital Opportunities Fund |
Putnam Government Money Market Fund |
Putnam Growth Opportunities Fund |
Putnam International Capital Opportunities Fund |
Putnam International Growth Fund |
Putnam Multi-Cap Value Fund |
Putnam Research Fund |
Putnam Small Cap Value Fund
|
PUTNAM INVESTORS FUND |
PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND |
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND |
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND |
PUTNAM MONEY MARKET FUND |
PUTNAM MORTGAGE RECOVERY FUND PUTNAM MULTI-CAP GROWTH FUND |
PUTNAM NEW JERSEY TAX EXEMPT INCOME FUND |
PUTNAM NEW YORK TAX EXEMPT INCOME FUND |
PUTNAM OHIO TAX EXEMPT INCOME FUND |
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND |
PUTNAM TAX EXEMPT INCOME FUND |
PUTNAM TAX-FREE INCOME TRUST on behalf of: |
Putnam AMT-Free Municipal Fund |
Putnam Tax-Free High Yield Fund
|
PUTNAM US GOVERNMENT INCOME TRUST |
PUTNAM VARIABLE TRUST on behalf of: |
Putnam VT Absolute Return 500 Fund |
Putnam VT American Government Income Fund |
Putnam VT Capital Opportunities Fund |
Putnam VT Diversified Income Fund |
Putnam VT Equity Income Fund |
Putnam VT Global Asset Allocation Fund |
Putnam VT Global Equity Fund |
Putnam VT Global Health Care Fund |
Putnam VT Global Utilities Fund |
Putnam VT Government Money Market Fund (f/k/a Putnam VT Money Market Fund) |
Putnam VT Growth and Income Fund |
Putnam VT Growth Opportunities Fund |
Putnam VT High Yield Fund |
Putnam VT Income Fund |
Putnam VT International Equity Fund |
Putnam VT International Growth Fund |
Putnam VT International Value Fund |
Putnam VT Investors Fund |
Putnam VT Multi-Cap Growth Fund |
Putnam VT Multi-Cap Value Fund |
Putnam VT Research Fund |
Putnam VT Small Cap Value Fund |
Putnam VT George Putnam Balanced Fund |
Putnam VT Voyager Fund
|
PUTNAM VOYAGER FUND |
GEORGE PUTNAM BALANCED FUND |
THE PUTNAM FUND FOR GROWTH AND INCOME |
State Street: Limited Access
INDEMNIFICATION AGREEMENT |
This Indemnification Agreement (the “ Agreement ”) is made as of the date set forth on the signature page by and between the Massachusetts business trusts comprising The Putnam Funds listed on Exhibit A hereto (as the same may from time to time be amended to add one or more additional trusts comprising The Putnam Funds or delete one or more of such trusts) (each, a “ Trust ”), each of such Trusts acting severally on its own behalf and not jointly with any of such other Trusts, and the Trustee of each Trust whose name is set forth on the signature page (the “ Trustee ”).
WHEREAS, the Trustee is a Trustee of the Trusts, and the Trusts wish the Trustee to continue to serve in that capacity; and
WHEREAS, the Amended and Restated Agreement and Declaration of Trust and Bylaws of each Trust (together, as amended from time to time, the “Governing Documents”) and applicable laws provide that the Trusts shall indemnify and hold the Trustee harmless to the fullest extent permitted by law; and
WHEREAS, to induce the Trustee to continue to provide services to the Trusts as a member of the Board and to provide the Trustee with contractual assurance that indemnification will be available to the Trustee, the Trusts desire to provide the Trustee with protection against personal liability and delineate certain procedural aspects relating to indemnification and advancement of expenses, as more fully set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements set forth herein, the parties hereby agree as set forth below. Certain capitalized terms used herein are defined in Section 7.
1. Indemnification. Each Trust shall indemnify and hold harmless the Trustee against any and all Expenses actually and reasonably incurred by the Trustee in any Proceeding arising out of or in connection with the Trustee’s service to the Trust, to the fullest extent permitted by the Governing Documents of the Trust and the laws of The Commonwealth of Massachusetts, the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940, as now or hereafter in force, subject to the provisions of paragraphs (a) and (b) of this Section 1.
(a) Disabling Conduct. The Trustee shall be indemnified pursuant to this Section 1 against any and all Expenses unless the Trustee has been adjudicated, in any such Proceeding, in a Final adjudication on the merits (a) not to have acted in good faith, (b) not to have acted in the reasonable belief that such Trustee’s action was in the best interests of the relevant Trust or at least was not opposed to the best interests of such Trust, (c) in the case of a criminal proceeding, to have had reasonable cause to believe his or her action was unlawful or (d) to be liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Trustee’s office (each of such exceptions being referred to as hereinafter as “Disabling Conduct”).
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(b) Limitations, Compromise Payments. As to any matter disposed of (whether by a compromise payment, pursuant to a consent decree or otherwise) without an adjudication by a court, or by any other body before which the action, suit, or proceeding was brought, that such Trustee engaged in Disabling Conduct, indemnification shall be provided if (a) there has been a dismissal of the proceeding by the court or other body before which it was brought for insufficiency of evidence of any Disabling Conduct with which such Trustee has been charged, (b) there has been a Final adjudication on the merits in such Proceeding determining that the Trustee did not engage in the Disabling Conduct that was alleged, (c) approved as in the best interests of the relevant Trust, after notice that it involves such indemnification, by at least a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter) upon a determination, based upon a review of readily available facts (as opposed to a full trial-type inquiry) that such Trustee did not engage in Disabling Conduct, or (d) there has been obtained an opinion in writing of Independent Counsel, based upon a review of readily available facts (as opposed to a full trial type inquiry) to the effect that such Trustee did not engage in Disabling Conduct.
2. Advancement of Expenses. The relevant Trust shall promptly advance funds to the Trustee to cover any and all Expenses the Trustee incurs with respect to any Proceeding arising out of or in connection with the Trustee’s service to such Trust, to the fullest extent permitted by the laws of The Commonwealth of Massachusetts, the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940, as such laws are now or hereafter in force, subject to the provisions of paragraphs (a) and (b) of this Section 2.
(a) Affirmation of Conduct and Undertaking. A request by the Trustee for advancement of funds pursuant to this Section 2 shall be accompanied by the Trustee’s written affirmation of the Trustee’s good faith belief that the Trustee met the standard of conduct necessary for indemnification and a written undertaking by the Trustee (or on the Trustee’s behalf) to repay such advancements if it is ultimately determined that the Trustee is not entitled to indemnification under the relevant Trust’s Governing Documents or applicable law.
(b) Conditions to Advancement. Funds shall be advanced to the Trustee pursuant to this Section 2; provided, however, that (1) such Person shall have provided appropriate security for such undertaking, (2) the relevant Trust is insured against losses arising out of any such advance payments, or (3) either a majority of the Disinterested Trustees, or Independent Counsel in a written opinion, shall have determined, based upon a review of the readily available facts (as opposed to a trial-type inquiry), that there is reason to believe that such Trustee ultimately will be found entitled to indemnification.
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3. Presumptions.
(a) Termination. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not create a presumption that the Trustee engaged in Disabling Conduct.
(b) General. Except as provided in subsection (a) of this Section 3, in any determination by the Disinterested Trustees or Independent Counsel, the Trustee shall be afforded a presumption rebuttable by clear and convincing evidence that the Trustee did not engage in Disabling Conduct.
4. Witness Expenses. To the extent that the Trustee is, by reason of the Trustee’s service to a Trust, a witness for any reason in any Proceeding to which such Trustee is not a party, such Trustee shall be indemnified by such Trust against any and all expenses actually and reasonably incurred by or on behalf of such Trustee in connection therewith.
5. Procedure for Determination of Entitlement to Indemnification and Advancements. A request by the Trustee for indemnification or advancement of Expenses shall be made in writing, and shall be accompanied by such relevant documentation and information as is reasonably available to the Trustee. The Clerk of the relevant Trust shall promptly advise the Board of such request.
(a) Methods of Determination. Upon the Trustee’s request for indemnification or advancement of Expenses, a determination with respect to the Trustee’s entitlement thereto shall be made as and to the extent provided in Section 1 or Section 2, as the case may be. The Trustee shall cooperate with the person or persons making such determination, including without limitation by providing to such persons upon reasonable advance request any documentation or information that is not privileged or otherwise protected from disclosure and is reasonably available to the Trustee and reasonably necessary to such determination. Any failure by the Trustee to cooperate with the person or persons making such determination shall extend as necessary and appropriate the period or periods described in paragraph (c) of Section 5 regarding when determinations are deemed to have been made. Any and all Expenses incurred by the Trustee in so cooperating shall be borne by the relevant Trust, irrespective of the determination as to the Trustee’s entitlement to indemnification or advancement of Expenses.
(b) Independent Counsel. If the determination of entitlement to indemnification or advancement of Expenses is to be made by Independent Counsel, the Independent Counsel shall be selected by a majority of the Disinterested Trustees of the relevant Trust (or, if there are no Disinterested Trustees with respect to the matter in question, by a majority of the Independent Trustees), and the relevant Trust shall give written notice to the Trustee advising the Trustee of the identity of the Independent Counsel selected. The Trustee may, within five days after receipt of such written notice, deliver to such Trust a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirement of independence set forth in Section 7, and shall set forth with particularity the factual basis of such assertion. Promptly after receipt of such objection, another Independent Counsel shall be selected by the Disinterested Trustees (or Independent Trustees, as the case may
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be), and the Trust shall give written notice to the Trustee advising the Trustee of the identity of the Independent Counsel selected. The Trustee may, within five days after receipt of such written notice, deliver to the Trust a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirement of independence set forth in Section 7, and shall set forth with particularity the factual basis of such assertion. The Disinterested Trustees (or Independent Trustees, as the case may be) of the relevant Trust shall determine the merits of the objection and, in their discretion, either determine that the proposed Independent Counsel shall, despite the objection, act as such hereunder or select another Independent Counsel who shall act as such hereunder.
If within fourteen days (which period shall be extended by another fourteen days if the Trustee objects to the first Independent Counsel selected by the Disinterested Trustees (or Independent Trustees, as the case may be) as provided in the previous paragraph and for another fourteen days thereafter if the Trustee objects to the second Independent Counsel selected by the Disinterested Trustees (or Independent Trustees, as the case may be) as provided in the previous paragraph) after submission by the Trustee of a written request for indemnification or advancement of Expenses no such Independent Counsel shall have been finally selected as provided in the previous paragraph, then either the relevant Trust or the Trustee may petition an appropriate court of The Commonwealth of Massachusetts or any other court of competent jurisdiction for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person so appointed shall act as Independent Counsel.
The relevant Trust shall pay all reasonable fees and Expenses charged or incurred by Independent Counsel in connection with his or her determinations pursuant to this Agreement, and shall pay all reasonable fees and Expenses incident to the procedures described in this paragraph (b), regardless of the manner in which such Independent Counsel was selected or appointed.
(c) Failure to Make Timely Determination. Subject to paragraph (a) of Section 5, if the person or persons empowered or selected under Section 1 or Section 2 to determine whether the Trustee is entitled to indemnification or advancement of Expenses (other than determinations that are made or to be made by a court) shall not have made such determination within thirty days after receipt by the relevant Trust of the request therefor, the requisite determination of entitlement to indemnification or advancement of Expenses shall be deemed to have been made, and the Trustee shall be entitled to such indemnification or advancement, absent (i) an adjudication by an appropriate court of The Commonwealth of Massachusetts or any other court of competent jurisdiction finding an intentional misstatement by the Trustee of a material fact, or an intentional omission of a material fact necessary to make the Trustee’s statement not materially misleading, in connection with the request for indemnification or advancement of Expenses, (ii) a prohibition of such indemnification or advancements under applicable law, (iii) a requirement under the Investment Company Act of 1940, as amended, for insurance or security that has not been satisfied, or (iv) a subsequent Final adjudication or, in a matter disposed of without a Final adjudication, determination pursuant to subsection (b) of Section 1 that the Trustee is not entitled to indemnification under this Agreement; provided, however, that such period may be extended for a reasonable period of time, not to exceed an additional thirty days, if the person or persons making the determination in good faith require such additional time to
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obtain or evaluate documentation or information relating thereto. Any assertion under clauses (i), (ii), (iii), or (iv) of this section 5(c) shall be made in writing, specify the basis for the assertion, and be delivered to the Trustee within thirty days after receipt by the relevant Trust of the request for indemnification or advancement of Expenses (or any extension of such period provided under this section 5(c)). The Trustee shall be entitled to adjudication of such assertion in an appropriate court of The Commonwealth of Massachusetts or any other court of competent jurisdiction.
(d) Payment Upon Determination of Entitlement. If a determination is made pursuant to Section 1 or Section 2 (or is deemed to be made pursuant to paragraph (c) of this Section 5 and, in the case of advancement of Expenses, the other conditions thereof are satisfied) that the Trustee is entitled to indemnification or advancement of Expenses, payment of any indemnification amounts or advancements owing to the Trustee shall be made within ten days after such determination (and, in the case of advancements of Expenses, within ten days after submission of supporting information, including the required affirmation, undertaking and evidence of any required security). If such payment is not made when due, the Trustee shall be entitled to an adjudication in an appropriate court of The Commonwealth of Massachusetts, or in any other court of competent jurisdiction, of the Trustee’s entitlement to such indemnification or advancements. The Trustee shall commence any proceeding seeking adjudication within one year following the date on which the Trustee first has the right to commence such proceeding pursuant to this paragraph (d). In any such proceeding, the relevant Trust shall be bound by the determination that the Trustee is entitled to indemnification or advancements, absent (i) an intentional misstatement by the Trustee of a material fact, or an intentional omission of a material fact necessary to make the Trustee’s statement not materially misleading, in connection with the request for indemnification or advancements, (ii) a prohibition of such indemnification or advancements under applicable law, (iii) a requirement under the Investment Company Act of 1940, as amended, for insurance or security that has not been satisfied, or (iv) a subsequent Final adjudication or, in a matter disposed of without a Final adjudication, determination pursuant to subsection (b) of Section 1 that the Trustee is not entitled to indemnification under this Agreement.
(e) Appeal of Adverse Determination. If a determination is made that the Trustee is not entitled to indemnification or advancements, the Trustee shall be entitled to an adjudication of such matter in an appropriate court of The Commonwealth of Massachusetts or in any other court of competent jurisdiction. Alternatively, the Trustee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Trustee shall commence such proceeding or arbitration within one year following the date on which the adverse determination is made. Any such judicial proceeding or arbitration shall be conducted in all respects as a de novo trial or arbitration on the merits, and the Trustee shall not be prejudiced by reason of such prior adverse determination.
(f) Expenses of Appeal. If the Trustee seeks arbitration or a judicial adjudication to determine or enforce his or her rights under, or to recover damages for breach of, the indemnification or Expense advancement provisions of this Agreement, the Trustee shall be entitled to recover from the relevant Trust, and shall be indemnified by such Trust against, any and all Expenses actually and reasonably incurred by the Trustee in such arbitration or judicial adjudication, but only if the Trustee prevails therein. If it shall be determined in such arbitration
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or judicial adjudication that the Trustee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the expenses incurred by the Trustee in connection with such arbitration or judicial adjudication shall be appropriately prorated.
(g) Validity of Agreement. In any arbitration or judicial proceeding commenced pursuant to this Section 5, the relevant Trust shall be precluded from asserting that the procedures and presumptions set forth in this Agreement are not valid, binding and enforceable against such Trust, and shall stipulate in any such court or before any such arbitrator that such Trust is bound by all the provisions of this Agreement.
6. General Provisions.
(a) Non - Exclusive Rights. The provisions for indemnification of, and advancement of Expenses to, the Trustee set forth in this Agreement shall not be deemed exclusive of any other rights to which the Trustee may otherwise be entitled, including any other rights to be indemnified, or have Expenses advanced, by the relevant Trust. Such Trust shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that the Trustee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise, if such payment is not recoverable from the Trustee.
(b) Continuation of Provisions. This Agreement shall be binding upon all successors of the relevant Trust, including without limitation any transferee of all or substantially all assets of such Trust and any successor by merger, consolidation, or operation of law, and shall inure to the benefit of the Trustee’s spouse, heirs, assigns, devisees, executors, administrators and legal representatives. The provisions of this Agreement shall continue until the later of (1) ten years after the Trustee has ceased to provide any service to the relevant Trust, and (2) the final termination of all Proceedings in respect of which the Trustee has asserted, is entitled to assert, or has been granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by the Trustee pursuant to Section 5 relating thereto. No amendment of the Governing Documents of a Trust shall limit or eliminate the right of the Trustee to indemnification and advancement of Expenses set forth in this Agreement.
(c) Selection of Counsel. The relevant Trust shall be entitled to assume the defense of any Proceeding for which the Trustee seeks indemnification or advancement of Expenses under this Agreement. However, counsel selected by the Trustee shall conduct the defense of the Trustee to the extent reasonably determined by such counsel to be necessary to protect the interests of the Trustee, and the Trust shall indemnify the Trustee therefor to the extent otherwise permitted under this Agreement, if (1) the Trustee reasonably determines that there may be a conflict in the Proceeding between the positions of the Trustee and the positions of the Trust or the other parties to the Proceeding that are indemnified by the Trust and not represented by separate counsel, or the Trustee otherwise reasonably concludes that representation of the Trustee, the Trust and/or such other parties by the same counsel would not be appropriate, or (2) the Proceeding involves the Trustee, but neither the Trust nor any such other party who is indemnified by the Trust, and the Trustee reasonably withholds consent to being represented by counsel selected by the Trust. If the Trust shall not have elected to assume the defense of any such Proceeding for the Trustee within thirty days after
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receiving written notice thereof from the Trustee, the Trust shall be deemed to have waived any right it might otherwise have to assume such defense.
(d) D&O Insurance. To the extent the relevant Trust maintains an insurance policy or policies providing Trustees and officers liability insurance or Independent Trustee liability insurance, the Trustee shall be covered by such policy or policies at all times when serving as a member of the Board, in accordance with its or their terms, to the maximum extent of the coverage available for any other similarly situated Trustee of the Trust, it being understood that certain policies may be principally designed, and generally only available, for Independent Trustees and thus the benefits of this section in respect of such policies shall extend only to such Independent Trustees. For a period of six years after the Trustee has ceased to serve as a member of the Board and to the extent insurance as provided in the previous sentence does not continue to cover the Trustee, even though the Trustee is no longer serving as a member of the Board, and subject to the understanding in the previous sentence, the Trust shall purchase and maintain in effect, through “tail” or other appropriate coverage, one or more policies of insurance on behalf of the Trustee to the maximum extent of the coverage provided to the then serving members of the Board, unless (1) the purchase of such insurance by such Trust is not permitted by applicable law, including for these purposes any fiduciary duties applicable to the persons then constituting the Board, (2) such insurance is not generally available, (3) in the reasonable business judgment of the persons then constituting the Board, the premium for such insurance is substantially disproportionate to the amount of coverage afforded, or (4) the Independent Trustees, by unanimous vote, determine that it would not be in the best interests of the Trust to make such insurance available to the Trustee.
(e) Subrogation. In the event of any payment by the relevant Trust pursuant to this Agreement, the Trust shall be subrogated to the extent of such payment to all of the rights of recovery of the Trustee, who shall, upon reasonable written request by the Trust and at the Trust’s expense, execute all such documents and take all such reasonable actions as are necessary to enable the Trust to enforce such rights. Nothing in this Agreement shall be deemed (1) to diminish or otherwise restrict the right of the Trust or the Trustee to proceed or collect against any insurers or (2) to give such insurers any rights against the Trust under or with respect to this Agreement, including without limitation any right to be subrogated to the Trustee’s rights hereunder, unless, in the case of this subdivision (2), otherwise expressly agreed to by the Trust in writing, and the obligation of such insurers to the Trust and the Trustee shall not be deemed to be reduced or impaired in any respect by virtue of the provisions of this Agreement.
(f) Notice of Proceedings. The Trustee shall promptly notify the relevant Trust in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding which may be subject to indemnification or advancement of Expenses pursuant to this Agreement, but any delay in providing such notice shall in no way limit or affect the Trustee’s rights or the Trust’s obligations under this Agreement.
(g) Notices. All notices, requests, demands and other communications to a party pursuant to this Agreement shall be in writing, addressed to such party at the address specified on the signature page of this Agreement (or such other address as may have been furnished by such party by notice in accordance with this paragraph), and shall
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be deemed to have been duly given when delivered personally (with a written receipt by the addressee) or two days after being sent (1) by certified or registered mail, postage prepaid, return receipt requested, or (2) by nationally recognized overnight courier service.
(h) Severability. If any provision of this Agreement shall be held to be invalid, illegal, or unenforceable, in whole or in part, for any reason whatsoever, (1) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any provision that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (2) to the fullest extent possible, the remaining provisions of this Agreement shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
(i) Modification and Waiver. This Agreement supersedes any existing or prior agreement between the relevant Trust and the Trustee pertaining to the subject matter of indemnification, advancement of expenses and insurance, other than the Trust’s Governing Documents and the terms of any liability insurance policies, which shall not be modified or amended by this Agreement. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both parties or their respective successors or legal representatives; provided, however, that any supplements, modifications or amendments to the Governing Documents or the terms of any liability insurance policies shall be deemed not to constitute supplements, modifications or amendments to this Agreement. Any waiver by either party of any breach by the other party of any provision contained in this Agreement to be performed by the other party must be in writing and signed by the waiving party or such party’s successor or legal representative, and no such waiver shall be deemed a waiver of similar or other provisions at the same or any prior or subsequent time.
(j) Indemnification by Other Parties. Notwithstanding the foregoing, to the extent that the Trustee is entitled to indemnification by Putnam Investment Management, LLC or one of its affiliates other than a Trust for any Expenses as to which the Trustee also would be entitled to indemnification by the Trust, such as a result of material violations of federal securities laws and regulations by Putnam Investment Management, LLC or one of its affiliates, (a) such other party and not the Trust shall be the indemnitor of first resort for its Designated Share (as defined below) of any Expenses; (b) any amount that the Trust is otherwise obligated to pay with respect to indemnification or advancement of such Expenses shall be reduced by the amount such Trustee receives in respect of such indemnification or advancement of such other party’s Designated Share of any Expenses from such other party; (c) the Trustee shall be required first to exhaust rights or remedies with respect to indemnification or advancement provided by such other party in respect of such other party’s Designated Share of any Expenses before the Trust makes any payment to the Trustee in respect of such other party’s Designated Share of any Expenses; (d) if the other party does not pay such indemnification or advancement to or on behalf of the Trustee for any reason, the Trustee shall be entitled to pursue such other party for any rights to indemnification or advancement of such other party’s Designated Share of any Expenses; and (e) if the Trust indemnifies the Trustee or advances payment to the Trustee with respect to Expenses, and the Trustee is entitled to indemnification or advancement from such other party, the Trustee shall agree with the Trust that (x) the Trust be subrogated to all rights of the Trustee to indemnification or advancement from such other party with respect to such
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payment of such other party’s Designated Share of any Expenses; (y) the Trustee shall assign to the Trust all of the Trustee’s rights to indemnification and advancement from such other party of such other party’s Designated Share of any Expenses; and (z) the Trustee shall execute all documents and take all other actions appropriate to effectuate the foregoing clauses (x) and (y). The term “Designated Share” shall be determined by a majority of the Board and shall represent a percentage amount ranging from zero to 100 percent.
(k) Headings. The headings of the Sections of this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.
(l) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original, and all of which when taken together shall constitute one document.
(m) Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of The Commonwealth of Massachusetts without reference to principles of conflict of laws. The Trusts and the Trustee submit to the jurisdiction of all state and federal courts sitting in The Commonwealth of Massachusetts.
(n) WAIVER OF RIGHT TO JURY TRIAL. BY EXECUTING THIS AGREEMENT, THE PARTIES KNOWINGLY AND WILLINGLY WAIVE ANY RIGHT THEY HAVE UNDER APPLICABLE LAW TO A TRIAL BY JURY IN ANY DISPUTE ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE ISSUES RAISED BY THAT DISPUTE.
(o) Disclaimer. A copy of the Agreement and Declaration of Trust of each Trust, as amended or restated from time to time, is on file with the Secretary of the Commonwealth of The Commonwealth of Massachusetts. Notice is hereby given, and it is expressly agreed, that the obligations under this Agreement of any such Trust shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of such Trust personally, but bind only the assets and property of such Trust.
7. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
(a) “Board” means the Board of Trustees of the Trusts.
(b) “Disabling Conduct” shall be as defined in Section 1.
(c) “Disinterested Trustee” shall mean a Trustee of a Trust who is an Independent Trustee and who is not a party to the Proceeding with respect to which indemnification or advances are sought.
(d) “Expenses” include but are not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Trustee in connection with the defense or disposition of any Proceeding, in which such Trustee
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may be or may have been involved as a party or otherwise or with which such Trustee may be or may have been threatened, while in office or thereafter.
(e) “Final adjudication” or “judgment” shall mean a final adjudication by court order or judgment of the court or other body before which a matter is pending, from which no further right of appeal or review exists.
(f) “Independent Counsel” shall mean a law firm, or a member of a law firm, that is experienced in matters of investment company law and neither at the time of designation is, nor in the five years immediately preceding such designation was, retained to represent (A) the relevant Trust or the Trustee in any matter material to either (other than in his or her capacity as Trustee), except that a majority of the Disinterested Trustees (or all of the Independent Trustees, if there are no Disinterested Trustees with respect to the matter in question) may determine, in their sole discretion, that any prior representation of the relevant Trust or Trustee shall not disqualify such law firm or a member of a law firm from representation if the prior representation is not related to the issue in dispute, or (B) any other party to the Proceeding (or any party reasonably expected to become a party to the Proceeding) giving rise to a claim for indemnification or advancements hereunder (other than another Trustee in his or her capacity as a Trustee). Notwithstanding the foregoing, however, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Trust or the Trustee in an action to determine the Trustee’s rights pursuant to this Agreement, regardless of when the Trustee’s act or failure to act occurred.
(g) “Independent Trustee” shall mean a Trustee of the relevant Trust who is not an “interested person” of the Trust as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended.
(h) The term “Proceeding” means any threatened, pending, or contemplated action, suit, or proceeding, including appeals, whether civil, criminal, administrative, arbitrative, or investigative and whether formal or informal, before any court or administrative or legislative or other body and shall also include any proceeding brought by or in the right of a Trust.
(i) The Trustee’s “service to the Trust” shall include without limitation the Trustee’s status or service as a Trustee, officer, employee, agent or representative of the relevant Trust, and his or her service at the request of the Trust as a Trustee, officer, employee, agent or representative of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth below.
Dated: _____________, 2016 | ||
THE PUTNAM FUNDS, listed on Exhibit A | ||
By:_____________________________ | ||
Name:___________________________ | ||
Title:____________________________ | ||
Address for notices: | ||
One Post Office Square | ||
Boston, MA 02109 | ||
TRUSTEE: | ||
| ||
Name: | ||
Address for notices: | ||
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PUTNAM FUNDS |
As of March 18, 2016 |
Putnam American Government Income Fund |
Putnam Arizona Tax Exempt Income Fund |
Putnam Asset Allocation Funds |
Putnam California Tax Exempt Income Fund |
Putnam Convertible Securities Fund |
Putnam Diversified Income Trust |
Putnam Equity Income Fund |
Putnam Europe Equity Fund |
Putnam Funds Trust |
George Putnam Balanced Fund |
Putnam Global Equity Fund |
Putnam Global Health Care Fund |
Putnam Global Income Trust |
Putnam Global Natural Resources Fund |
Putnam Global Utilities Fund |
The Putnam Fund for Growth and Income |
Putnam High Income Securities Fund |
Putnam High Yield Advantage Fund |
Putnam High Yield Trust |
Putnam Income Fund |
Putnam International Equity Fund |
Putnam Investment Funds |
Putnam Investors Fund |
Putnam Managed Municipal Income Trust |
Putnam Massachusetts Tax Exempt Income Fund |
Putnam Master Intermediate Income Trust |
Putnam Municipal Opportunities Trust |
Putnam Michigan Tax Exempt Income Fund |
Putnam Minnesota Tax Exempt Income Fund |
Putnam Money Market Fund |
Putnam Mortgage Recovery Fund |
Putnam Multi-Cap Growth Fund |
Putnam New Jersey Tax Exempt Income Fund |
Putnam New York Tax Exempt Income Fund |
Putnam Ohio Tax Exempt Income Fund |
Putnam Pennsylvania Tax Exempt Income Fund |
Putnam Premier Income Trust |
Putnam RetirementReady® Funds |
Putnam Tax Exempt Income Fund |
Putnam Tax Exempt Money Market Fund |
Putnam Tax-Free Income Trust |
Putnam U.S. Government Income Trust |
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Putnam Variable Trust |
Putnam Voyager Fund |
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List of Trustees who have signed an Indemnification Agreement:
Liaquat Ahamed
Ravi Akhoury
Jameson A. Baxter
Barbara M. Baumann
Robert J. Darretta
Katinka Domotorffy
John A. Hill
Paul L. Joskow
Kenneth R. Leibler
Robert E. Patterson
George Putnam, III
Robert L. Reynolds
W. Thomas Stephens
[GRAPHIC OMITTED: PUTNAM INVESTMENTS LOGO]
June 24, 2016 | ||
Putnam Funds | ||
One Post Office Square | ||
Boston, Massachusetts 02109 |
Ladies and Gentlemen:
Putnam Investment Management, LLC (“ PIM”) hereby contractually agrees, as of the date hereof, with respect to the funds specified below, to waive fees and reimburse certain expenses in the manner provided below:
1. Other expenses. a. PIM agrees to waive fees and/or reimburse expenses of each open-end fund listed on Schedule A and each variable trust fund listed on Schedule B to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses (including borrowing costs, i.e. , short selling and lines of credit costs), extraordinary expenses, acquired fund fees and expenses, and payments under the fund’s investor servicing contract, the fund’s investment management contract (including any applicable performance-based upward or downward adjustment to a fund’s base management fee), and the fund’s distribution plans, to an annual (measured on a fiscal year basis) rate of 0.20% of the fund’s average net assets. This contractual waiver will remain in effect for a fund through the expiration of one year following the effective date of the next annual update of the fund’s registration statement. b. Effective September 1, 2016, PIM agrees to waive fees and/or reimburse expenses of Putnam Dynamic Asset Allocation Equity Fund to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses (including borrowing costs, i.e. , short selling and lines of credit costs), extraordinary expenses, acquired fund fees and expenses, and payments under the fund’s investor servicing contract, the fund’s investment management contract, and the fund’s distribution plans, to an annual (measured on a fiscal year basis) rate of 0.02% of the fund’s average net assets. This contractual waiver will remain in effect for the fund through September 30, 2017, which is the expiration of the one-year period following the effective date of the next annual update of the fund’s registration statement.
2. Fund-specific expense limitations. a. As set forth in the table below, PIM agrees to waive fees and/or reimburse expenses of each fund set forth below to the extent that the total annual fund operating expenses for the fund -- exclusive of payments under the fund’s distribution plans, any applicable performance-based upward or downward adjustment to the fund’s base management fee, brokerage, interest, taxes,
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investment-related expenses (including borrowing costs, i.e. , short selling and lines of credit costs), extraordinary expenses, and acquired fund fees and expenses – would exceed the specified rate through the specified date, which is the expiration of the one-year period following the effective date of the next annual update of each fund’s registration statement:
Fund | Proposed | Expiration |
Contractual | ||
Limitation on Total | ||
Fund Operating | ||
Expenses | ||
| ||
Putnam Emerging Markets Income Fund | 1.00% | March 30, 2018 |
| ||
Putnam Global Dividend Fund | 1.15% | March 30, 2018 |
| ||
Putnam Intermediate-Term Municipal Income | 0.60% | March 30, 2018 |
Fund | ||
| ||
Putnam Low Volatility Equity Fund | 0.95% | Nov. 30, 2017 |
| ||
Putnam Retirement Income Fund Lifestyle 2 | 0.45% | Dec. 30, 2017 |
| ||
Putnam Retirement Income Fund Lifestyle 3 | 0.75% | June 30, 2017 |
| ||
Putnam Short-Term Municipal Income Fund | 0.35% | March 30, 2018 |
| ||
Putnam Strategic Volatility Equity Fund | 1.05% | Nov. 30, 2017 |
| ||
Putnam Mortgage Opportunities Fund | 0.05%1 | Sept. 30, 2017 |
| ||
Putnam VT Absolute Return 500 Fund | 0.90% | April 30, 2018 |
b. As set forth in the table below, PIM agrees to waive fees and/or reimburse expenses of each fund set forth below to the extent that the total annual fund operating expenses for the fund – exclusive of payments under the fund’s distribution plans, payments under the fund’s investor servicing contract, any applicable performance-based upward or downward adjustment to the fund’s base management fee, brokerage, interest, taxes, investment-related expenses (including borrowing costs, i.e. , short selling and lines of credit costs), extraordinary expenses, and acquired fund fees and expenses – would exceed the specified rate through the specified date, which is the expiration of the one-year period following the effective date of the next annual update of each fund’s registration statement:
Fund | Proposed | Expiration |
Contractual | ||
Limitation on Total | ||
Fund Operating | ||
Expenses | ||
| ||
Putnam Absolute Return 500 Fund | 0.77% | Feb. 28, 2018 |
| ||
Putnam Absolute Return 700 Fund | 0.97% | Feb. 28, 2018 |
|
1 With respect to Putnam Mortgage Opportunities Fund, the expense limitation applies to the total fund operating expenses excluding payments under the management contract; brokerage; interest; taxes; investment-related expenses; extraordinary expenses; and acquired fund fees and expenses.
-2- |
Fund | Proposed | Expiration |
Contractual | ||
Limitation on Total | ||
Fund Operating | ||
Expenses | ||
| ||
Putnam Dynamic Risk Allocation Fund | 0.70% | Sept. 30, 2017 |
| ||
Putnam Short Duration Income Fund | 0.24% | Nov. 30, 2017 |
1. Putnam Money Market Liquidity Fund and Putnam Short Term Investment Fund .
PIM agrees to waive the contractual management fee of 0.25% for Putnam Money Market Liquidity Fund and Putnam Short Term Investment Fund through January 30, 2018 and November 30, 2017, respectively, the expiration of the one-year period following the effective date of the next annual update of each fund’s registration statement.
2. Fund of Funds. PIM agrees to reimburse the Putnam fund-of-funds specified below for all other expenses – exclusive of payments under the fund’s distribution plans, brokerage, interest, taxes, investment-related expenses, extraordinary expenses, and acquired fund fees and expenses – through the dates indicated below, which equate to the expiration of the one-year period following the effective date of the next annual update of each fund’s registration statement. Effective September 1, 2016, the expense reimbursement for each of Putnam Retirement Income Fund Lifestyle 1 and the Putnam RetirementReady® Funds will also be exclusive of payments under the fund’s investor servicing contract.
Fund | Expiration |
| |
Putnam Global Sector Fund | Feb. 28, 2018 |
| |
Putnam Retirement Income Fund Lifestyle 1 | Nov. 30, 2017 |
| |
Putnam RetirementReady® Funds | Nov. 30, 2017 |
|
Effective June 24, 2016, this contractual undertaking supersedes any prior contractual expense limitation provisions between PIM and the funds. This undertaking shall be binding upon any successors and assignees of PIM.
A copy of the Declaration of Trust (including any amendments thereto) of each of The Putnam Funds is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of each Putnam Fund as trustees and not individually and that the obligations of or arising out of this instrument are not binding upon any of the Trustees or officers or shareholders individually, but binding only upon the assets and property of each Putnam Fund with respect to its obligations under this instrument. Furthermore, notice is given that the assets and liabilities of each series of each Putnam Fund that is a series company are separate and distinct and that the obligations of or arising out of this instrument are several and not joint or joint and several and are binding only on the assets of each series with respect to its obligations under this instrument. Each fund is
-3- |
acting on its own behalf separately from all of the other investment companies and not jointly or jointly and severally with any of the other investment companies.
Very truly yours, | ||
PUTNAM INVESTMENT MANAGEMENT, LLC | ||
By: /s/ James P.Pappas | ||
James P. Pappas | ||
Director of Trustee Relations and | ||
Authorized Person |
-4- |
Agreed and accepted by each Putnam fund listed on Schedule A, Schedule B and Schedule C | |
By: | /s/ Jonathan S. Horwitz |
Jonathan S. Horwitz | |
Executive Vice President, Principal | |
Executive Officer, and Compliance | |
Liaison |
-5- |
Schedule A |
Putnam American Government Income Fund | |
Putnam Arizona Tax Exempt Income Fund | |
Putnam California Tax Exempt Income Fund | |
Putnam Convertible Securities Fund | |
Putnam Diversified Income Trust | |
Putnam Asset Allocation Funds | |
- Putnam Dynamic Asset Allocation Balanced Fund | |
- Putnam Dynamic Asset Allocation Conservative Fund | |
- Putnam Dynamic Asset Allocation Growth Fund | |
Putnam Equity Income Fund | |
Putnam Europe Equity Fund | |
Putnam Funds Trust | |
- Putnam Absolute Return 100 Fund | |
- Putnam Absolute Return 300 Fund | |
- Putnam Absolute Return 500 Fund | |
- Putnam Absolute Return 700 Fund | |
- Putnam Asia Pacific Equity Fund | |
- Putnam Capital Spectrum Fund | |
- Putnam Dynamic Risk Allocation Fund | |
- Putnam Emerging Markets Equity Fund | |
- Putnam Emerging Markets Income Fund | |
- Putnam Equity Spectrum Fund | |
- Putnam Floating Rate Income Fund | |
- Putnam Global Consumer Fund | |
- Putnam Global Dividend Fund | |
- Putnam Global Energy Fund | |
- Putnam Global Financials Fund | |
- Putnam Global Industrials Fund | |
- Putnam Global Technology Fund | |
- Putnam Global Telecommunications Fund | |
- Putnam Intermediate-Term Municipal Income Fund | |
- Putnam International Value Fund | |
- Putnam Low Volatility Equity Fund | |
- Putnam Mortgage Opportunities Fund | |
- Putnam Multi-Cap Core Fund | |
- Putnam Retirement Income Fund Lifestyle 2 | |
- Putnam Retirement Income Fund Lifestyle 3 | |
- Putnam Short Duration Income Fund | |
-Putnam Short-Term Municipal Income Fund | |
- Putnam Small Cap Growth Fund | |
- Putnam Strategic Volatility Equity Fund | |
George Putnam Balanced Fund | |
Putnam Global Equity Fund | |
Putnam Global Health Care Fund | |
Putnam Global Income Trust | |
Putnam Global Natural Resources Fund | |
Putnam Global Utilities Fund |
-6- |
The Putnam Fund for Growth and Income | |
Putnam High Yield Advantage Fund | |
Putnam High Yield Trust | |
Putnam Income Fund | |
Putnam International Equity Fund | |
Putnam Investment Funds | |
-Putnam Capital Opportunities Fund | |
-Putnam Government Money Market Fund | |
-Putnam Growth Opportunities Fund | |
-Putnam International Capital Opportunities Fund | |
-Putnam International Growth Fund | |
-Putnam Multi-Cap Value Fund | |
-Putnam Research Fund | |
-Putnam Small Cap Value Fund | |
Putnam Investors Fund | |
Putnam Massachusetts Tax Exempt Income Fund | |
Putnam Michigan Tax Exempt Income Fund | |
Putnam Minnesota Tax Exempt Income Fund | |
Putnam Money Market Fund | |
Putnam Multi-Cap Growth Fund | |
Putnam New Jersey Tax Exempt Income Fund | |
Putnam New York Tax Exempt Income Fund | |
Putnam Ohio Tax Exempt Income Fund | |
Putnam Pennsylvania Tax Exempt Income Fund | |
Putnam Tax Exempt Income Fund | |
Putnam Tax-Free Income Trust | |
-Putnam AMT-Free Municipal Fund | |
-Putnam Tax-Free High Yield Fund | |
Putnam U.S. Government Income Trust | |
Putnam Voyager Fund |
-7- |
Schedule B |
Putnam Variable Trust | |
-Putnam VT Absolute Return 500 Fund | |
-Putnam VT American Government Income Fund | |
-Putnam VT Capital Opportunities Fund | |
-Putnam VT Diversified Income Fund | |
-Putnam VT Equity Income Fund | |
-Putnam VT George Putnam Balanced Fund | |
-Putnam VT Global Asset Allocation Fund | |
-Putnam VT Global Equity Fund | |
-Putnam VT Global Health Care Fund | |
-Putnam VT Global Utilities Fund | |
-Putnam VT Growth and Income Fund | |
-Putnam VT Growth Opportunities Fund | |
-Putnam VT High Yield Fund | |
-Putnam VT Income Fund | |
-Putnam VT International Equity Fund | |
-Putnam VT International Growth Fund | |
-Putnam VT International Value Fund | |
-Putnam VT Investors Fund | |
-Putnam VT Government Money Market Fund | |
-Putnam VT Multi-Cap Growth Fund | |
-Putnam VT Multi-Cap Value Fund | |
-Putnam VT Research Fund | |
-Putnam VT Small Cap Value Fund | |
-Putnam VT Voyager Fund |
-8- |
Schedule C |
Other Funds Subject to Expense Limitations
Putnam Global Sector Fund | |
Putnam Funds Trust | |
- Putnam Dynamic Asset Allocation Equity Fund | |
- Putnam Money Market Liquidity Fund | |
- Putnam Short Term Investment Fund | |
Putnam RetirementReady Funds | |
- Putnam Retirement Income Fund Lifestyle 1 | |
- Putnam RetirementReady 2060 Fund | |
- Putnam RetirementReady 2055 Fund | |
- Putnam RetirementReady 2050 Fund | |
- Putnam RetirementReady 2045 Fund | |
- Putnam RetirementReady 2040 Fund | |
- Putnam RetirementReady 2035 Fund | |
- Putnam RetirementReady 2030 Fund | |
- Putnam RetirementReady 2025 Fund | |
- Putnam RetirementReady 2020 Fund |
-9- |
[GRAPHIC OMITTED: PUTNAM INVESTMENTS LOGO]
June 24, 2016 |
Ladies and Gentlemen:
Putnam Investor Services, Inc. (“PSERV”) hereby contractually agrees, as of the date hereof, with respect to all Putnam-sponsored open-end registered investment companies listed on Schedule A, that the aggregate investor servicing fees attributable to DC Accounts or Non-DC Accounts for each fund will not exceed the annual rate set forth below of the fund’s average daily net assets attributable to DC Accounts or Non-DC Accounts (as determined before taking into account any expense reduction or other benefit attributable to balance credits or brokerage credits).
Annual Rate:
For periods prior to September 1, 2016: 0.320%
For periods including and following September 1, 2016: 0.250%
This contractual waiver will remain in effect for each fund through [August 31, 2018].
Any capitalized term not defined herein shall have the meaning assigned to the term in the Compensation Memorandum dated September 1, 2016.
Effective June 24, 2016, this contractual undertaking supersedes any prior contractual expense limitation provisions between PSERV and the funds. This undertaking shall be binding upon any successors and assignees of PSERV.
A copy of the Declaration of Trust (including any amendments thereto) of each of The Putnam Funds is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of each Putnam Fund as trustees and not individually and that the obligations of or arising out of this instrument are not binding upon any of the Trustees or officers or shareholders individually, but binding only upon the assets and property of each Putnam Fund with respect to its obligations under this instrument. Furthermore, notice is given that the assets and liabilities of each series of each Putnam Fund that is a series company are separate and distinct and that the obligations of or arising out of this instrument are several and not joint or joint and several and are binding only on the assets of each series with respect to its obligations under this instrument. Each fund is acting on its own behalf separately from all of the other investment companies and not jointly or jointly and severally with any of the other investment companies.
Very truly yours, | ||
PUTNAM INVESTOR SERVICES, INC. | ||
By: | /s/ Steven D. Krichmar | |
Name: Steven D. Krichmar | ||
Title: President |
Agreed and accepted by each Putnam open-end fund listed on Schedule A
By: | /s/ Jonathan S. Horwitz | |
Name: | Jonathan S. Horwitz | |
Title: | Executive Vice President, Principal Executive Officer and Compliance Liaison |
Schedule A |
Putnam American Government Income Fund | |
Putnam Arizona Tax Exempt Income Fund | |
Putnam California Tax Exempt Income Fund | |
Putnam Convertible Securities Fund | |
Putnam Diversified Income Trust | |
Putnam Asset Allocation Funds | |
-Putnam Dynamic Asset Allocation Balanced Fund | |
-Putnam Dynamic Asset Allocation Conservative Fund | |
-Putnam Dynamic Asset Allocation Growth Fund | |
Putnam Equity Income Fund | |
Putnam Europe Equity Fund | |
Putnam Funds Trust | |
-Putnam Absolute Return 100 Fund | |
-Putnam Absolute Return 300 Fund | |
-Putnam Absolute Return 500 Fund | |
-Putnam Absolute Return 700 Fund | |
-Putnam Asia Pacific Equity Fund | |
-Putnam Capital Spectrum Fund | |
-Putnam Dynamic Asset Allocation Equity Fund | |
-Putnam Dynamic Risk Allocation Fund | |
-Putnam Emerging Markets Equity Fund | |
-Putnam Emerging Markets Income Fund | |
-Putnam Equity Spectrum Fund | |
-Putnam Floating Rate Income Fund | |
-Putnam Global Consumer Fund | |
-Putnam Global Dividend Fund | |
-Putnam Global Energy Fund | |
-Putnam Global Financials Fund | |
-Putnam Global Industrials Fund | |
-Putnam Global Technology Fund | |
-Putnam Global Telecommunications Fund | |
-Putnam Intermediate-Term Municipal Income Fund | |
-Putnam International Value Fund | |
-Putnam Low Volatility Equity Fund | |
-Putnam Multi-Cap Core Fund | |
-Putnam Retirement Income Fund Lifestyle 2 | |
-Putnam Retirement Income Fund Lifestyle 3 | |
-Putnam Short Duration Income Fund | |
-Putnam Short-Term Municipal Income Fund | |
-Putnam Small Cap Growth Fund | |
-Putnam Strategic Volatility Equity Fund | |
George Putnam Balanced Fund | |
Putnam Global Equity Fund | |
Putnam Global Health Care Fund |
Putnam Global Income Trust | |
Putnam Global Natural Resources Fund | |
Putnam Global Utilities Fund | |
The Putnam Fund for Growth and Income | |
Putnam High Yield Advantage Fund | |
Putnam High Yield Trust | |
Putnam Income Fund | |
Putnam International Equity Fund | |
Putnam Investment Funds | |
-Putnam Capital Opportunities Fund | |
-Putnam Growth Opportunities Fund | |
-Putnam International Capital Opportunities Fund | |
-Putnam International Growth Fund | |
-Putnam Multi-Cap Value Fund | |
-Putnam Research Fund | |
-Putnam Small Cap Value Fund | |
Putnam Investors Fund | |
Putnam Massachusetts Tax Exempt Income Fund | |
Putnam Michigan Tax Exempt Income Fund | |
Putnam Minnesota Tax Exempt Income Fund | |
Putnam Money Market Fund | |
Putnam Multi-Cap Growth Fund | |
Putnam New Jersey Tax Exempt Income Fund | |
Putnam New York Tax Exempt Income Fund | |
Putnam Ohio Tax Exempt Income Fund | |
Putnam Pennsylvania Tax Exempt Income Fund | |
Putnam Tax Exempt Income Fund | |
Putnam Tax-Free Income Trust | |
-Putnam AMT-Free Municipal Fund | |
-Putnam Tax-Free High Yield Fund | |
Putnam U.S. Government Income Trust | |
Putnam Voyager Fund |
Putnam Investments | |
One Post Office Square | |
Boston, MA 02109 | |
January 31, 2017 |
VIA EDGAR
Jaea Hahn, Esquire
U.S. Securities and Exchange Commission
Division of Investment Management
100 F Street, NE
Washington, DC 20549
RE: | Putnam Equity Income Fund (Investment Company Act File No. 811-02742)—Registration Statement on |
Form N-14 |
Dear Ms. Hahn:
Enclosed for filing on behalf of Putnam Equity Income Fund (the “Fund”) is a registration statement on Form N-14 (the “Registration Statement”). The Registration Statement relates to the merger of The Putnam Fund for Growth and Income into the Fund.
No registration fee is being paid at the time of filing because the Fund has previously filed an election, under Rule 24f-2 under the Investment Company Act of 1940, as amended, to register an indefinite number of shares of the Fund.
The Registration Statement is proposed to become effective thirty days after filing, March 2, 2017, pursuant to Rule 488 under the Securities Act of 1933, as amended.
I may be reached at 1-617-760-2577, to discuss this matter further. Thank you in advance for your assistance.
Very truly yours, | |
/s/ Venice Monagan | |
Venice Monagan |
Enclosure | |
cc: | Bryan Chegwidden, Esquire, Ropes & Gray LLP |
James Thomas, Esquire, Ropes & Gray LLP | |
Peter Fariel, Esquire, Putnam Investments |